The University of Mississippi Medical Center announced that it will cut $24 million from its budget in an email sent to employees recently. Vice-Chancellor for Health Affairs Dr. LouAnn Woodward blamed the budget cuts on a loss of DSH funds.* The email states:
UMMC CAMPUS MEMO
TO: All Faculty and Staff
FROM: Dr. LouAnn Woodward, Vice Chancellor for Health Affairs
SUBJECT: Financial Action Plan
For the last few months we have been closely watching our financial situation as we’ve experienced unanticipated cuts to our revenue. Late this afternoon I met with about 100 senior administrators to announce an action plan to improve our financial position for the remainder of the fiscal year that ends June 30.
By March 6, I have asked for detailed plans from all divisions that will allow us to save approximately $24 million during the next four months. At the administrator’s discretion, these savings can be achieved through a combination of expense reductions or revenue increases, but the reality is that most of it will likely come from expense cuts.
Knowing that our hospitals have been working hard on labor expense management, I am protecting bedside patient care from this cut. All other measures to meet this savings goal are on the table, including eliminating programs and reducing the size of our workforce. Regrettably, we will not be able to reach our financial goal without some reductions in staffing.
As I mentioned in a recent VC Notes, a number of factors have contributed to our present financial difficulties. Chief among these is a decrease in our disproportionate share (DSH) funding, which we receive through the state Division of Medicaid for providing care to large numbers of Medicaid and uninsured patients. Our DSH allocation is always difficult to predict, but this year it currently stands at $35 million below our initial projection.
On top of that cut, as of Tuesday we now have received more than $8.2 million in reduced state funding for the current fiscal year. Revenue cuts of this magnitude, although painful, would be manageable in a normal year, but coupled with the DSH reduction they require a more aggressive response.
Even as we’ve experienced these reductions in funding, we have been working on a number of projects to decrease expenses or increase revenue. As was reported in Monday’s eCV newsletter, our value analysis teams have achieved $19 million in supply chain savings since 2015. Other groups have been working hard to improve revenue cycle management, shorten length-of-stay, and drive clinical quality improvement and the savings it yields. These and other efforts to become a leaner organization will continue.
As we look to be more efficient, we can’t ignore the need to invest in our future. For example, we’ve grown our clinical programs substantially during the last two years, even though it will take some time for those investments to pay for themselves. We have to be thoughtful about how we shepherd our resources and look for opportunities that are sustainable and will move us toward our ultimate goal of improving our state’s health status.
You’ll learn more about the financial action plan as it develops at the unit level. I ask that you please be patient and let your administrators work through this process in an orderly way.
Our current financial challenges are not unique to us. Across the country, academic medical centers and other industry players are struggling to cope with a historic period of change and disruption. Clearly we have to continue to excel at our core missions of education, research and patient care and maintain the integrity and quality of those pursuits. But we also must sustain – for the rest of this year and beyond – sound business practices of expense control, wise investment and decisive action in a changing marketplace.
I want to be clear. Achieving this $24 million in savings will not “solve” our problem. The fact is that our revenue sources will continue to be under pressure, so this focus on cost will not end on June 30, 2017. In some ways, this is the “new normal” for us and for other academic medical centers.
The target I’ve set for us to reach by year-end will be hard on everyone. But it is achievable. We’ve faced bigger challenges before, and with everybody pulling together, we’ll face this one, too. Thank you for your commitment to UMMC.
*Medicaid.gov defines DSH funding:
Medicaid Disproportionate Share Hospital (DSH) Payments
Federal law requires that state Medicaid programs make Disproportionate Share Hospital (DSH) payments to qualifying hospitals that serve a large number of Medicaid and uninsured individuals.
Federal law establishes an annual DSH allotment for each state that limits Federal Financial Participation (FFP) for total statewide DSH payments made to hospitals. Federal law also limits FFP for DSH payments through the hospital-specific DSH limit. Under the hospital-specific DSH limit, FFP is not available for state DSH payments that are more than the hospital's eligible uncompensated care cost, which is the cost of providing inpatient hospital and outpatient hospital services to Medicaid patients and the uninsured, minus payments received by the hospital on or on the behalf of those patients.