GREENSBORO — In 2010, when the IRS asked Cone Health to state its mission on a non-profit tax return, this was the answer:
“We serve our communities by preventing illness, restoring health and providing comfort, through exceptional people delivering exceptional care.”
That year, Cone Health also reported a solid profit: $100.5 million, according to the American Hospital Directory.
But a lot has changed since then.
The health system said on June 19 that financial challenges, especially federal and state healthcare budget cuts, are forcing it to cut 150 employees as part of a plan to save $30 million.
In all, the healthcare system will cut 300 positions — 150 of which are vacant — to save $19 million, plus other expense reductions.
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Tim Rice, Cone Health’s CEO, said in an interview that despite the 2010 profit — a “high-water mark” he called it — Cone is operating in the red for the first few months of fiscal 2013, so it has to make cuts and find ways to save money.
Cone’s annual profit margin is usually between 3.5 and 5 percent, he said.
“Eight months into the fiscal year, we are $11 million negative,” Rice said. “We have a plan to be break even by year end.”
Perception and reality
Rice and Terry Akin, Cone’s president and chief operating officer, said the medical center was forced to make the job cuts.
The federal Affordable Care Act, budget sequestration and reductions in Medicare reimbursements will dramatically cut income in future years, he said.
And in March, Gov. Pat McCrory signed a bill that blocks a projected $15 billion a year from the federal government that would add a reported 500,000 people to the state’s Medicaid rolls.
McCrory and the bill’s supporters said the federal money could be withdrawn in the future, leaving the state to pay the bills.
“Fifteen billion from the state is now not available for Medicaid,” Akin said.
But some healthcare analysts say hospitals cut budgets only after they’ve paid high salaries, bought expensive technology and hired too many people.
“It’s almost always being blamed on sequestration or the Affordable Care Act,” said Mark Graban, a San Antonio consultant on healthcare management and author of the book “Lean Hospitals: Improving Quality, Patient Safety, and Employee Engagement.”
Said Rice: “Everybody has their perceptions, I guess, but it’s real.”
‘We take everybody’
Glenn Melnick, a health economist at RAND Corporation, a national think tank, said he has seen some hospitals around the country going so far as to cut budgets or lay off workers just to push policy makers into backing off funding cuts.
Even the broad suggestion makes Rice angry.
“That is actually insulting to me,” Rice said. “We would never do that. We have a long history of protecting jobs.”
The state made its decision months ago to pass up the federal offer of $15 billion for Medicaid expansion, he said.
“That’s a done deal,” Rice said. “We’ve got to prepare for that. We know that’s coming. We’re not trying to make a statement.”
Don Dalton, the spokesman for the NC Hospital Association, said the issue is far more serious than profit margins.
Non-profit hospitals across the state must treat anybody who walks through the door, whether they can pay or not, he said.
Cone said it lost $185 million in uncompensated care in its last fiscal year.
That’s the basic cost to treat indigent patients, not the marked-up billing rate.
And it’s money the hospital must completely write off the books, Rice said.
Dalton ticks off the state’s hospital costs from fiscal 2012:
* Hospitals spent $902 million in charity care last year with no reimbursements.
* Hospitals were reimbursed $817 million less than it cost them to treat Medicare patients.
* Hospitals were reimbursed $569 million less than it cost to treat Medicaid patients.
“We take everybody that comes in our door regardless of whether they can pay or not,” Dalton said.
Healthy salaries
Regardless of its budget problems, Cone Health’s top executives and key employees were well compensated for their services, according to a 2010 report from the IRS.
The top 26 people made a combined $8.4 million in 2010.
Rice earned $1.172 million, Akin $482,679. (Information has been corrected to fix an error. See correction at end of story. 4:18 p.m. July 2, 2013)
Are those salaries high for a non-profit?
Rice is confident they are not, given the competition for good executives in all industries.
“If I go out in the market and try to hire a CFO, I am competing with other private companies,” Rice said. “When you say our market is different, it’s not really different from the commercial market.”
Rice said executive salaries at Cone are based on national executive pay and then pegged to the hospital’s financial performance.
“Our board looks at national data,” Rice said. “We pay at the median compensation — we have a base plus incentive and in a year like this when we’re not doing well we won’t get incentives.”
Surgical cuts
Rice said the job cuts aren’t wholesale staff slashing.
“Some of this is being taken a little out of context,” Rice said.
He said out of 8,000 full-time-equivalent workers, cutting 150 people is a very serious and selective process.
But it’s a small percentage and most of the jobs are background functions.
“We’re not cutting front-end caregivers,” Rice said.
As far as workers’ morale is concerned, Rice said they’re more worried about outside threats to revenues, not by the administration’s actions.
“I spent all yesterday making rounds and talking to staff,” Rice said. “Everybody’s very nervous.”
Correction: Cone Health CEO Tim Rice’s salary is $1.172 million. A June 28 article on the front page about recent layoffs at Cone Health was incorrect.
