In attempt to stem red ink, Erlanger freezes paid time off for 4,000 employees

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WHAT'S CHANGING For Erlanger employees, "paid time off" days include vacation, sick and personal leave days, accrued every pay cycle. Erlanger is freezing paid time off for nine pay periods. All the hours employees have already accrued will remain for them to use. Employees who have already planned vacations or face "extenuating circumstances" may be allowed to have a negative paid time off balance of up to 40 hours. Employees can still sell back paid time off.

photo Erlanger CEO Kevin Spiegel

Erlanger Health System's latest strategy to staunch financial losses has hit its most personal note yet, as hospital executives have decided to freeze the paid time off accruals for 4,000 employees from now until July.

Erlanger employees used the words "defeated," "distressed" and "betrayed" when describing staff reactions to the cuts, announced Friday.

The sudden decision shows just how high stakes are becoming at the Chattanooga public hospital. Erlanger is $3.8 million in the red this fiscal year and is also feeling the weight of roughly $14 million in state, federal and insurance cuts this year, hospital executives say.

On top of that, says CEO Kevin Spiegel, Erlanger is being squeezed by a load of indigent care that has swollen every month.

The hospital anticipates spending $91 million in uncompensated care this year alone. The fact that Tennessee has still not expanded Medicaid only exacerbates the problem, he said.

"We're reacting to a much bigger issue," Spiegel said Monday. "This is what's happened to Erlanger, but it's also happening to other hospitals. ... What I really don't want to see happen is huge layoffs and service cuts. But [reimbursement] cuts on top of a growing uncompensated care pool are not sustainable."

More immediately at stake, Spiegel says, is the hospital's ability to meet its bond covenants -- which it has violated the past two years. If Erlanger can't perform up to the standards of its bondholders, sanctions could essentially result in "Wall Street running this hospital," he said.

No one -- including executive staff and doctors-- will be exempt from the freeze, which will span nine pay periods and is expected to save the hospital $5.4 million, said hospital Chief Administrative Officer Gregg Gentry.

"I get that they have to do what they need to do. I don't want it to go under," said one Erlanger nurse, who asked not to be named for fear of losing her job. "But you can't just walk in on a Friday afternoon and say this is going to be on Sunday and expect people are going to be happy about it."

Erlanger has anticipated some of the public cuts to its funding, budgeting a $5 million loss this year in the face of reimbursement reductions from the state, the federal government and commercial insurers.

But Friday's decision came after two unexpectedly bad months for Erlanger.

"We probably could have endured through this year if it wasn't for the snow days," said Spiegel, who said several days of icy roads and heavy snow left physician offices closed and trauma centers empty.

But the problem is much more significant than snow days, he said. While such days are typical during the year, Erlanger has "absolutely no cushion" to help break the fall this year.

The cuts include $8.5 million from a federal pool for hospitals that serve a large number of uninsured and Medicaid patients, which was discontinued in Tennessee this year -- along with millions more from cuts to TennCare's CoverKids program, lab payments from BlueCross BlueShield of Tennessee, and sequestration, according to Erlanger.

After the losses in January and February, the management team had to meet to "re-forecast" its financial status.

Of all potential cuts discussed -- including layoffs -- the executive staff said the decision to temporarily freeze paid time off would have the most impact on the budget while having the "least impact" on employees.

The result means "everyone has to sacrifice" to make those goals, Spiegel said.

The Erlanger nurse said the call for "sacrifice" was a bitter pill to swallow.

"You already give your life to this place," she said. "You miss holidays and you miss weekends, and you miss ballgames of your kids, and you miss family events and you come in on your days off to staff a place to make things work -- because you love what you do, and you love who you take care of, and you love your colleagues.

"You look back over the years and all the things you've given up, and then this happens, and it just feels like a sword has gone through you."

Erlanger has already made significant changes to employees' benefits this year -- phasing out its traditional pension plan in favor of 401(k)-like accounts; changing how paid leave is structured and approved; and increasing what retirees pay toward their health insurance.

But the savings from those changes and other moves, like outsourcing Erlanger's housekeeping and food services, will not begin to show fruit until the next fiscal year begins in July, Spiegel says.

Erlanger's board of trustees was not involved in the decision to freeze paid time off, though they have been made aware of it, said Board Chairman Donnie Hutcherson.

Hutcherson said while Spiegel's decision "is not easy for the hospital or employees," the hospital would be put in "a serious situation if we tripped our bond covenants again."

"Between the amount of indigent care we're having to pick up now, and the failure to expand Medicaid, burden on the hospital has increased," Hutcherson said. "When your revenue stream starts to disappear and your indigent care increases -- there's just not a lot of give."


Other hospitals in Tennessee have taken similar or more drastic measures with their employees in the past year.

At Vanderbilt University Medical Center, more than 1,000 people were laid off last year, and the hospital also froze paid time off accrual for a quarter. West Tennessee Healthcare, which runs Jackson-Madison County General Hospital, reduced its paid time off by 50 percent indefinitely.

"Everybody's scrambling because there's these cuts coming out of the Affordable Care Act, and we don't have Medicaid expansion," said Tennessee Hospital Association President Craig Becker. "I can't even call it a double-whammy anymore. It's too many whammies coming at everybody. It's getting ridiculous."

Becker said freezing paid time off was better than layoffs or service cuts, but this move could be "just the first stop along the line" if Medicaid is not expanded.

Erlanger's plan to freeze the accruals temporarily could be shorter, says Spiegel, if the hospital is able to access money from several pools of public funds it is lobbying hard to tap into.

For the past several months, Spiegel has been pounding pavement and pressing flesh in Chattanooga, Nashville and Washington, D.C., as he and other hospital officials seek new or renewed funding sources.

photo The Erlanger hospital campus is shown from South Crest Drive.

Spiegel says he is looking for breakthroughs maybe as early as next week.

At that point he will travel to Washington with leaders from TennCare and other state medical associations to meet with representatives from the U.S. Centers for Medicaid and Medicare Services (CMS).

On the docket are two discussions that could affect Erlanger's bottom line. First is the possible restoration of State Disproportionate Share money, which provides millions that hospitals split to help cover care for the uninsured.

Tennessee is the only state that did not have that fund restored this year. Because of the way its particular fund is structured, it has to be approved each year by Congress -- and "Congress has been in gridlock," Becker said.

Second is getting Erlanger included in a funding mechanism called the Public Hospital Supplemental Payment Pool.

The mechanism, which the Regional Medical Center in Memphis and Nashville General Hospital already use, allows public hospitals to transfer money they receive from local government entities and have that money nearly tripled through a series of federal and state exchanges.

Erlanger's waiver attempting to tap into that pool already has Gov. Bill Haslam's approval, but is awaiting CMS approval. And Spiegel says he is already asking Hamilton County and Chattanooga to increase their annual contribution to the hospital, so as to increase the amount Erlanger could draw from the pool.

Hamilton County gives $1.5 million a year, while Chattanooga ceased making contributions three years ago.

So far, Chattanooga and Hamilton County mayors have publicly been noncommittal about budgeting more money for the troubled hospital, though they each said they had discussed the measure with Spiegel.

"I know he has a plan that requests a $10 million local match," Chattanooga Mayor Andy Berke said. "We'll consider a request. I don't think [hospital officials] have filed anything through the budgeting for outcomes process."

Hamilton County Mayor Jim Coppinger said while he has talked with Spiegel about the request, it is "premature to make a determination" about a funding increase.

"I will say this -- Erlanger is extremely important not only to this county, but to the region. It's a large employer in this county, and it generates an economic impact of over $1 billion. It's very important."

Beyond his efforts to access more funds, Spiegel said he plans to advocate harder this year for Medicaid expansion -- something he said would make conditions at Erlanger not just better, but "great."

"To bear the expense of uncompensated care without the ability to say no, it's not going to work," he said. "We have to be able to change what we're doing. ... And we can't do it on the backs of our employees, and we can't do it on the backs of our community."

The nurse at Erlanger says she's been told that the Chattanooga hospital is not the only one facing challenges.

"It may be the status of the health care industry," she said. "But that doesn't make this any easier."

Contact staff writer Kate Harrison at kharrison or 423-757-6673.