Harris Health Layoffs May be a Bellwether for TX Safety Nets

Hospital administrators, unable to close a budget deficit, have unveiled a cost-cutting plan that eliminates 3.2% of the jobs at Houston's safety net health system.

News this week that Houston-based Harris Health System would shed 262 jobs to help cover nearly $72 million in red ink provides a stark example of the financial challenges confronting Texas's safety net hospitals, observers say.

"The state's decision to not accept Medicaid expansion or find a Texas alternative is a contributing factor to our projected budget shortfall," Harris Health spokesman Bryan McLeod says.

"So, too, is the federal government's decision to decrease the dollars available to health systems through the Disproportionate Share and Uncompensated Care programs, since Medicaid Expansion, if adopted, would be the offset for those programs."

In December, Harris Health CEO George V. Masi told staff he anticipated a "reduction in force" of about 125 jobs to cover the shortfall. That estimate more than doubled this month when hospital administrators unveiled a cost-cutting plan that eliminates 262 jobs, including 112 currently staffed positions.

"The RIF, coupled with other cost-cutting measures, is necessary as we work to close a substantial projected budget deficit for the coming fiscal year," Masi said in a notice to employees.

"We are this community's safety net health system," Masi said. "Nobody provides healthcare to those most in need better than Harris Health. We will continue to deliver high quality health services as efficiently as possible with the resources we have available."

The job cuts account for 3.2% of Harris Health's 8,237 employee positions. The reductions in workforce are not expected to affect patient care and will be finalized this week, McLeod says.

Texas is one of several Red States that has adamantly rejected Medicaid expansion money, which some studies have estimated would have brought Texas nearly $6 billion in federal matching money every year, including $782 million to $935 million in Harris County, where Houston is located.

Newly elected Texas Gov. Greg Abbott told The Wall Street Journal this week that he opposes expanding Medicaid as it exists, "but like anyone with an inquiring mind, we'll look at any idea anyone has" on how to effectively deliver healthcare.

A Bellwether?
As it stands, there does not appear to be any plan in the works to propose an alternative.

Maureen Milligan, president/CEO of Teaching Hospitals of Texas, says there is concern that Harris Health is a bellwether for Texas's six safety net hospital districts, all of which operate under similar funding schemes and which face many of the same financial challenges.

"The Texas hospital financing structure is very unstable," Milligan says. "Medicaid expansion would put a lot more money in the system. Right now you have local hospital districts paying 40% of disproportionate share and uncompensated care costs. Some of those funds would be reduced when people actually have access to healthcare under an expansion. So yes, it would definitely take the pressure on some of the financing issues."

Milligan says the political climate in Texas towards Medicaid expansion remains hostile, and that advocates should "build the business argument along with the health argument."

"You don't want to paint yourself as 'pro Obamacare.' The conversations that have to happen have to happen quietly so nobody gets a target put on their back," she says. "The goal would be to open up the conversation with business leaders in local communities saying 'This is killing us. This is a lot of money and it's good for Texas.'"

Little Relief
The not-for-profit hospital sector already faces strong headwinds, even in states that have expanded Medicaid. Standard & Poor's Rating Services this week reported that operating pressures on the sector likely would continue through 2015 and result in more ratings downgrades than upgrades for the third straight year.

"Operating margins were pressured by top-line revenue constraints, soft demand, a movement toward value- and risk-based payment structures, the impact of reform readiness activities, and the high cost of electronic medical record implementation and maintenance," S&P credit analyst Cynthia Keller said this week.

"While we have seen some relief stemming from the expansion of health insurance coverage under the Affordable Care Act which improved revenue streams at many hospitals, merger-and-acquisition activity, and strong investment markets in 2014, these forces have not been sufficient to reverse the generally negative trends driven by revenue and cost pressures."