June 18, 1999

A series of actions to control higher-than-expected expenses for fiscal year 1999 and reduce budget submissions for the year 2000 must be taken to improve the hospital's financial performance, said James J. Mongan, MD, president of the MGH, at a leadership meeting June 15.

"We need the help and support of the entire MGH community to generate ideas to reduce our spending," said Mongan. "I am confident that by working together, we can control our expenses just as we succeeded in bringing down our length of stay."

Hospitalwide efforts resulted in reducing the high length of stay recorded in the first part of FY99 to historically low levels in March and April, Mongan said. While that reduction was critical to helping solve the FY99 financial problems, he noted that it alone was not enough to offset this year's expenses. A review of the year-to-date financial performance through April shows that the hospital's current operating results are $24.5 million behind budget.

According to Mongan, personnel expenses have exceeded budget by 3.8 percent in the first seven months of FY99 — resulting partly from high volume and higher benefits expenses. To help counteract this situation, the MGH will reduce the use of temporary staff and overtime and require authorization from the appropriate vice president and the senior vice president for Human Resources to hire staff for open general fund positions.

"We are undertaking a hiring review, not an absolute freeze," said Mongan. "This review is intended to stop the bleeding of red ink and control the budget." Mongan emphasized that managing vacancies and attrition as well as other management steps will be taken before layoffs are considered.

"As always, we will do our best to close the budget gap without relying on across-the-board layoffs," said Mongan. "Some difficult decisions and changes must be made, and I cannot yet promise that we can avoid layoffs altogether." In addition, Mongan said that efforts are being made to protect the annual wage and salary program in next year's budget.

Because the largest part of the unfavorable budget variance is in supplies and purchased services, Mongan announced that he has created and will chair a task force to investigate the causes of the expenditure overages, improve reporting of expenses and make recommendations to help reduce spending. Dramatic increases in expenses for drugs, blood and medical and surgical supplies — largely because of rising prices and increased utilization — have caused the need for immediate action in reducing these expenses. Mongan also said that there will be a three-month pause on purchases of new kinds of drugs and the formation of a committee to better manage utilization.

Efforts also are being made to control all non-patient-care supplies and purchased services – particularly in the areas of office supplies, catering expenses, travel and seminar fees, consultants and communications equipment, such as pagers and cellular phones. All general fund purchase requisitions must be authorized by vice presidents and/or department heads.

In reviewing next year's budget, Mongan and the management team had expected a $30 million gap that would need to be closed. With the current FY00 budget submissions, however, that gap has increased to $50 million, he said. "We need to get our submission numbers down to move forward with our budget planning for the next fiscal year and still protect our employee base and the hospital's mission."