Salem Health makes budget cuts, preparing for “new normal” in healthcare

Salem — Feb. 22, 2012 — Salem Health leaders announced measures to reduce its budget over the next year by $30 million. A downward trend in inpatient admissions at Salem Hospital began in February 2011. Hospitals around Oregon are experiencing similar difficulties. A 16 percent reduction in inpatient volumes at Salem Hospital from October 2011 through January 2012 was a key contributor to the need for the reduction at this time.

“We continue to face fundamental challenges in how healthcare is delivered, funded and consumed,” Chief Executive Officer Norm Gruber said in an email to employees. “Those challenges include lower patient volume, a significant gap between our budget and actual revenues, and the upcoming changes related to healthcare reform at state and national levels.”

“This isn’t just a period of upheaval and uncertainty,” he said. “What we are experiencing is really the ‘new normal’ in healthcare. We need to make lasting changes and accept that circumstances will continue to change. Constant change is our reality.”

The amount needed to cover the shortfall for the remainder of the fiscal year (through September 2012) is estimated at $24 million. Leaders identified almost $30 million in annual opportunities. While this is higher than the current projected need, it will proactively address even more budget challenges expected in the future. Salem Health’s operating budget for the current fiscal year is $619 million.

Specific opportunities identified include a number of measures to improve clinical documentation to ensure the hospital is paid for all services it provides, improve surgery scheduling and grow services that are needed in the community and for which the organization has particularly strong quality and physician partners.

Other opportunities include reducing expenses in areas such as contracts, devices, pharmaceuticals and overhead; and working with staff to identify and eliminate activities that do not add value to patients.

Thirty open positions will not be filled, fewer than 30 staff of the more than 3,900 Salem Health employees will have positions eliminated and will be offered redeployment. Non-productive hours (e.g., time in meetings) will be reduced.

In addition, hospital leaders will work with members of its medical staff to standardize care processes as much as possible. By reducing variation, costs can be reduced while quality is improved. The Salem Health Joint Replacement Center of Excellence at Salem Hospital is an example. The surgeons, anesthesiologists, nurses and therapists all agreed on a standard process. Quality and patient satisfaction scores increased and costs were reduced. Salem Health expects to achieve $5 million in savings by reducing variation in care processes during the next 12 months.

West Valley Hospital, in Dallas, Ore., is on budget. Willamette Health Partners, Salem Health’s medical group, continues to demonstrate improved financial performance which is being accelerated by its consolidation of obstetrical services.