UMC service could take brunt of cuts to fix budget

By Tony Cook

Monday, May 7, 2007 | 7:13 a.m.

As University Medical Center's budget goes on the operating table, Clark County officials are considering amputation.

During a workshop with county commissioners last month, hospital administrators rolled out several possible service cuts that included eliminating quick care centers, clinics, the neonatal intensive care unit and the state's only burn care center.

The cuts are being examined because UMC, which lost more than $34 million last year, is projected to lose $60 million this fiscal year and faces an additional $53.7 million operating loss in fiscal 2008.

But as commissioners decide to what extent to use the scalpel - they'll complete a budget by month's end - other options to help stem UMC's bleeding are getting far less attention.

At last month's workshop, one potential cost saver that would involve no service cuts - reining in the exceedingly generous benefits that UMC employees receive - did not even come up for discussion.

That's partly because benefits are not something commissioners can change quickly.

"There is nothing we can do about that right now," Commission Chairman Rory Reid said. "We need to take immediate action."

Still, the high cost of benefits has a huge effect on the hospital's finances.

Employee perks at UMC far exceed industry norms, according to a recent report by the Lewin Group, a health care consulting firm the county hired. UMC's benefits equal 47.2 percent of salaries, compared with the industry norm of 27 percent, the report found.

That means that for a hospital employee earning an annual salary of $50,000, UMC pays $23,600 a year in benefits.

Because UMC is a public hospital operated by Clark County, it participates in Nevada's public employee pension system. That system costs the hospital much more than retirement plans used by many private-sector hospitals.

Additionally, UMC provides longevity pay, salary boosts based on an employee's tenure , as well as merit raises and cost of living increases.

The net effect is that benefits cost the hospital $89.6 million annually, which means changes to UMC's benefit structure could result in significant savings.

If UMC's benefits were brought down to the norm, the hospital's costs would be reduced by $38.4 million annually.

By comparison, the service cuts discussed during the commission's workshop would produce $27.2 million in savings.

John Espinoza, UMC's human resources director, took issue with the Lewin Group's inclusion of paid time off and holiday pay in the benefit category, which he said is misleading because those perks are covered by salary. If those items were not included, benefits at UMC would equal 31.2 percent of salary.

Espinoza also said the windfall that UMC would receive from reduced benefits doesn't take into account the increased expenses of recruitment and training that probably would result if the hospital had a less attractive benefits package.

Jane McAlevey, executive director of the Service Employees International Union, says UMC's benefit package is not unreasonable because workers there earn lower wages than at other area hospitals.

"Every hospital we represent has the same pay - except the public hospital, which is well beneath the others. That was a conscious decision, because their benefits are so high," she said.

Espinoza, however, said UMC's wages are competitive.

"If we were lagging the market that much, then why would we have only a 2 percent vacancy rate in nursing?" he said. "Overall I don't believe we lag significantly behind the market."

He also acknowledged that no matter how one crunches the numbers, UMC's benefits remain costlier than those at other hospitals.

Even if there was a desire to do so, however, changing the benefit structure is no easy task. The County Commission signed off on a new collective bargaining agreement with the Service Employees International Union Local 1107 in February, essentially locking in the current benefit package for three years.

When the contract negotiations began last year, then-County Manager Thom Reilly planned to take a strong stand on preventing future employees from receiving longevity pay, which costs UMC about $7.2 million a year.

But Reilly quit in August and the union made a statement in that month's primary election when it flooded mailboxes with 15 attack mailers against then-Commissioner Myrna Williams, helping to propel Chris Giunchigliani onto the County Commission.

By the time the county and the union reached a contract agreement in March, Reilly's proposed elimination of longevity pay had been dropped. And despite UMC's dire financial situation, the union got slightly larger raises in the new agreement.

Although that window of opportunity is shut for several years, there is another possible avenue.

The county could lease or deed the hospital to a nonprofit organization, one of several options laid out in the Lewin Group report. UMC staff would become employees of the new entity and the change would remove the political nature of decision-making at the hospital, he report said.

Under that scenario, however, the county would no longer be a direct provider of health care to its indigent population. Some also worry there might be less accountability because the hospital's overseers would no longer be elected .