Banner to trim costs amid down economy

October 31, 2008

By hammersmith

[Source: Ken Alltucker, The Arizona Republic] – Banner Health, the state’s second-largest private employer behind Wal-Mart, will delay the opening of a new hospital in Queen Creek and pursue other cost-savings measures to navigate the slumping economy.

No layoffs are planned for Banner’s corporate or hospital staff, but Arizona’s largest hospital network will trim costs elsewhere to wring out savings. Planned measures include delaying the opening of its Banner Ironwood hospital under construction in Queen Creek, enforcing time-clock procedures, scaling back uniform purchases and changing its short-term disability policies.

Health care has been one of the few economic bright spots with strong job growth and ambitious expansions over the past few years, but Banner’s cutbacks suggest that hospitals are not immune from the slowing economy and Wall Street’s tumult.

Banner CEO Peter Fine said the cutbacks are meant to protect the hospital group’s financial base.

“Two goals of these actions are to ensure our ability to provide the excellent patient care that is promised in our non-profit mission and preserve as many jobs as possible,” Fine wrote in a letter to the hospital group’s nearly 35,000 employees. “I and other senior leaders are convinced that we are wise to take these actions now because they can minimize the possibility later of severe actions should the economy worsen.”

Banner representatives did not say how much money the hospital group expects to save. The moves are meant to shore up the group’s finances for the rest of its 2008 and 2009 budgets.

Banner expanded its reach with more than $1 billion in planned or completed hospital projects through 2010. Expansions included new hospitals such as Banner Gateway Medical Center in Gilbert and new patient towers at Banner Children’s Hospital at Banner Desert Medical Center in Mesa and Banner Thunderbird Medical Center in Glendale. In September, Banner completed a $316 million purchase of Sun Health’s two-hospital system in Sun City and Sun City West.

The projects solidified Banner’s footprint in the Phoenix area, but they come as hospitals face stiff economic challenges.

Many people view health care as a recession-proof industry, said John Rivers, chief executive officer of the Arizona Hospital and Healthcare Association. “What we are seeing today is that it is not,” he said.

Hospitals in Arizona and across the nation have been harmed by rising borrowing costs due to Wall Street’s credit crunch. A hospital system in Hawaii even blamed the tightening credit market for its recent bankruptcy reorganization.

Banner and Catholic Healthcare West have sought to stem off the credit crunch by refinancing bonds. The Arizona Health Facilities Authority, which issues bonds for non-profit health-care facilities, in August and September issued $1.3 billion in bonds on behalf of Banner to fund the Sun Health acquisition and refinance other higher interest rate instruments.

Catholic Healthcare West also sought to cut costs by delaying equipment purchases, reducing contract labor and cutting discretionary spending. More patients now claim financial hardships at the group’s St. Joseph’s Hospital and Medical Center.

“We are seeing the downturn,” said Sister Margaret McBride, vice president of mission services at St. Joseph’s Hospital. “The money that was available is just not available now.”