Valley Medical saves $3.8 million with budget revamp

Through cost-cutting and reductions in retirement benefits, Valley Medical Center is “living within its means,” says a top hospital executive.

Like other public hospitals, Valley Medical must absorb millions of dollars in uncompensated or charity care for patients who don’t have insurance.

The hospital bears some cost for health-care reform and the Great Recession cut millions of dollars from its property-tax revenue.

Last December, Valley Medical reported that to offset those costs it had reduced expenses by about $3.8 million in the previous six months or so, including $1.3 million in savings from reduced contributions to employee retirement plans.

The non-profit hospital considers that $3.8 million to be operating income, not profit, and an indication of the hospital’s financial health.

“We have some cash in the bank. We had a positive bottom line, so we are controlling expenses. We are living within our means,” said Karyn Beckley, senior vice president for human resources and marketing.

The hospital will use that money to add health-care services for the community, recruit new physicians to increase access to care and reinvest in the medical center, she said.

The rest of the $3.8 million comes from spending less on such things as construction, equipment purchases and plant improvements, which Beckley said isn’t sustainable.

For the same time period the operating revenue was about $230 million.

As it did last fall when the new retirement plan was introduced, Valley Medical Center’s largest union, the Service Employees International Union, Healthcare 1199 Northwest, says the plan is a violation of its contract. The change wasn’t negotiated

The union calls the $3.8 million an operating profit.

SEIU member nurses on May 19 read a statement to the Valley Medical Center Board of Trustees, expressing the impact the cuts in the retirement program will have on employees and patients.

“Under these cuts, employees will face up to a 60 percent reduction in our retirement plans, leaving many of us and our families with economic hardships and without the retirement security we need,” the statement read.

The hospital’s patients, the statement read, “will also pay the price as the unnecessary cuts will harm our ability to recruit and retain the experienced caregivers our community depends on.”

Lita Steward, a licensed practical nurse, read the statement. She’s worked for the hospital for almost 20 years.

In an interview, she said because of the retirement reductions, employees are talking about leaving the hospital or of necessity working longer than anticipated.

“The loss of that knowledge and the ownership that each of these nurses brings to Valley will be devastating,” she said.

Beckley pointed out that voluntary turnover is down 1 1/2 percent from a year ago. The total voluntary turnover – those leaving the hospital of their own will – is about 4 1/2 percent, which Beckley called “extremely low.”

Valley Medical has about 2,900 employees, approximately 2,100 of whom are represented by one of four unions at the hospital. SEIU represents about 1,400 Valley employees.

In meetings with employees last fall, hospital officials acknowledged that the new retirement program would mean a smaller retirement benefit for some employees. The new plan eliminates a traditional pension.

Under the new plan, Valley Medical will match an employee’s 2 percent contribution, for a total 4 percent contribution. After five years, the hospital will add another 5 percent to its contribution, making the total 9 percent.

Under the old pension program, the contribution maximum was 13 percent for long-time employees.

Beckley said the 60 percent reduction is the “most extreme example.” It’s the difference between the 13 percent contribution and a 5 percent hospital contribution, which means the employee didn’t contribute 2 percent and didn’t get the hospital match.

The new program will mean less money for retirees but Beckley also points out the former pension plan was way above the market. “I can’t say that enough times,” she said.

Under a set of benchmarks, a “healthy hospital” would spend 54 percent of its budget on benefits and wages, she said. But from 2009 to 2013, the amount was almost 62 percent at Valley Medical, she said.

Beckley pointed out that under the new plan, employees didn’t lose money contributed on their behalf, nor did their retirement benefits fall “below the top of the market.”

Valley Medical is talking with three of its unions about benefits, she said. The contract with SEIU won’t expire until June 2015, when the retirement plan will be a “point of discussion.”

In its statement the SEIU called on Valley Medical to honor its contract commitments and consider the impact the cuts have on the hospital.

“Undercutting our retirement security does not meet our hospital’s mission to provide high-quality, safe, compassionate and cost-effective healthcare,” the statement read.