UMass Memorial Health Care, which lost money in the last three months of 2011 amid shrinking patient volume, told its employees yesterday that it will shed 700 to 900 jobs, about 6 percent of its workforce, through a combination of layoffs at its flagship hospital and the sale of divisions that provide services such as home health care.
The health care system, which operates UMass Memorial Medical Center in Worcester and four community hospitals, is the largest employer in Central Massachusetts, with about 13,500 workers. But its profitability has been eroding for several years as it faces increasing pressure from businesses and commercial insurers to reduce costs.
Patient discharges fell 6 percent in the most recent quarter from the same period a year earlier, while imaging tests dropped by more than 7 percent, said John G. O’Brien, chief executive of the Worcester-based system. He said the numbers are declining as the system prepares to shift from a fee-for-service model to so-called global payments, under which insurers give hospitals and doctors a budget to provide patient care.
“We’re getting ready for the future,’’ O’Brien said, noting that the first phase of the restructuring will cut 150 jobs at the Worcester medical center. “We feel like we have to be more affordable. We hear that every day from employers in the Worcester area.’’
He also cited anticipated payment cuts from Medicare and Medicaid, the government health insurance programs covering older and low-income residents, on top of earlier reductions in reimbursements.
Many of the same financial strains have been affecting other Massachusetts medical care providers. Hospital groups ranging from Boston Medical Center to Cambridge Health Alliance to Northeast Hospital Corp. of Beverly have slashed hundreds of jobs over the past two years. Sixteen hospitals, nearly a quarter of those in the state, have been losing money, according to a report last year. Last month, Taunton State Hospital, which houses 169 mentally ill patients, said it would close its doors, while long-term care provider Kindred Healthcare Inc. said it will shut its 45-bed Waltham hospital.
A report published last week by Moody’s Investors Service, the New York-based credit rating agency, said the “outlook remains negative’’ for the nonprofit health care sector, which has long dominated the hospital landscape in Massachusetts.
“Ongoing uncertainty about health care reform and severe federal budgetary stress is putting pressure on hospital management teams as they prepare for the coming era of lower reimbursements and difference payment schemes,’’ the report said.
UMass Memorial, which eliminated 350 jobs at the end of 2010, posted an operating gain of $35 million for the year that ended Sept. 30, according to O’Brien. But that was down from a $55 million gain in the prior year and $84 million the year before that. In the first quarter of the current fiscal year - the three-month period that ended Dec. 31 - the system lost a sum that has yet to be reported, he said.
One factor in UMass Memorial Health Care’s predicament is that its Worcester medical center, a teaching affiliate of the University of Massachusetts Medical School, is on the highest-cost tier of many new insurance plans that give members the option of paying less by seeking care at more affordable providers, O’Brien said. Another is the weak economy, which has caused many people to postpone elective surgery because they have lost their insurance or are reluctant take time off from work and jeopardize their employment.
In a memo to employees, O’Brien outlined the system’s strategy. “To respond to immediate declining volumes and reimbursements at our medical center during the first quarter of this fiscal year,’’ he wrote, “we need to reduce our expenses by about $50 million right away if we are going to avoid ending the current fiscal year with a loss.’’
The system also plans to sell two divisions over the next few months. One, employing about 150 people, provides home health and hospice services. Another, with 400 to 600 employees, performs lab tests for doctors offices in Massachusetts, Connecticut, New Hampshire, and Rhode Island. Many employees at those units may be retained by the eventual buyers.
Labor union leaders, who were briefed on the hospital system’s plans yesterday, were quick to protest the moves.
“Nurses are upset and concerned,’’ said Lynne Starbard, who cochairs the Massachusetts Nurses Association bargaining unit representing about 1,000 nurses in the UMass Memorial system. “We work very hard to give our patients good quality care, and when you cut back like they’re doing, you cut back on that care to patients.’’
Starbard cited the continuity of care that has existed when patients discharged from UMass Memorial’s hospitals are sent home to be treated by nurses from the same system. “I feel this is disruptive,’’ she said. “When patients leave our hospitals, they want to still be part of us. I think that care will be compromised for the patients.’’
Cost-saving steps will include paring 150 jobs in the next several weeks from the medical center, which has 10,000 employees. A wide range of departments will be affected by the cuts, which will include managers as well as union employees. No doctors will be laid off, though some are retiring and will be included in the total count.
UMass Memorial, which has more than 500 employed or affiliated primary care physicians, will keep labs that conduct “rapid response’’ tests for its hospitals as well as pathology tests such as pap smears and tumor biopsies.
While the system will cut jobs, it will also be hiring employees, ranging from urologists to pharmacists, selectively this year. That will reduce the overall job losses, according to O’Brien. He said the system plans to hire a consulting firm to help it reorganize and control expenses ranging from wages and benefits to pension costs.