RALEIGH — WakeMed Health & Hospitals, one of the Triangle’s largest employers, reported its first financial loss in years on Wednesday and said its goal for the coming year is just to break even.
The Raleigh-based health care system, which last week dismissed its CEO, lost $10 million in 2013 and is implementing a number of initiatives to cut costs and raise revenue.
The 8,500-employee organization has announced layoffs of more than 100 people this year, nixed executive bonuses two years running, increased prices for hospital services, and shuttered money-losing nursing homes – all part of a multiyear strategy to stabilize its finances.
WakeMed’s board of directors on Tuesday evening approved a break-even budget for the next 12 months. In an effort to avoid additional layoffs or other drastic measures, WakeMed’s board has given the hospital system until 2015 to climb back to profitability.
“We’re not where we need to be,” said Mike DeVaughn, WakeMed’s chief financial officer. “We chose in 2014 not to push the envelope so hard and not to get there all in one year. We don’t want to make a foolish short-term decision just to accomplish a one-year budget.”
Hospitals across the state are contending with higher operating costs and lower payments from insurers and from Medicare. Hospitals are also vying with one another to attract insured patients and buying out physicians practices to gain access to those patients.
Moody’s Investors Service in August issued a hospital financial analysis, saying that in 2012 – a good year for WakeMed – expense growth surpassed revenue growth at the nation’s hospitals for the first time since 2008.
The problems caught up with WakeMed in 2013, however, putting the Raleigh system in an unfamiliar position. In recent years, the organization has grown accustomed to reporting annual profits of between $10 million and $20 million a year.
In response to similar pressures, Wake Forest Baptist Hospital is eliminating 950 positions, many of them vacant, while Cone Health in Greensboro is eliminating 300 jobs, half of them unfilled.
Duke University business professor David Ridley, director of Duke’s Health Sector Management Program, said the long-term risk for WakeMed and other hospitals with shaky finances is a lowered credit rating. A downgrade triggers other complications, such as increased borrowing costs and increased difficulty in attracting doctors with lucrative practices.
“Doctors not signing up with them is causing their problem,” Ridely said. “If they continue to sustain these losses, there could be some concern.”
Heart surgeons’ exit, rise in mentally ill care
WakeMed, Wake County’s biggest hospital system, has added some 250 doctors and 500 employees in the past few years in an effort to compete with crosstown rival Rex Hospital, which is owned by UNC Health Care.
WakeMed’s financial outlook darkened after Wake Heart & Vascular, a group of heart surgeons who had accounted for a major slice of WakeMed’s profits, defected to Rex. The group has since renamed themselves North Carolina Heart & Vascular.
WakeMed CFO DeVaughn said the loss of heart surgeons was only part of the problem. He said in the past year, WakeMed went from treating about five mentally ill patients a day to seeing between 25 and 30 turn up daily in the emergency room. Such patients are not insured and are potentially dangerous, requiring WakeMed to hire more than 130 “sitters” to provide round-the-clock surveillence “at the bedside of these patients for their own safety,” DeVaughn said.
“That cost us in excess of $4 million to do that,” he said.
DeVaughn said financial pressure also came from lowered reimbursements from commercial insurers and from Medicare, the federal program for the elderly. To compensate, WakeMed raised its bills by about 3.5 percent, he said.
DeVaughn said that WakeMed lost out on an estimated $30 million to $50 million in annual revenue when North Carolina officials, deciding not to cooperate with President Barack Obama’s Affordable Care Act, elected not to expand Medicaid, the federal assistance program for poor people.
Last week’s dismissal of 10-year CEO Bill Atkinson left the nonprofit organization leaderless going into the new fiscal year.
WakeMed said Wednesday that Tom Gettinger, WakeMed’s chief operating officer, will lead the hospital system until an interim CEO is brought on board.
WakeMed has also hired Doug Vinsel, former chief operating officer of WakeMed and recent CEO of Duke Raleigh Hospital, to advise the interim CEO once that person is hired.