Citing financial pressures and operating losses, Nicklaus Children’s Hospital and Jackson Health System — among Miami-Dade’s largest employers — are expected to announce layoffs and other cutbacks in the coming weeks.
In a memo to staff obtained by the Miami Herald, Nicklaus Children’s executives said they will eliminate pay raises this year for all employees, reduce pension contributions and limit new hires to workers who provide direct service to patients.
Nicklaus Children’s employs about 3,500 workers. Employee pay and benefits make up about 57 percent of the hospital system’s operating expenses, according to the memo.
“As a result, the business need to lower our operating expenses also requires that we reduce the size of our workforce,” states the memo from CEO Narendra Kini.
Rachel Perry, a Nicklaus spokeswoman, said in a written statement that the cutbacks and layoffs are “difficult, but necessary ... to preserve the financial health of our organization and the vital services we provide to the children of our community.”
Perry’s statement, and the memo to Nicklaus staff, cited changes in the healthcare industry that are causing pain for many hospitals, including “reductions in reimbursement... a shift from inpatient services to outpatient care, and financial pressures due to rising costs and increased competition.”
Layoffs are also expected at Jackson Health System, Miami-Dade’s taxpayer-owned hospital network, which employs about 12,500 full-time workers and laid off about 30 employees — non-unionized administrative workers and executives — two weeks ago.
Mark Knight, chief financial officer, said Jackson Health is in the process of sending notices to 130 union workers who will be reassigned or laid off.
“About 100 of them are going to be offered positions,” Knight said. “That doesn’t mean they will take them. That means they will have a place to land. We think about 30 people will not have a position.”
Of the 130 Jackson Health workers who will receive notices, Knight said, about 50 do not provide direct patient services. “The others are a combination of nursing and other ancillary services,” he said.
Knight said the public hospital system, which has an annual budget of about $2 billion, has been squeezed by two developments. More uninsured patients have not been not qualifying for Medicaid. And insurers have been rejecting overnight stays for patients who come in through the emergency room, and paying the hospital system significantly less.
A patient who visits the emergency room with chest pains, Knight said, might be kept overnight while doctors run tests. But over the past year, he said, insurers have been categorizing them as observations instead of paying them as overnight stays.
“They’re treated the same. We staff the same. We feed them the same,” Knight said of those patients. “But reimbursement is 20 to 25 percent of what it would have been had it have been a full admission.”
Healthcare and hospital experts say dwindling patient admissions, declining payments from insurers, proposed cuts to Medicare and Medicaid and advances in technology all have contributed financial pain to the nation’s hospitals.
“The operating margin for hospitals nationwide is sitting at about 2.56 percent, which is not too far from zero,” said Steven Ullmann, a professor and chair of the department of health sector management and policy at the University of Miami’s School of Business.
In some respects, Nicklaus Children’s and Jackson Health are the canaries in Florida’s healthcare coal mine: hospitals that serve large numbers of patients with Medicaid, the public health insurance program for low-income and disabled Americans, which tends to be the lowest-paying insurer in a state with a rising uninsured rate.
Nicklaus executives have estimated that about 70 percent of their patient population receives Medicaid while Jackson Health reports that nearly half of its patients are insured by the program.
In Florida, as in many states, Medicaid is managed largely by private insurers that receive a fixed payment per person. Those insurers are motivated to control spending — delaying approvals for services, denying claims and deferring care — because they pay for any costs above the fixed payment set by the state. That affects hospitals.
“There’s more of a focus on how to keep the spending down,” Ullmann said.
Adding to the financial pressure is Florida’s high rate of uninsured residents. Nearly 3 million Floridians — about 14 percent of the state’s population — had no health insurance in 2017, according to the U.S. Census.
Because Florida’s Legislature has rejected expanding eligibility for Medicaid under the Affordable Care Act, the state’s low-income residents have fewer options for health insurance coverage. That means Floridians who earn less than 138 percent of the federal poverty level, about $34,600 a year for a family of four in 2018, do not qualify for Medicaid or for coverage through the ACA insurance exchange, also known as Obamacare.
When these individuals need care, Ullmann said, they tend to use the hospital emergency room.
“This is a population that’s going to be coming in to facilities that don’t have Medicaid, don’t have the exchanges and they ‘re going to need healthcare services,” he said, “and they’re not going to be able to pay for it.”
Linda Quick, a healthcare consultant and past president of the South Florida Hospital and Health Care Association, said hospital finances also are affected by the growth in competition and advances in pharmaceuticals and healthcare delivery. Those factors help keep people out of hospitals.
Cancer drugs can be administered at home or in a doctor’s office, and many patients can be sent home on the same day they undergo joint replacement or even heart surgeries that used to require days in the hospital.
“This trend is good news for everyone except the owners and operators of hospital infrastructure,” she said. “The cost of maintaining and operating these institutions is significant.”
With fewer patients spending the night at hospitals, those who do may be charged more, Quick said.
Ullmann noted that President Donald Trump’s proposed 2020 fiscal year budget also spells trouble for hospitals because of cuts to Medicare payments for hospitals and reductions to Medicaid, including a proposal to transform the program into a block grant with defined spending limits for states as opposed to the open-ended funding it currently provides.
With Medicare projected to run out of money in 2026, Ullmann said, the pressure to reduce healthcare spending is expected to increase and hospitals will feel that pressure.
“This is the tip of the iceberg,” he said.