As they stare down a multi-million dollar deficit at Durham Regional Hospital, Duke University Health System officials have stopped reiterating their commitment to no layoffs within the first three years of the July 1998 merger. They do, however, insist that layoffs are not currently in the works.
Michael Israel, CEO of Duke Hospital, said recently discovered financial mistakes and a $4.3 million loss in the last quarter have made Durham Regional's financial situation more dire than previously thought.
"It seems that the financial performance of Durham Regional was not what everyone thought it was," said Dr. Ralph Snyderman, president and CEO of DUHS. "The hospital was not performing as well as it was originally thought."
However, both Israel and Snyderman stressed that they are not currently planning a layoff. "At this time, I do not believe any layoffs will be necessary," Israel said.
Although he declined to reiterate the no-layoffs pledge, Snyderman stressed that "Duke University Health System will still do everything humanly possible to turn Durham Regional around and stay true to the no layoffs agreement," a crucial part of the deal Duke reached with Durham County officials in 1998.
"We are currently trying to understand what it will take to turn Durham Regional around," Snyderman said. "I believe that this [turnaround] can be performed within our commitment to the no layoffs policy."
Previously, Duke officials had steadfastly repeated the no layoffs commitment, assuring that attrition and transfers within the Health System would be adequate to cut costs and relocate employees.
Snyderman said a detailed analysis is underway to determine what it will take to turn Durham Regional into a financially sound institution.
Although he stressed that it is too early to commit to any specifics, he said the hospital needs to fix its accounting and billing problems and attain a higher level of efficiency in contracting and collecting for work done than has been demonstrated thus far.
County commissioner Ellen Reckhow said she was surprised by the most recent developments. "For a good 12 months prior to the merger, Duke had consultants scrutinizing [Durham Regional's] operations and books...," she said. "I find it surprising that none of them found any problems back then."
Furthermore, Reckhow mentioned that the financial troubles of Durham Regional were not a secret. "There were stories and quarterly reports predicting a bad year before the merger," she added. "I assume that [DUHS] knew what they were getting into with Durham Regional and I expect them to honor their agreements."
Reckhow added that the no-layoffs agreement can only be amended if Health System officials come back to the county commissioners. "It is too early to tell," she said, "but I am currently not prepared to move away from any agreements."
In an interview conducted before Snyderman and Israel's comments, Richard Liekweg, the recently named chief operating officer at Durham Regional, said the hospital would adhere to the no layoffs policy. "With annual attrition and number of vacant positions, it shouldn't be a hindrance," he said.
Liekweg pointed to overestimated revenues and underestimated expenses as the main reasons for the deficit.
Richard Myers, president of Durham Regional, explained that in the considered time period, the number of patients was also lower than expected while the cost and use of pharmaceuticals increased.
Further reasons for the hospital's losses lie in an accounting error that was made in calculating the revenue the hospital receives from its contracts with insurance providers.
Over the years, Durham Regional's year-end closing contractual adjustment equation was not properly updated, leading to an overestimation of revenue.
Snyderman said that although accounting on such a large scale always involves quite a bit of guessing, a $4.3 million loss out of a $150 million budget is simply unacceptable.
Liekweg outlined several possible approaches for solving this financial problem. Some of them included revenue enhancements through improved billing practices, better utilization of services and appropriate resource allocation.
In addition, Liekweg mentioned that it is important to find out how to increase the volume of patients by attracting physicians from the community who are currently not admitting patients at the hospital.
Also, Liekweg stressed the importance of looking beyond the Durham community to see whether Durham Regional is losing patients to hospitals in the Chapel Hill area.
Steve Owen, chief financial officer of Durham Regional, is coordinating the hospital's efforts; he could not be reached for a comment.
Health System officials said they remain committed to preserving Durham Regional's quality and ensuring its financial health. "Although it is a hospital and as such a wonderful and altruistic institution, it still has to work like a business," Israel said.
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