‘Business Has Dramatically Changed’: Munson furloughs staff, freezes capital spending

Munson Healthcare Chief Executive Officer Ed Ness is navigating unchartered waters as he steers the nine-hospital system through the COVID-19 pandemic.

“From a health and business prospective, this is something we haven’t experienced before,” he said. “In the short term, the business has dramatically changed.”

But Ness also is planning for longer-term changes in Munson’s business model. Among them are a fundamental shift to telemedicine, operational restructurings to keep Munson’s smaller hospitals afloat and changes in the supply chain for ventilators, masks and other equipment. “We’re prepared for quite a few scenarios,” Ness said in a mid-April interview.

Ness

At that time, Ness said Munson Healthcare, which employs nearly 10,000 workers, was experiencing a system-wide net operating loss of $7 million to $10 million a month as patient volumes collapsed. “We’re seeing a 50 to 60% drop in volumes tied to the governor’s (stay-at-home) order, which I fully support,” he said. “It’s very significant.”

That order required hospitals to pause elective procedures, such as high-profit joint replacements. And many outpatient services, which make up as much as 80% of the patient volumes at some of Munson’s smaller hospitals, have been cancelled, Ness said.

Munson is furloughing an undisclosed number of workers for up to 90 days, cutting hours for some and reducing salaries by at least 20% for vice presidents and above.

But the health system is maintaining benefits for furloughed workers, who could be called back to work at any time. “We’re balancing our workload with our resources,” said Dianne Michalek, Munson’s vice president of marketing and corporate communications. “We’re trying to be as compassionate as we can.”

Munson also has frozen capital spending, except for clinical equipment, for 90 days. It also has delayed work on putting all of its hospitals on a single electronic health records computer system for the same period.

But planning for the future in other areas continues. Implementing telemedicine, in which providers use telephones, computers and other internet-connected devices to conduct patient visits, was one of Munson’s top strategic goals. COVID-19 has only accelerated that plan.

“I would see this as one of the biggest changes you’ll see” in health care, he said.

Other factors feed into the increased use of telemedicine. For example, Munson doesn’t have enough staff and other resources to meet the growing needs of behavior health, requiring providers to conduct more virtual visits, Ness said.

Telemedicine will become even more important at Munson’s rural hospitals, where patients sometimes have to drive long distances for routine care that can otherwise be performed by telephone or video.

Rural hospitals were struggling financially even before the coronavirus hit because of falling patient volumes, reducing Medicare and Medicaid payments and making it harder to attract key medical staff.

A 2019 study by Chicago-based health care consulting firm Navigant found that 18 unnamed rural hospitals in Michigan, a quarter of all such hospitals, were in danger of closing.

Mark Herzog, an executive in residence at the University of Michigan School of Public Health, said rural hospitals that are part of a larger system have a greater chance of surviving after the pandemic ends.

“Munson is the ideal model for rural hospital systems,” said Herzog, who is a retired CEO of a small hospital system in Wisconsin.

One way Munson is trying to keep its rural hospitals viable is by having them consolidate services. For example, one hospital might be a center for cardiac care, another for orthopedic surgeries and another for infectious diseases.

“I don’t foresee a day when we don’t have health care in these communities,” Ness said. “It may look different. We have to determine what is best done in local communities and what is best done regionally.”

Another area Munson and many other hospitals are examining is how they source medical equipment, including masks, gowns and ventilators.

Hospitals have found themselves in a desperate search for such supplies during the COVID-19 pandemic, in part because so many of them are made in China and other countries.

“One of the things I’m proud of and humbled by is the support of the community and the access (local companies have) given us to personal protection equipment,” Ness said. “Our traditional supply chain dried up. Local companies have been helping us get supplies that we would never be able to get on our own.”

The coronavirus pandemic has demonstrated a need for more domestic sources of supplies and equipment that can be more rapidly produced and distributed during a serious public health crisis, Ness said.

“What this has shown us is that in a time of crisis, we’re pretty vulnerable,” he said. “I see a big push for more domestic production” of supplies and equipment.

Unlike larger health care systems in southern Michigan, Munson has not been overwhelmed in treating COVID-19 patients. Munson was treating 14 coronavirus patients at its nine hospitals in mid-April, including nine at Munson Medical Center in Traverse City.

Munson hospitals have 709 licensed acute care beds, including 422 in Traverse City. “We don’t know how big this will be and when the surge will hit,” Ness said. “We don’t know when things will loosen up and we’ll get back to providing outpatient services.”

Munson, like other health care systems, has struggled to meet the demand for nurses and other health care professionals. That will continue to be an issue in the future, Ness said.

Bret Jackson is the president of the Economic Alliance for Michigan, a labor-management coalition that focuses on health care issues.  Jackson said the COVID-19 pandemic, which has sickened thousands of health care workers and killed dozens more, could scare people from pursuing patient care careers.

“What is really the issue is not the number of beds, but the number of frontline workers who can take care of patients,” he said. “We have to get more people in the health care professions.”

Financially, Ness said he thinks Munson will be able to weather the pandemic storm. He’s expecting a variety of state and federal assistance, including advance Medicare payments for treating patients.

“We’re OK from a cash flow standpoint with the advance payments,” he said. “And we’ve gone into this in a relatively strong position.”

Herzog agrees with that assessment. “They’ve been a well-run organization for a long time,” he said. “They’re as well positioned as anyone I know for this situation.”

 

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