Layoffs In Store For Group Health, CFO To Resign

Group Health has announced executive vice president and CFO, Richard Magnuson, will resign soon, report the Seattle Times and Puget Sound Business Journal (PSBJ).  Furthermore, the company has announced employee layoffs are in store as $250 million in cuts must be made over the next 16 months.

An email sent Sept. 14 from Scott Armstrong, Group Health’s CEO, was quoted by the PSBJ:

“We will identify areas where we must eliminate some jobs that are currently filled,” Armstrong said in the letter. “We don’t know where or how many, but we will be focused, respectful, and strategic about any reductions.

And we will act decisively because we recognize that uncertainty about change is as disruptive as the change itself.”

Armstrong is a contributor to our new book “Dear Governor: About the State of Reform,” which will become available in October.  His contribution to the book can be viewed by clicking here.

In his email, Armstrong also outlined the following measures to address the company’s projected budget shortfall:

1.
A stronger focus on capturing savings for this year. First, we need to wring every dollar out of the smart work we’ve already started, because the millions of dollars in savings that we’ve already identified are still within reach. These savings come from reductions in unnecessary clinical expenses, and from tighter controls over hiring and labor budgets. We’ve already negotiated new contracts with many hospitals, built new market-specific plans, implemented more aggressive claims review processes, and pushed ahead with a variety of new medical management strategies. We cannot back off from this work.
2. 
Changes to our budgeting process. Our 2013 planning process will now involve developing detailed budgets for every accounting unit. Budgets are a financial tool to enable greater discipline and control. They will force us to make a lot of tough choices about the best way to spend our limited resources. We cannot avoid those choices any longer. As we do this, we will be very careful to avoid cuts in one area that trigger more expenses somewhere else. That’s not smart because it doesn’t save money or improve organizational results.
3.
Engaging an external consultant. We have hired Navigant, a financial management consulting firm that knows how to help health care systems improve business performance. We will work with Navigant to identify areas where our costs are higher than our competitors and to accelerate the work ahead of us. They will also help us build the systems and capabilities that will ensure that we avoid these problems in the future.