The year got off to a bad start for some employees of MD Anderson Cancer Center.
As part of a cost-cutting measure announced Jan. 5, about 900 of them received layoff notices.
Television crews crowded the parking garages of the Houston hospital, capturing images of teary-eyed people carrying boxes to their cars.
Almost 5 percent of MD Anderson’s workforce of over 20,000 is being let go as the institution struggles to eliminate operating losses. During the first three months of the fiscal year that started Sept. 1, 2016, the cancer center lost $110 million on its operations.
MD Anderson President Ronald DePinho announced the layoffs in an email blast and a video.
“For months, we’ve been working to improve our financial performance,” DePinho said in the email. “Despite great effort from everyone, we must take additional measures to protect our mission to end cancer. Today, I accepted a recommendation from the Shared Governance Committee, and I wanted you to hear this news directly from me.
“Despite great effort from everyone, we must take additional measures to protect our mission to end cancer. Today, I accepted a recommendation from the Shared Governance Committee, and I wanted you to hear this news directly from me.
“Since it isn’t feasible to gather at one time as a community, I have recorded a video message you can watch by clicking on this image.”
The video was available exclusively through MD Anderson, but a copy is posted here. DePinho also faced the press at a news conference later that day.
The reduction in the workforce doesn’t affect faculty positions. Most of those losing their jobs are classified staff: secretaries, administrative assistants, lab technicians, and administrators. Layoffs will continue through the end of the week, cancer center officials said.
On Jan. 4, the day before the staff cuts were announced, the Houston Chronicle reported that DePinho received a $208,000 annual performance bonus. DePinho’s was the largest such bonus given to any president of a UT System institution in 2016.
However, DePinho told the Chronicle that he would donate the bonus to MD Anderson, a contribution that he described as “consistent with his annual charitable giving practices.”
His total compensation, with the bonus included, is just above $2 million.
After watching the day’s news coverage of the layoffs, Leonard Zwelling, a former physician and administrator at the hospital, had more questions than answers.
“It is safe to say that the leadership of Anderson was forced into this decision and took it reluctantly,” Zwelling wrote on his blog. “But do the leaders take responsibility for the mismanagement that got the institution to this point? Is the layoff a good move?
“If they have a $2.8 billion war chest of cash reserves as they claim and if the ‘balance sheet is strong,’ is this layoff a statement of managerial neglect up to now on the part of these leaders? When they should have been running lean, were they running fat?
“Did the electronic medical record’s slowing of the pace of care really account for the majority of this budget shortfall or are there other factors to blame like poor operations, a bloated workforce, and over-investment in drug development?”
Other large cancer centers in the black
MD Anderson lost $267.1 million in fiscal 2016.
Despite these operating losses, officials at the cancer center said repeatedly that they project ending fiscal 2017 in the black (The Cancer Letter, Dec. 9, Dec. 2, Nov. 4, 2016).
Explaining the losses last year, DePinho and other top MD Anderson officials said in a recent email that other institutions are similarly suffering from “decreasing clinical reimbursement from government and insurance companies, a shrinking pool of potential patients as insurance providers restrict coverage, and record rates of automatic denials by insurance companies contributing to bad debt.”
Other large freestanding cancer centers aren’t reporting operating losses:
Memorial Sloan Kettering Cancer Center reported $164 million in operating income through the first nine months of 2016, a 14.6% increase from the same period last year. Growth in the volume of outpatient visits and overall surgical visits resulted in an 8.9% growth in operating revenue to $2.9 billion. Operating expenses grew 8.6% to $2.8 billion.
Fred Hutchinson Cancer Research Center reported total revenues of $126.4 million and operating expenses of $117.1 million, giving it a $9.3 million operating surplus for the first quarter, which ended Sept. 30, 2016. For the fiscal year ended June 30, Fred Hutchinson reported total revenues of $615.5 million and expenses of $484.6 million, creating a $130.9 million surplus.
Speaking points for managers
To keep the message consistent, MD Anderson officials produced the following “speaking points” for managers to use to describe the layoffs and the financial problems that triggered them.
The document, which was obtained by The Cancer Letter, appears below:
MD Anderson has had several months when our expenses have been higher than our revenue.
A convergence of many internal and external factors contributed to our financial situation.
Like other health care institutions, we’re facing decreasing reimbursement from payors, regulatory changes that negatively impact reimbursement, the narrowing of insurance networks and an increase in denials.
We’ve also made the necessary culture changes and adopted new ways of working as a result of our electronic health record. We have not yet realized our forecasted productivity and efficiency levels. We’re seeing a recovery trend but more time is needed.
Areas like personnel, overtime, purchased services and travel have driven up our expenses over time.
For months, we’ve focused our efforts on controlling or eliminating expenses, increasing clinical activity and better using our people in critical positions or shared services. Many of you have been involved in these efforts and we thank you for your contributions.
While we appreciate the skills and dedication of all our employees, personnel costs are our largest expense—nearly 60% of our
overall expenses.We’ve implemented a less than 5% reduction in force. This percentage is less than originally planned due to the extraordinary productivity and efficiency efforts of everyone in the MD Anderson community.
This reduction in force is a difficult step to take, but it will allow our organization to adapt to health care’s current environment by lowering our expenses so we can continue providing high quality cancer prevention, diagnoses, treatment, education, research and survivorship.
The decision to eliminate positions is a financial necessity. It means separating with staff who have supported MD Anderson patients and our mission. We appreciate their service.
These reductions are only one part of the overall strategy to align expenses to revenue. We must continue to watch all expenses and increase revenue to ensure these changes are sustainable.
We remain dedicated to our mission of eliminating cancer and, through collaboration and mission-driven decision-making, we’ll find more efficient and cost-effective ways of delivering on this promise.
Our patients remain our highest priority. We will continue to provide safe and effective care to those counting on us to save their lives.
