The belt tightening gripping the nation's health-care system struck close to home last week as Beverly Hills-based American Medical International disclosed that it was trimming its staff, cutting some employee hours and reducing promised raises to managers.
Department heads at the company's Medical Center of Garden Grove were told last Tuesday that promised raises of about 6% would be reduced by at least half and that many staff members on the hospital's 400-person work force would have their hours cut to six daily from the current eight hours a day.
Companywide, nearly 100 members of the 800-member management staff have been laid off in the last six months, according to Bruce Andrews, senior vice president and chief operating officer. The layoffs have affected everyone from the managers of hospital food services to executives on the marketing staffs in Los Angeles and at American Medical's once bustling divisional office in Houston, officials confirm. Andrews did not rule out further layoffs before January.
After years of reporting double-digit earnings increases, austerity is settling in on the once high-flying health-care industry. American Medical and other hospital management companies earlier this month reported lower than expected earnings.
The financial woes in the industry stem from federal and private-sector cost-containment measures, which have set limits on medical fees and forced hospitals to discharge patients more quickly. In addition, while more people may be entering hospitals as the nation's population grows and live longer, new technology and better management has enabled hospitals to discharge patients after four days, say, instead of six. Meanwhile, high-priced hospital personnel and equipment sit idle for longer periods of time.
The hard times have sparked rumors of a possible takeover of American Medical when members of the wealthy Bass family of Fort Worth recently reported amassing 7.5 million shares--or an 8.7% stake--in the company. But American Medical's Andrews doesn't give the rumors any credence.
"We aren't any more or less vulnerable (to takeovers) than 60% of the corporations in America," Andrews said. Most of the hostile takeovers, he said, have involved asset-rich companies primarily in manufacturing. "We are in the service business. Going after us is not like going after Union Oil, where anybody can dig the oil out of the ground. A hospital without any patients isn't worth much money."
At American Medical's Garden Grove hospital, 103 of the facility's 175 hospital beds were empty last Tuesday night, according to Roger Keilman, the hospital's executive director. Industrywide, 35% of the country's more than 1 million hospital beds are empty, compared to 25% five years ago.
And so hospital executives who once crisscrossed the country in search of new hospitals to boost the bottom line are now trying to figure out how to attract patients and reduce overhead at their existing facilities.
Investors have long known that hospital occupancy rates would fall due to cost-containment measures. But hospital chains such as American Medical refused to face up to the writing on the wall, analysts say, because their profits and revenue continued to increase despite the forecasts of lower occupancy.
"None of the hospital chains did a particularly good job of seeing it," said Kenneth Abramowitz, a health-care analyst with Sanford C. Bernstein & Co. "You had to be visionary. And the management at American Medical International is respectable but not visionary."