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Information about Revenue Reductions

The goal of this content is to provide information about the financial impact of reductions to revenue for health care and biomedical research on the Medical Center.

What is causing revenue reductions to hospitals in Tennessee and across the country?

There are at least three factors, two nationwide, and one that is specific to Tennessee and other states that have chosen not to expand Medicaid as part of federal health care reform.

1)      The aging of the population is having a major impact on the revenues of almost all hospitals, as patients shift in larger numbers from commercial insurers to Medicare. Medicare pays most hospitals far less for patient care than commercial insurers pay.

2)      Federal Sequestration, which went into effect on March 1 as a result of the inability of Congress and the President to enact a plan to resolve the federal budget deficit, reduces funding support for hospitals and academic medical centers.

Through the federal sequester, VUMC and other similar institutions are losing tens of millions of dollars in revenue through an ongoing 2 percent reduction to reimbursements for patients insured by Medicare, and through reductions of more than 5 percent or $1.55 billion to funding for research through the National Institutes of Health.

3)     At the time federal health care reform was enacted, institutions like Vanderbilt that care for a disproportionate share of the nation’s uninsured stood to receive significant financial relief, as fully adopted health reform would have provided millions of Tennessee citizens, many of whom already receive care at VUMC, with insurance. Because it was intended that nearly all U.S. citizens would have health insurance, institutions like VUMC would no longer receive tens of millions in revenue to offset uninsured care costs through Disproportionate Share Hospital (DSH) funds.

Because Tennessee has refused to accept federal health reform financial support for Medicaid expansion, the uninsured in our state will still not be able to enroll in TennCare (Medicaid). Expansion would have provided $6.4 billion in new federal funds during the first 5.5 years to assist nearly 1 million Tennesseans who cannot otherwise afford health insurance.  As such, hospitals across the state are losing the opportunity to receive billions of dollars in revenue through some compensation for large numbers of insured patients. At the same time, millions of dollars in DSH funds are still being reduced or eliminated.

Are we not seeing as many patients and this is part of the problem?

No. The Medical Center’s patient volumes continue to increase at a record pace across all areas: inpatient discharges, ambulatory visits, Emergency Department visits and surgical procedures. However, VUMC is being paid less to treat patients insured through both Medicare and Medicaid. Nearly 50 percent of VUMC’s patients are federally insured. Despite treating record numbers of patients, VUMC is receiving less money for these services.

Are other hospitals and health systems being affected by federal revenue reductions?

Most, if not all hospitals are being affected in some way, with some experiencing greater impact than others. In some states, reductions in payment from commercial insurance are having a major impact on hospital revenues. The list of affected academic medical centers and community hospitals reducing the size of their workforce is growing each day.

Are any other hospitals besides Vanderbilt reducing the size of their workforce?

While we have chosen to address the impact of federal revenue reductions now rather than later, and have been transparent about this process, we are far from alone. A number of academic medical centers at universities such as Duke, Emory, Indiana University Health, Wake Forest, LSU, University of Maryland, Northwestern and Johns Hopkins have already reduced staffing, have announced staffing reductions are forthcoming, or have announced plans to reduce operating costs by as much as 20 percent. In Nashville and elsewhere in Tennessee, hospitals are pursuing different approaches but are also adjusting staffing levels to accommodate for revenue reductions.

Why are academic medical centers (AMCs) experiencing the greatest overall financial impact?

AMCs are unique. They tend to treat greater numbers of Medicare and Medicaid-insured patients. AMCs are also dependent on federal funds to support biomedical research and the added cost to educate and train health care providers. The nation’s AMCs also provide nearly half of all uncompensated care delivered in the U.S., yet these facilities only account for 6 percent of the nation’s hospital beds. The result is AMCs, particularly those in states that have not expanded Medicaid under federal health reform, are accommodating a disproportionate share of the nation’s health care cost for treating the uninsured without payment.

Why is the Medical Center going through so much change and reducing staffing?

The federal government is reducing the amount it pays hospitals and health care providers to treat patients insured through Medicare and Medicaid. Patients with federal insurance represent almost 50 percent of all the patients treated at VUMC. We are also receiving less funding support for research through the NIH. Overall, we are managing more than $100 million in revenue reductions in fiscal year 2014, and $250 million by 2015.

How are decisions being made about what to do to address the declines in federal revenue?

All decisions have been and will continue to be made by the Medical Center’s leadership. The process of workplace redesign, to date, has involved nearly two years of non-labor operational expense reduction followed by four intensive months of research and decision making about current activities and future priorities related to staffing levels. All decisions have been and will continue to be made with two priorities in mind: patient safety and the Medical Center’s commitment to continue to deliver Vanderbilt-quality care.

What priorities surround decisions that are being made to reduce expenses?

The first priority has been and will continue to be work redesign that focuses on reducing operating costs through non-labor expenses. Approximately $70 million in non-labor expense reduction has already been captured.

How will this change VUMC’s commitment to indigent care?

Last year, VUMC provided $477.4 million in uncompensated care and other community benefits to the citizens of Middle Tennessee. This figure represents nearly one-half of all uncompensated care provided in Middle Tennessee. The Medical Center will continue to fulfill its mission to care for individuals who need the services we provide.

What is being done to assist those employees who will be departing the organization?

Every consideration is being made to help affected employees transition to new opportunities. Separation benefits provided to departing employees are outlined below.

Staff departing the organization will receive the following:

  • Paid leave during the 60-day notification period. Also, during the 60-day notification period benefits will continue to accrue
  • Separation pay based on years of Vanderbilt service, paid out at the current base pay rate for up to 22 weeks
  • Priority consideration for open positions at Vanderbilt through VU Human Resources
  • A $2,500 stipend to help cover health care costs or other transition expenses
  • Payout of accrued but unused balances for vacation and personal time
  • Career counseling services for all affected employees through outsourcing firm Lee Hecht Harrison and Vanderbilt Human Resources.
  • Completion of dependent tuition benefit for the current academic year
  •  90 days of continued access to Vanderbilt child care services

Does this mean the Medical Center won’t continue to grow?

To the contrary, all efforts being taken now are specifically designed to strengthen the Medical Center’s financial position and will set the course for an even stronger future. The Medical Center will continue be a national and international leader in patient care, education and research, and will continue to grow by adding new programs and services, constructing new facilities and will continue to add talented new staff and faculty. Future growth will occur in a strategic manner that continues to emphasize the greatest return on investment for patients, students and high-impact scientific discoveries. Growth activities will continue to be publicized in the VUMC Reporter and MyVUMC.