St. Luke’s again slashes more payroll
Health system sheds 620 jobs in Houston, Bryan-College Station
St. Luke’s Health System says it and a sister network in Bryan-College Station have reduced their payroll by another 620 employees.
St. Luke’s Health System said Thursday that it and a sister network in Bryan-College Station had cut their payroll by another 620 employees, the biggest fallout yet from the Colorado-based parent company’s continuing financial slide.
The purge, which includes 459 layoffs, has brought the total number of cuts at Catholic Health Initiatives’ Texas division since August to 1,295, about 30 percent more than MD Anderson Cancer Center’s 1,000-employee workforce reduction in January. In those seven months, St. Luke’s has laid off 810 employees, compared to MD Anderson’s 788.
“Like other hospital systems in Texas and across the nation, we recently announced we are working to restructure the CHI Texas division to respond to continued changes in the health care environment,” St. Luke’s said in a statement. “While we have made significant improvements the past few months, we must continue to institute critical organizational changes to further realign our financial performance to sustain and grow our network of care across southeast Texas.”
One analyst blamed the hospital chain’s rapid growth over the past five years, including its aggressive entrance into Houston, where St. Luke’s is considered
an iconic institution but a risky venture because of its aging facilities. The chain paid $1 billion to acquire the Texas Medical Center hospital and regional system in 2013.
“Bigger is not always better,” said Kevin Holloran, a Dallas-based senior director and analyst for S&P Global Ratings, formerly Standard & Poor’s, “Bigger is sometimes just bigger. You have to be able to make things work.”
CHI has 17 hospitals in its Texas division, including the eight in Houston that comprise St. Luke’s, five in the Bryan-College Station area and four in east Texas. St. Luke’s is by far the division’s biggest hospital with roughly 850 beds.
St. Luke’s officials declined to comment beyond the statement, including about how much of their workforce the total cuts represent. The statement said the most recent reductions represent less than 4 percent of the Texas division’s workforce “across 17 hospitals, our employed physician network, our freestanding emergency centers and other assets.”
The announcement came in the same month that the nation’s two largest credit rating services downgraded the debt ratings of CHI, the third-largest hospital system in the nation with 104 hospitals in 19 states. The nonprofit, faith-based health system, which reported operating losses of $483 million in fiscal year 2016, is currently in merger talks with Dignity Health, the nation’s fifthlargest hospital system.
‘Negative’ outlook
On March 21, Moody’s Investors Services cut the long-term debt rating to Baa1 from A3 and also assigned the health care company a “negative” outlook. Three weeks earlier, S&P Global Ratings cut the rating from an A- to a BBB+, just two levels above what is considered “a junk rating.”
The S&P report did affirm “modest but meaningful improvement” over recent quarters, but a coauthor said more is needed.
“It is certainly very unusual where a hospital system falls this far, this fast,” Holloran said in an interview Thursday. He noted that the hospital held an AA rating “four or five years ago.”
The company played down the S&P action in a statement earlier this month to Modern Healthcare magazine. “We expect a strengthening of our financial performance — and a strengthening of our credit profile,” the company said.
CHI’s 2013 acquisition of St. Luke’s raised eyebrows at the time because of the assumed staggering amount it would cost to renovate St. Luke’s aging hospital facilities. The company subsequently affiliated with Baylor College of Medicine and decided to build out its then shelved McNair hospital complex near the VA Medical Center, the Baylor St. Luke’s Medical Center. The complex is still only partially built and the historic medical center hospital, including the Texas Heart Institute, remains in full operation.
The acquisition of St. Luke’s system marked CHI’s entrance into Texas. The organization thereafter acquired the hospitals in the Bryan-College Station area, now known as its St. Joseph Health System; and in Lufkin, Livingston, and San Augustine, now known as its St. Luke’s Health Memorial System.
Holloran described the flurry of acquisitions as the build-up of a “system within a system,” which ultimately did not bring as much revenue as anticipated.
“They did get out over their skis a bit,” Holloran said.
The S&P Global report cited both “strategic and tactical” reasons for CHI’s financial difficulties.
“CHI’s weak performance in this newly acquired market remains a concern,” said the S&P report, which added that the planned move to the 27-acre McNair campus is “expected to be a drag on performance.” The new project is not expected to be completed until 2019.
Turnaround plan
The new cuts were made only in Houston and Bryan-College Station, not east Texas. Previous cuts, announced incrementally, occurred in all three regions, but the division would not provide breakdowns by region.
Those involved workforce reductions of 230 positions, including 60 layoffs, in August; 346 positions, including 202 layoffs, in January; and 89 positions, all layoffs, in February.
The S&P Global report noted that while management’s current turnaround plan has created an expectation for stabilization and modest improvement over the next 18 months — it moved the company from “credit watch” to “stable” in March and said the potential remains — it is S&P Global’s opinion that it will take several years on the current financial improvement trajectory for CHI to return to a higher rating.”
The only other significant workforce reduction in the medical center recently involved Memorial Hermann, which in January laid off 112 employees, mostly managers. A spokeswoman at the time said the reduction was about restructuring to become more nimble, not financial troubles.