Baystate Health, the dominant health care system in Western Massachusetts, plans to lay off about 300 people as it tries to close a $75 million budget shortfall spurred by shrinking federal payments, the nonprofit said Friday.
In a memo to Baystate staff, chief executive Mark A. Keroack said the job cuts — about 2.5 percent of the company’s employees — could save Baystate about $20 million. Layoffs will be concentrated in the company’s Springfield operations, which include the system’s flagship hospital, Baystate Medical Center.
Job cuts “will affect management as well as frontline team members, prioritizing non-clinical areas,” Keroack wrote. The health system, which has an annual budget of just over $2 billion, said it would still face a budget gap of about $15 million after those layoffs and another $40 million in unspecified spending cuts.
Baystate blamed much of the deficit on federal spending on health insurance programs for older and lower-income patients that fails to keep up with hospitals’ costs, along with continuing increases in employee wages and benefits, insurance, and prescription drugs.
The most significant part of the deficit, Keroack wrote, comes from “the continuing shortfalls in the reimbursements we receive for providing Medicaid services,” the federal health plan that covers lower-income people.
But Baystate said an accounting mistake by another health care system exacerbated the budget shortfall.
Federal rules say Medicare, the health care program for older Americans, can’t pay any hospital in a given state less than it pays rural hospitals for their wages. Nantucket Cottage Hospital, owned by Partners HealthCare, sets that minimum rate because it’s considered the state’s only rural hospital.
In years past, that has helped Massachusetts hospitals keep Medicare wage payments relatively high, since the 19-bed island hospital’s remoteness drives up wages.
But consultants hired by Partners miscalculated the wage rates this year, a mistake projected to reduce federal payments across the state by about $110 million. Federal officials rejected Partners’ appeal of the decision this week, noting that it had missed the deadline for submitting corrected wage data.
In his letter, Keroack wrote that the rejected appeal would mean a $23 million cut in Baystate’s Medicare payments next year. That is roughly equal to the amount Baystate is hoping to save through the layoffs, which Keroack wrote would happen in “the coming weeks.”
Laid-off workers would be eligible to apply for other open positions “of critical need” elsewhere in the health care system, he wrote.
A spokesman for the Massachusetts Nurses Association, which has 338 members in the Baystate system, said the union is concerned about the layoffs.
“A decision to eliminate any front-line staff may jeopardize safe patient care,” said the spokesman, Joe Markman. “It is vital for those assisting and providing patient care who live in the communities served by Baystate to have a strong voice in any contemplated changes.”