Budget Crunch

VUMC Works to Meet Health Care Finance Challenges

While the national economy appears to be getting stronger, health care has entered a national recession. In response, Vanderbilt University Medical Center is taking steps to reduce operating expenses by 8 percent—$250 million—to be achieved by the end of fiscal 2015.

On Jan. 1, 2013, the Medical Center instituted a hiring freeze. In September staffing reductions began. Through a voluntary staff early retirement program, approximately 250 additional Medical Center staff are leaving. By the end of this calendar year, VUMC will have reduced the size of its workforce by approximately 1,000 positions. Vanderbilt University, including VUMC, is the region’s largest private employer, with more than 20,000 employees.

During his annual State of the Medical Center address Oct. 2, Dr. Jeff Balser, MD’90, PhD’90, vice chancellor for health affairs and dean of the School of Medicine, described some of the challenges facing health care and the measures Vanderbilt is taking to meet them. He identified four factors facing nearly all U.S. academic medical centers:

• Federal sequestration went into effect March 1, as Congress allowed blunt across-the-board reductions to occur to the federal budget. The result of the sequester for academic medical centers is an ongoing 2 percent reduction in reimbursements for care of patients insured by Medicare, and a 5 percent reduction in funding through the National Institutes of Health (NIH), which supports much of Vanderbilt’s biomedical research.

• Commercial insurers are cutting reimbursement rates in response to demands from their major customers, large corporations and employers, thus creating significant pressure on health care’s existing cost structures.

• The decision of many states, including Tennessee, not to expand enrollment for Medicaid means the uninsured are coming to Vanderbilt in increasing numbers.

• Perhaps most significant is the aging baby boomer population. Every year, 2 percent of Vanderbilt’s patients are migrating from commercial coverage to Medicare, which pays Vanderbilt less than the commercial sector.

Balser said the Medical Center’s leadership saw changes to health care emerging as early as two years ago and began to focus proactively on non-labor operational-expense reductions that resulted in fewer positions being eliminated. Through non-labor operational-expense reductions, as much as $70 million in savings will be captured. Other efforts to position for the future have included the formation of the Vanderbilt Health Affiliated Network (VHAN) and affiliations with 32 hospitals throughout Tennessee and Southeastern Virginia in just the past two years.

“We’re sticking to our strategy to provide extraordinary clinical care, to be a leader in medical education, and to make discoveries of fundamental importance to humanity,” said Balser. “We’re going to remain and grow as a national leader in all three areas.”

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