DULUTH -- As health care systems across the nation grapple with severe financial burdens due to the COVID-19 pandemic, Essentia Health is laying off 900 workers, or 6% of its workforce, to make up for lost revenue.
The layoffs and other cost-reducing efforts will save approximately $50 million annually for the Duluth-based health system, which has already lost $100 million between March and April.
Nearly all Minnesota health systems are facing major revenue declines and are having to make similar decisions because of the pandemic, said Dr. Jon Pryor, president of Essentia Health's East Market.
"We want to be able to ... continue to provide great quality care to the communities and to the patients that we serve. So this is then that necessary step and demand," he said. "We recognize this is the right thing, but nonetheless, it hurts."
Although nearly every department will be impacted by layoffs, a majority of the layoffs were for staff not involved in direct patient care or for staff who worked in areas that were seeing lower patient numbers, Pryor said.
About 55% of the employees who will lose their jobs work at Essentia locations in the Twin Ports area. Fewer than 10% are located in Brainerd and fewer than 20% are in the Fargo and Detroit Lakes areas. About 15% of the affected employees are located in Essentia's "East Market" regional locations. Cities in Essentia's "East Market" include Superior, Virginia, Hermantown and Deer River.
Layoffs started Thursday afternoon. For people who are laid off, Essentia will pay three months of health benefits to employees who have worked there for over a year, which will cost the hospital $500,000 monthly.
Employees who make more than $76,000 annually will receive two weeks of severance, while those making less will receive unemployment and CARES Act funding that, for most, nearly matches their earnings, Pryor said.
Essentia received $42 million in CARES Act stimulus funding and around $3.1 million in grant funding, he said.
"With that support, we're still tens of millions (of dollars) in debt," Pryor said. The health system also has to start paying back a loan come August.
The hospital's revenue has decreased by 40%, Pryor said, due to patient volume that's fallen by 30%-60%, depending on the department.
They responded to the drop in revenue by looking for any area where they could cut costs, resulting in Essentia limiting capital expenditures, decreasing discretionary spending, furloughing staff, eliminating some leadership positions and cutting pay for leaders. CEO David Herman took a 40% cut in pay, other leaders took a 30% pay cut and physicians took a 20% cut in pay, he said.
Despite its cost-cutting measures, Essentia lost $100 million between March and April, he said.
"We realized that we had to do additional cost saving measures and, really the largest bucket ... of costs is employees," he said. "So that resulted in this very sad day."
Elective surgeries were allowed to start again May 11, bringing in more people and revenue for non-emergency work. Even with this starting back up, Essentia was still posed to lose "tens of millions of dollars a month," Pryor said. "This is just not sustainable."
They considered eliminating services in communities. "But to those communities the services are really important, especially when you're sheltering in place, you don't want to have to travel all the way to Duluth to get your care," he said.
Eliminating services, like behavioral health, was also considered. But services like that, especially when mental health issues impact 20% of the public, are critical and can't be cut, he said.
Noting that this won't be the last pandemic, Pryor said that Essentia is making specific changes to the interior design plans to be better prepared for the next pandemic, including more isolation rooms and negative flow rooms to prevent the spread of contaminated air.
Essentia's financial struggles are a reality facing other Minnesota hospitals, he said. A recent survey of Minnesota health systems found that they're losing around $1 billion monthly.
"It's devastating," he said. "Everyone's doing their best to be responsible in terms of the cost cutting. And ... everyone's trying to deliver high quality safe care to our patients."
About 850 Essentia employees are on administrative leave with benefits through July 31. The intention is to call those employees back as work is needed.
Another 1,000 employees are closely being monitored and only working as many hours as patient volume requires, Pryor said.