Erlanger furloughs staff as COVID-19 preparations cause 30 to 40% drop in revenue

Staff photo by C.B. Schmelter / Erlanger Baroness is seen from Missionary Ridge on Friday, March 27, 2020 in Chattanooga, Tenn.
Staff photo by C.B. Schmelter / Erlanger Baroness is seen from Missionary Ridge on Friday, March 27, 2020 in Chattanooga, Tenn.

Erlanger Health System has enacted a "temporary expense reduction plan" by furloughing some administrative employees, cutting leadership pay, reducing overtime, suspending vacation accruals, suspending job recruitment for administrative positions and suspending retirement contributions by the company.

Erlanger officials announced the move in a news release Monday, citing lost revenue from suspending elective procedures during the global pandemic. Multiple officials at Erlanger, a public hospital system, did not respond to questions by Monday evening about how many employees and which departments were affected.

Hospitals have placed non-emergency procedures and surgeries on hold in order to free capacity and save vital supplies for an anticipated surge in COVID-19 patients. In addition, paring down to essential services reduces the chance of people contracting or unknowingly spreading the virus within the hospital.

Losing those key sources of income while shifting operations to test and treat COVID-19 patients led to a 30% to 40% drop in Erlanger's revenue within days, according to Erlanger President and CEO Dr. Will Jackson.

"The sudden and unexpected COVID-19 pandemic has already cost Erlanger millions of dollars in the past week alone," Jackson said in the release. "This is revenue critical to paying our 7,000-plus employees and continuing to treat Chattanooga's most vulnerable and acutely ill populations. We recognize that financial hardships are faced by many businesses and individuals today. We are optimistic that Erlanger, our community and our nation will overcome this crisis and that far better days are ahead."

Erlanger leaders will also take a pay cut, according to a copy of a letter to employees from Jackson obtained by the Chattanooga Times Free Press. The letter states that Jackson will take a 15% pay reduction (his base salary is $625,000), with other executives losing 10% of their pay and remaining Erlanger leaders losing 5%.

Lost revenue from elective procedures is expected to take a significant toll on the U.S. hospital industry. A Tennessee Hospital Association spokeswoman on Monday said she wasn't aware of any other hospitals in the state that had furloughed employees but that all member hospitals are concerned about the financial impact of COVID-19. Many health systems across the country have already furloughed large numbers of non-essential and non-clinical employees.

(Read more: How prepared are Chattanooga's hospitals for coronavirus?)

Lisa McCluskey, a spokeswoman for CHI Memorial Hospital, said in an email Monday that Memorial was not planning layoffs at this time but had experienced a roughly 40% reduction in surgeries and more than 50% reduction in inpatient and observation admissions combined. Memorial is also taking a number of measures to adjust staffing in response to the lower number of patients in the hospitals, including a systemwide labor pool established to source staffing around the health system where it is most needed, McCluskey said.

Parkridge Health System officials did not not respond to questions about how the hospital is managing the cost of COVID-19 and if it was planning furloughs.

Erlanger board Chairwoman Linda Moss Mines said that just because certain positions and procedures aren't "life critical" at this point doesn't mean they're not important.

"We're seeing this all across the nation, and I want our employees to know how incredibly important they are to our mission. We're trying to do everything we can to assure the financial feasibility of the hospital and its business," Mines said. "We are the community safety net, so we have to be here to serve the community. It's much more prudent for us at this point to cut hours when possible, furlough for short periods of time with hopes of keeping everybody's job long term, and we truly anticipate bouncing back when this is over."

Mines said the decision was made during the closed session of Thursday's board of trustees meeting and employees needed to first be notified before the information was made public.

She said the board did not officially vote, but accepted Jackson's recommendations.

The board cited an exemption from open meetings law allowing for discussions of marketing strategy and strategic plans, but Deborah Fisher, executive director of the Tennessee Coalition for Open Government, said that exemption does not appear to apply in this case.

Erlanger is among the nation's essential public safety net hospitals, which operate on particularly thin margins. Erlanger relies on elective surgeries, procedures and imaging to maintain financial viability to help offset the significant costs of treating patients with life-threatening emergencies, chronic disease and traumatic injuries.

Before COVID-19 was first discovered in China, Erlanger was reporting a year-to-date $8.6 million loss from operations and was projected to provide more than $135 million in uncompensated care. Last year, the system's net patient revenue surpassed $1 billion, and officials are expecting a yet-unknown amount of money from the recently passed federal relief package. Last week, Erlanger announced that it had secured a $50 million line of credit to help weather the pandemic.

Contact Elizabeth Fite at or 423-757-6673.