Not even the mattress pads were spared: An inside look at a top hospital’s struggle to cut costs

BOSTON — In only 18 months on the job, the chief operating officer of Brigham and Women’s Hospital had weathered relentless and unforeseen events that battered the elite Harvard-affiliated medical center.

A record snowfall had paralyzed Boston and stanched admissions for a month. Installation of a $400 million electronic health record system had obscured a fall-off in patient volume. And the hospital had lost $24 million preparing for a threatened nurses strike.

But by July 2016, with the hospital’s finances improving, Dr. Ron Walls was upbeat. “I had this moment,” he recalled, “when I said, they can’t possibly throw anything more at me now.”

The moment didn’t last.

The hospital’s new chief financial officer poked his head in Walls’s office. “Got a quick minute?” he asked.

He was there to sound an alarm: In the 2017 fiscal year that was about to start, he told Walls, operating income wouldn’t cover the hospital’s expenses; 2018 would be in the red as well.

“Chris, how do the numbers come back up?” Walls said he asked. The CFO, Christopher Dunleavy, was ready with a solution: Cut $50 million from the hospital’s $2.6 billion in annual spending.

That conversation set in motion an unprecedented cost-cutting drive that would affect the jobs of hundreds of the hospital’s 18,000 employees and reach into every corner of the institution — even overriding nurses’ choice of mattress pads. It also led to an aggressive push to boost revenues 4 percent a year.

Over the past three months, the Brigham provided STAT unusual access to meetings of its top management and internal deliberations and documents. This inside look shows how one of the nation’s leading hospitals is confronting the daunting financial and marketplace forces buffeting academic medical centers across the U.S.

“This wasn’t about ordinary cost-cutting,” Walls said. “It was very clear we had to become a much leaner, more efficient organization.”

The heart of the Brigham’s austerity plan was a buyout offered this past June to more than 1,000 senior employees, including more than 400 veteran nurses. Some 800 workers decided to retire, including 7 percent of the nursing staff — a remarkably high acceptance rate. Many of them are leaving this week.

While hundreds of new nurses are being hired at substantially lower entry-level pay, the large exodus underscores a critical challenge for the Brigham’s leadership: how to cut costs without harming patient care.

One of the departing nurses, Hallie Greenberg, called the buyout generous but worried that the hospital will miss their collective experience and knowledge. “The senior folks teach the junior folks,” she said. “There is so much about every profession that is unwritten law.”

Academic medical centers are expensive to run: They deploy an army of specialists and sophisticated technology to treat the sickest patients. They’re the backbone of the nation’s biomedical research enterprise. And they train new doctors.

But they’re now caught in a vise.

Private and government insurers are tightening reimbursements as the cost of drugs and other essential elements of care are on the rise. An aging population with chronic diseases is seeking more complex, and costly, care, while routine and often more profitable cases — delivering babies or replacing knees — are increasingly shifting to community hospitals.

And in Washington, uncertainty over research funding for the National Institutes of Health and the futures of Medicaid and the Affordable Care Act clouds the reliability of key hospital revenue streams.

“This is a pivotal moment for academic medicine,” said Dr. Betsy Nabel, president of the Brigham. “The nation needs academic medical centers to train the next generation of physicians and scientists and drive discovery and innovation in medicine.”

Other major centers around the country have taken similar action. The Mayo Clinic is nearing its goal of cutting $1 billion in a decade-long initiative to revamp its care and streamline operations. The Cleveland Clinic has reduced costs by $800 million over the past four years.

After the Brigham launched its push to slash spending, it got more bad news from its parent company, Partners HealthCare, the big integrated health system that includes Massachusetts General Hospital. After years of criticism that it charges higher prices than most of its competitors, Partners announced a plan to cut about $500 million over the next three years. The Brigham’s share is about $150 million, meaning its own 2018 effort is just a start.

The Brigham isn’t calling any of this a crisis. Some of the financial pinch reflects payments for major capital projects, including the medical record installation and the recently opened $600 million Building for Transformative Medicine, a combined outpatient care and research facility from which the hospital expects a return.

For all the cost-cutting now, the hospital has long been a powerful economic engine, racking up $2.7 billion in revenue last year while operating in the black. On average, 94 percent of its beds are occupied and patients are routinely backed up in the emergency room or in recovery after surgery, awaiting an open bed.

Still, Walls knew that a cash-flow crunch is a worrisome financial indicator, potentially affecting the hospital’s ability to borrow money to invest in the technology and facilities required to maintain its top standing.

Dunleavy’s warning would have been more disconcerting, however, if Walls hadn’t immersed himself in the nitty-gritty required to pull the hospital out of its tailspin the previous year. He figured his team could handle anything after mastering the arcane world of operating room scheduling.

‘We had to ask for a little trust’

Surgeons are a key power center of a hospital, and their operating room schedules are considered sacrosanct — so essential to their jobs that the days and times are often set out in a hiring letter.

“Surgeons own that time,” Walls said. “You don’t mess with a surgeon’s block time just like you don’t mess with a person’s payroll.”

But Walls and his team messed with it anyway.

Just two months into the 2016 fiscal year, they discovered that the hospital’s operating margins were already running $27 million under the budgeted amount. They had relied on faulty estimates of their 2015 patient volume — thanks to data lost during the transition to the new Epic electronic records system — and set targets for 2016 that were too optimistic.

Walls wondered whether he had “steered the ship off the rocks onto an iceberg.”

He concluded that the Brigham, like many hospitals, wasn’t vigilant enough in ensuring that assets such as operating rooms and MRI scanners were being used efficiently. So he directed his senior VPs to create and actively monitor a set of “vital signs” of hospital performance — everything from the number of surgeries to how many patients walk out of the emergency room before getting treatment.

Every Wednesday at noon, Walls met with the chairs of five major departments to review these metrics. The group’s initial focus was maximizing use of the hospital’s more than 40 ORs.

They ran an analysis of OR occupancy each hour of the day and plotted the results on a graph. It resembled a wedding cake, with a red line, representing the number of ORs with patients in them, cutting through it.

The “cake,” as Walls began calling it, starkly showed how many ORs were staffed and available at any given hour but idle because no cases were scheduled — and why OR use was running in the low 70 percent range.

Brigham surgeons are assigned OR rooms in four-hour blocks. The practice was that if a surgeon hadn’t booked a slot 10 days in advance, it would be allocated to other surgeons in his or her division. The division could hold on to the times until 48 hours in advance before releasing them to other surgical specialties. That left little time to book a new case.

The main reason surgeons hang onto their blocks, Walls said, was fear of not having a room available for a last-minute case. So armed with the cake analysis, Walls, with the support of Dr. Gerard Doherty, the Brigham’s chair of surgery, devised a new plan: The surgeons and their divisions would release any unbooked slots 10 days in advance to the entire surgical community. In return, they were guaranteed an OR if they needed one at the last minute.

“My guys are going to kill me,” one surgeon told Walls, “but I think this might work.”

Doherty helped sell it. “We had to ask for a little trust in the beginning,” he said. The hypothesis was, it would make more times available for surgeons. “If Dr. Smith has a Tuesday slot blocked, nobody else can get in there,” he said.

The plan was implemented at the beginning of 2016. At the meeting each Wednesday, Walls and his colleagues eagerly checked the data. Just two months later, the red line was crawling along the top of the cake: The ORs were running at about 85 percent of capacity.

“It lifted the mood of the whole room,” Walls said.

It also lifted surgery volume. By May, partly due to this success, the hospital had fully recovered from the $27 million shortfall.

That experience helped prepare Walls for this year’s round of cuts, when he again messed with the Brigham’s traditional ways of doing business.

The saga of the mattress pads

Of all that Walls had to worry about, mattress pads may have seemed the least obvious.

But the subject arose at a meeting this past June, called to wring $10 million in savings from the hospital’s huge medical supplies budget. A Partners executive had come up with only a $3 million trim, exasperating Walls.

Have we turned over every stone, he asked the executive. Surely a company the size of Partners could leverage its purchasing power to come up with more savings.

When the executive responded with “mattress pads,” Walls had no idea what she was talking about.

She explained that a few years earlier, Partners hospitals had collaborated on a test of several rival pads to determine whether they could agree on one and negotiate a volume discount. The best pads are highly absorbent and resist wrinkling underneath patients, which can increase the risk of bed ulcers.

A winner was picked, and every organization agreed to adopt it — every one but the Brigham, whose nurses felt strongly they wanted to stick with the pad they were using.

That choice, the executive added, cost the hospital an extra $400,000 a year.

For a moment, the room was silent. “Are you serious?” Walls finally asked.

If every other hospital in the system thinks the new pad is OK, it should be OK with the Brigham, he said, turning to the hospital’s head nurse. Without compelling evidence that it would affect patient care, he told her, the decision would have to be reversed.

The issue was kicked to the hospital’s new products committee, where Dorothy Bradley, program director for nursing simulation, ran a quick absorbency test. Spreading the two pads on the floor, she poured water on them and concluded there wasn’t an important difference. She also called a Mass. General wound care nurse, who told her they hadn’t seen any increase in pressure ulcers with the winner from the earlier trial.

With that information, the committee quickly acquiesced in shifting to the Partners pad, which was one-third the price.

“People always like the one they’re used to,” Bradley said as a way of explaining the initial decision. “I don’t believe we knew we were the only outliers.”

In Walls’s view, the original decision “was about allowing an individual part of the system the autonomy to opt out just because it wanted to.” The hospital no longer can tolerate that approach, he said: “Those are the kinds of things we have tightened down.”

‘A new way of doing things’

By far the biggest challenge was what to do about the payroll. It wasn’t possible to take out $50 million in costs in less than a year without shedding hundreds of high-paid employees.

The hospital brought in consultants who examined every department to set appropriate staffing levels. They found people in management who had just one direct report and highly trained employees who were performing routine tasks.

The review led Nabel, the hospital president, to announce in April a voluntary retirement buyout for 1,258 employees in the Brigham Health system who are at least 60 years old.

Two-thirds of eligible employees held non-nursing jobs; they included administrative staff and technicians in radiology and pathology. But the leadership had a special interest in how nurses would respond. Unlike some of the administrative positions, the vast majority of nurses — especially those who worked at the bedside — would have to be replaced.

Still, with 410 nurses eligible for the buyout, the potential reduction in labor costs was enormous. The nurses get annual raises of 5 percent for the first 19 years of service, in addition to whatever raises the union achieves in negotiations. The result is that many veteran nurses make as much as $180,000 a year, the Brigham said.

The hospital figured new nurses could be hired for far less — about $80,000.

The key incentive was a full year’s base salary paid to the employee’s retirement plan account. Medical benefits were included for those below age 65 who weren’t eligible for Medicare. Employees were given 45 days to respond.

The leadership team considered the offer “respectful and generous,” Walls said. “We didn’t want to make it seem we were hustling them out the door.”

They hoped to attract enough takers to avoid major layoffs, but during the first three weeks, only a handful of positive responses trickled in. The hospital had already begun hiring new nurses to replace the retirees.

“We were very fearful we were not going to hit the numbers we needed,” Walls said.

But by mid-July, the numbers were looking better; at about the same time, the nurses union gave its nod to the package after negotiating a technical language change.

Then in late July, acceptances began pouring in, and hospital officials wondered whether they would get too many. About 300 retirees agreed to stay up to several months beyond Oct. 1 to avoid disrupting operations.

In the end, the buyout was a success — 816 Brigham Health employees, or a surprising 65 percent, accepted the package, including 232 nurses. About 250 nurses have been hired to replace them, while another 141 nurses are being hired into newly created positions. The Brigham said this shows the hospital’s commitment to maintaining quality patient care while reducing costs. About 450 non-nursing jobs were also filled at much lower salaries.

Layoffs weren’t completely avoided: 31 staffers were let go because of changes in job functions.

One nurse who accepted the buyout was Bradley, who ran the second mattress pad study and has trained staff for a potential Ebola outbreak. At age 65 and after a 27-year career at the Brigham, she considered the retirement offer “a gift.”

She had already planned to cut her time to 20 hours a week but embraced the “perfect opportunity to be able to leave with the package.” She plans to volunteer for disaster responses with the Red Cross.

“I believe there will be a new energy and a new way of doing things” at the hospital, she said. “I’m the old guard, really.”

Some of her colleagues found the decision more difficult. “I’m 64 and I had a plan,” said Greenberg, a nurse educator who started at the Brigham in 1981. She loves her job and her co-workers and was determined to stay four more years “where I belong.”

Then she learned that nurse educator jobs were being eliminated and their responsibilities were being shifted to management. Neither working as a manager nor returning to staff nurse shifts suited her, so she reluctantly took the offer.

Doctors are keenly aware of what will be lost. “These are colleagues who are highly skilled and highly experienced people who we depend on a lot for their expertise,” said Doherty, the chair of surgery. Yet he insisted that with other experienced nurses ready to step into new roles, the impact on the hospital and on patients will be minimal.

Overall, the Brigham has so far found $41 million in savings for the 2018 fiscal year, which starts Sunday.

But the 2019 fiscal year looms, and with it the task of finding perhaps another $50 million in savings. Walls’s team will have to do it all over again.