Recent layoffs at one of Orange County’s bigger hospitals appear to be a reaction to a number of changes in the local hospital landscape.
Orange-based St. Joseph Hospital recently cut 152 jobs, about 5% of its workforce.
The hospital said the layoff action was “a direct result of lower pediatric and orthopedic volume, outpatient volume moving to lower-cost settings, and lower state and federal reimbursement rates.”
The 491-bed hospital “needed to reduce our operating expenses due to the transformation occurring in our industry,” added Steve Moreau, chief executive of St. Joseph-Orange.
The layoffs represent about 5% of St. Joseph-Orange’s workforce.
The hospital ranked No. 3 on the Business Journal’s most recent annual list of OC hospitals, with a pretax profit of $12 million on net patient revenue of $540 million through Sept. 30.
St. Joseph-Orange had laid the groundwork for a reduction in the services it offers prior to the layoffs, helped along by a trend that has various hospitals adding services or becoming “centers of excellence” that concentrate on certain types of care.
Children’s Hospital of Orange County, located across the street from St. Joseph-Orange, opened a pediatric emergency room in early 2013 in its new South Tower. CHOC executives have said they expect to have more than 50,000 patients yearly in its ER.
The ER opening signaled the end of the hospital’s previous contract with St. Joseph-Orange for pediatric emergency services, according to Denise Almazan, a spokesperson for CHOC.
There also has been a significant shift in orthopedic care in the county, thanks to Hoag Orthopedic Institute in Irvine. It’s a joint venture between Hoag Memorial Hospital Presbyterian and doctors who own the Orthopedic Surgery Center of Orange and the Main Street Specialty Surgery Center in Orange.
Hoag Orthopedic performed a combined 11,447 surgeries between Hoag Hospital Irvine and the institute’s surgery center in the 12 months ended Sept. 30, 2012, according to its annual outcomes report.
St. Joseph Health, St. Joseph-Orange’s owner, also operates St. Jude Medical Center in Fullerton and Mission Hospital, which has campuses in Mission Viejo and Laguna Beach. St. Joseph and Hoag are partners in Irvine-based Covenant Health Network, a regional integrated delivery system encompassing its hospitals and other facilities and providers.
The job cuts in Orange also partially reflect a local hospital industry that is working to respond to the demands that have come with the rollout of the federal Affordable Care Act, according to Julie Puentes, a Garden Grove-based regional vice president of the Hospital Association of Southern California.
“What we’re seeing here is the medical community … trying to reposition in order to be responsive to the trends that are coming via the ACA,” Puentes said, adding that hospitals are undergoing a “reconfiguration of business models and relationships” between themselves, doctors and other providers, such as clinics.
Puentes noted that St. Joseph-Orange cited lower reimbursement rates in its statement on the job cuts.
Hospitals “definitely are” getting squeezed by federal government on Medicare and “the ratcheting down of rates in order to pay for the ACA’s implementation” that started in 2010 when federal healthcare reform was passed.
Another factor is the rates of reimbursement for the Medi-Cal program, which is subsidized jointly by the state and federal governments. Medi-Cal reimbursement rates average only about 70 cents on the dollar, she said.
“You need to do better than break even, or you’re not going to be able to invest in new equipment and remain current,” Puentes said. “So if you have a population that is increasing in programs that don’t pay you what your costs are, you’d have to find a way to do OK elsewhere—and that is becoming harder.”
Commercial insurers also are a factor in the changing market mix.
“The other big factor for hospitals is that the health plans, because they wanted to be competitive in the healthcare exchange, were trying to reduce payment to physicians and hospitals,” Puentes said. “Even for patients that were not being served in the exchange, the negotiations [with providers] really intensified.”
Negotiations “were very tough … and I heard figures as high as 40% in the reductions in payment for some services,” she said.
Hospitals had fewer places to make up losses that come from patients leaving commercial health plans for insurance exchanges such as Covered California.
She compared the situation to having “loss leaders” in retail where a retailer can make up losses on other wares.
