About 400 full-time employees at Michael Reese Hospital and Medical Center, or about 25 percent of its workforce, will be laid off as the facility’s new owners attempt to carry out a financial turnaround of the South Side facility.
The layoffs, confirmed by officials there Monday, are being ordered in the wake of the hospital’s decision to end its contract with Humana Inc., a health maintenance organization responsible for 30 percent, or about 5,000, of Reese’s 17,000 inpatient admissions. Individual employees will be notified of the layoffs this week.
Reese executives have said the HMO, which pays the hospital a fixed rate for medical services, was paying Reese about half of what the hospital’s expenses totaled.
The Humana contract cost the hospital about $27 million last year, accounting for more than half of Reese’s 1998 loss of about $50 million, executives said.
“We’re trying to put the whole organization in balance with the patient load we have and the amount we get paid for things,” said Ken Bauer, chief executive officer of the Chicago division of Scottsdale, Ariz.-based Doctors Community Healthcare Corp., which bought Reese from Columbia/HCA Healthcare Corp. last November.
“We are getting our arms around what we need to do to get Michael Reese above water,” Bauer said.
The expiration of the Humana contract was widely expected to lead to layoffs at Reese, which has about 1,600 full-time employees.
Included in this week’s layoffs will be an estimated 100 workers represented by Local 73 of the Service Employees International Union (SEIU), which supported the sale to Doctors Community.
The union was disappointed with the news, but appeared to understand the new owners’ plight.
“We just hope this helps turn it around,” said Local 73 President Tom Balanoff. “We don’t want to see any of our members laid off, but we knew it would be a hard go. It’s a rough industry.”
Bauer said the layoffs will cut across the institution, including nurses, technicians, housekeepers, food-service workers and other support staff.
The hospital already is reducing its number of employed physicians, and in February confirmed the elimination of full-time teaching physicians in favor of part-time faculty.
A leaner Reese is expected to be more attractive to other managed-care plans and physicians looking to invest in the for-profit hospital.
Bauer said negotiations are under way with other managed-care firms as well as Humana. But he said any new contract with Humana will be in a completely different form, insuring less than 5 percent of the hospital’s inpatient admissions.
Humana said it’s still attempting to work out a new deal with Reese.
“It’s our desire to have a contract and we are currently working toward completing an agreement,” said Humana spokeswoman Valerie Kennedy.
Meanwhile, Reese executives said the layoffs are critical in their effort to downsize the hospital to fit the needs of the community and keep it open in the long term.
The layoffs are expected to cut between $15 and $18 million in annual expenses. Reese executives have projected a positive cash flow by the end of this year.
Reese also will begin consolidating inpatient and outpatient medical services into two adjacent buildings on the 45-acre Reese property.
Currently, they are scattered among 15 of the campus’ 32 buildings.
