Medical Center cuts budget by $100 million

Falling endowment prompts accelerated restructuring, may lead to hundreds of job cuts

By Michael Lipkin

The University of Chicago Medical Center will cut costs by $100 million, or almost 7 percent of its budget by 2010, and may reduce its staff significantly, the Center announced last week. It attributes the restructuring to falling investment and endowment values. It also reaffirmed its commitment to the $700-million hospital pavilion planned for 2012.

Under the plan, which took effect last Monday, the Medical Center will enact several cost-saving measures in an effort to bring down its budget, including the elimination of four vice presidents and 11 other senior executive positions. Though they could not disclose the specific positions, Medical Center representatives said the executives’ responsibilities will be taken over by other administrators.

The announcement comes after the Medical Center saw one of the most profitable years ever: it made $87.8 million in the fiscal year ending in June 2007. They have not yet released numbers for fiscal year 2008, but even those would not take into account the full effects of the recent fiscal crisis.

“These budget cuts will not be across-the-board. Whenever we can, we’re scaling back or eliminating programs that are tangential to our core mission,” said Medical Center spokesman John Easton of the $1.5 billion operating budget. “Our core medical services will remain the same.”

The hospital pavilion, announced last June, was designed to help the Medical Center keep pace with new technologies.

“Everything from June is still on the table,” Easton said. “It is considered crucial to retain our leadership position and long-term financial strength.”

Easton added that the upper-level job cuts are just the first phase of the plan.

“We would love to do this without reducing the number of positions, but we probably won’t be able to,” he said.

The Medical Center stopped hiring new employees in November, and with an annual turnover rate of about six percent, the Center’s 10,000-person staff could lose several hundred employees by the end of the year, Easton said.

“If there were further position cuts, those would happen as soon as mid-February,” Easton said.

The announcement is the latest in a series of moves by the Medical Center to reorganize since it was combined with the Biological Sciences Division three years ago in an effort to make the two administrations less redundant, Easton said. However, this budget cut—and the executive shake-up—were prompted by the recent fiscal crisis.

“There’s more pressure to do this quickly because of the economic downturn in the last six months,” Easton said. “We thought health care was not touched by recessions, but that has turned out not to be the case.”

Fewer patients are opting for elective surgeries, according to a report by the American Hospital Association, and hospitals are cutting costs nationwide.

In part because of the failing economy, Medicaid costs are hitting hospitals particularly hard. Medicaid, a government program that helps low-income families pay for health care only pays 78 percent of Medical Center costs for Medicaid patients.

“An additional issue is how quickly they pay,” Easton said. “With the current economic downturn, they have been particularly slow to pay.”

In addition, Illinois has not paid over $2 billion owed to health care providers from Medicaid patients, according to the Chicago Tribune.

Easton said that in addition to potential cuts in employment, the Medical Center will undergo several reforms to reach the desired $100 million budget reduction.

“We’ll reduce the use of outside consultants, won’t have food at lectures and hospital meetings, and we’ll have restrictions on travel,” Easton said. “It may sound like little items, but they add up.”

University spokesman Steve Kloehn said that while the University as a whole is also planning cost-cutting efforts, the University may take a wholly separate approach.

“The two are connected and work in conjunction with one another, but they have different revenue streams,” Kloehn said. “The Medical Center faces more urgent challenges due to the economic downturn. They face different challenges with different solutions.”