What is Whittier's financial condition?
Over the past year, we’ve heard about the need to reduce staff and eliminate programs in order to deal with a financial crisis at Whittier. What is Whittier’s financial condition and how did it get this way?
According to Whittier’s annual financial audits, it has had consistently good financial health over the past 10 years or so, with annual “profits” of around $500,000. However, it began to decline financially a couple of years ago. In FY 2017 it only made about $100,000 in operating profit and in FY 2018 it had an operating loss of $1.5 million, its first loss in 18 years and the largest in its history.
What changed around 2017-2018? Costs remained about the same, including for running and maintaining the building, as well as administrative and programmatic expenses. Grant and fundraising revenue remained about the same. But what changed significantly was a drop in operating revenue generated by providers, since the number of providers dropped significantly. The cost of replacing providers who leave has also been a significant expense.
Turnover and layoffs
In the past year alone, the number of primary care providers (in Adult, Peds, and GYN) dropped by about 60%, a rate 10 times higher than what would be expected at health centers similar to Whittier¹. In the past year, the number of behavioral health therapists dropped by about 30% and RN turnover was 90%.
The reasons for the turnover at Whittier aren’t mysterious – many of us have been frustrated by the working conditions at Whittier, in which we have little voice about the direction of patient care and the organization of our work life. The union was formed in June in part to address that.
The cost of replacing providers who leave is surprisingly high, about $200,000 or more per provider². These costs add up when multiple providers leave. Turnover also creates problems of all sorts within departments, including excessive caseloads and administrative work for providers who remain, scheduling confusion, difficult transitions in care for patients who lose continuity with their providers, and the loss of institutional knowledge when experienced providers leave.
Whittier's contradictory approach to finances
Ironically, Whittier has implemented an approach – a provider hiring freeze and layoffs – which has worsened it’s financial picture. It first used that approach when it fired 20 workers in June, just prior to the union election, arguing that layoffs were necessary due to the loss of unexplained grants that Whittier supposedly didn’t receive. And then it used the argument again after the election, when it fired and laid off union supporters.
But hiring freezes and layoffs of providers worsen Whittier’s financial condition, because providers create operating revenue for the health center through their unique ability to bill for services. For instance, a primary care physician generates about $400,000 annually in net revenue, over and above the costs of salaries, benefits, support staff, and other expenses related to that provider. Providers in all other departments at Whittier also create net revenue for the health center, so the health center loses money every time a provider in any of the primary care or specialty departments leaves.
If it weren’t for a one-time “New Market” capital grant that Whittier received in 2018, it would have suffered a bottom-line loss this year. And that might have even jeopardized the mortgage covenant it has with its bank, a potentially disastrous development.
Really, the only thing accomplished by the recent layoffs of staff was the targeting and elimination of union supporters, not fiscal health.
To become truly fiscally healthy, Whittier needs to dramatically reduce turnover by creating the kind of workplace environment that attracts good providers and makes us want to stay instead of leave. That will without question lead to better care for our patients as well.