Kaiser just laid off hundreds. Are more job cuts coming in the health care industry?

More than a year into a deadly pandemic that has pushed health care workers to the brink, Kaiser Permanente announced last week it was laying off more than 200 workers. Earlier this year, Sutter Health made similar reductions.

The job cuts — which come just as doctors, nurses and other employees who help keep hospitals and clinics running are finally allowing themselves to feel hopeful the worst of the coronavirus pandemic is in the past — have prompted backlash from unions and others. But COVID-19 also has dealt a financial blow to many health care providers, raising the question of whether more layoffs are on the horizon.

“I certainly believe so,” said William Padula, a professor of pharmaceutical and health economics at the University of Southern California.

“Hospitals never operate on a very large margin,” Padula said. “If their revenue drops 20 or 30%, as it could have this past year, then obviously they need to cut costs to maintain an operating margin that keeps them able to serve patients in general.”

Kaiser’s net income dropped in 2020 to around $6.4 billion from about $7.4 billion the previous year, and its operating margin fell from 3.2% to 2.5%. Sutter recorded a $321 million operating loss in 2020 and a negative 2.4% operating margin. In a March statement posted along with the financial details, Sutter said the pandemic has “exacerbated” existing challenges such as high wages, regulatory requirements, facility upgrades and investments in technology. Both companies say they scrapped mostly non-clinical positions during their recent layoffs.

“Sutter’s costs exceeded revenue, and such a trajectory seems unsustainable, particularly as both COVID and the health care industry’s structural challenges will remain for the foreseeable future,” the Sacramento-based system said in its statement. “As such, Sutter has begun a sweeping review of its operations and finances. This includes restructuring and closing some programs and services that are seeing fewer patients and redeploying staff to busier parts of its integrated network.”

Kaiser said in a statement that the layoffs are a result of changes to internal operations.

“We consistently look for better ways to achieve operational efficiency, while providing high-quality care and service,” the company said in a statement, adding that it is committed to trying to transition affected employees into other positions within Kaiser.

Health care providers point to a decline in lucrative elective procedures and screenings during the pandemic as one factor driving the drop in revenues and the cuts. Another is the rise of telemedicine, which existed pre-pandemic but skyrocketed last year with social distancing measures and other restrictions in place. The visits are more efficient and require less staff because workers don’t have to greet patients or clean exam rooms between visits.

Padula doesn’t think that’s necessarily a bad thing.

“Telehealth has completely reinvented our health system overnight,” he said. “Administrative overhead is one of the greatest sources of waste in health care spending.”

Video visits also aren’t generally reimbursable at the same level as in-person visits, said R. Adams Dudley, a professor of medicine at the University of Minnesota who studies health care performance and costs and worked until recently at UCSF. So even as they help providers save on staffing costs, they don’t always bring in as much money as regular office visits. 

But not every patient wants to do a virtual visit, and the practice hasn’t been widespread enough for long enough to know for sure that patients can receive the same level of care through a screen. Still, Padula thinks the shift to telemedicine is one piece of a much-needed broader overhaul of health care in general.

“Patients are suffering because we failed to invest in a strong public health infrastructure, and that’s what we see out of COVID-19,” he said. “Obviously, we need to rethink the entire structure of our health care system.”

A recent report prepared for the California Hospital Association suggests hospitals across the state will see losses this year of between $600 million and $2 billion due to COVID-19.

“You can’t just throw an MRI machine out the window and save costs,” Padula said, adding that labor costs “are the first place to go.”

Adams Dudley isn’t convinced the pandemic will set off a wave of permanent cuts, however.

If enough people get COVID-19 vaccines and society returns to some semblance of normal, he said, “it could end up looking like it’s just a blip. … I don’t think we really know.”

The timing of the job cuts seems particularly cruel to workers, some of whom are just scraping by, and to people like Adams Dudley, who called them “a little harsh.”

“We are still crawling out of the pandemic. We’ve dealt with a year of hell,” said Georgette Bradford, a Kaiser Sacramento ultrasound technologist who is not set to lose her job but has colleagues whose positions are being eliminated. “We’ve been fighting for over a year just to keep ourselves and our patients safe. We’ve been dealing with loved ones and co-workers passing away.”

“Why is Kaiser doing this to the people they called health care heroes? They’ve worked for over a year through this grueling pandemic and now they’re losing their jobs,” Ethan Ruskin, a health educator at Kaiser Permanente San Jose, said in a statement this week from the Coalition of Kaiser Permanente Unions blasting the move. “I know Kaiser executives with their million-dollar salaries don’t have to worry about putting food on the table for their families or paying rent, but my co-workers and I worry about these things every day. Shame on them for doing this to the healthcare workers who were on the frontlines of this pandemic.”

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