You are the CEO of a medium-sized, 400-bed hospital in a northwestern city. It is entirely nonunion and has never experienced an employee layoff since its inception. Occupancy rates in the hospital had run between 76 and 82 percent from 1990 to 2002. However, since then, occupancy has fallen to 57 percent. The decline has been experienced throughout the industry and is the result of changing reimbursement policies, emphasis on outpatient services, increasing competition, and the financial meltdown of 2008-2010. The declining occupancy rate has affected the hospital revenues to such an extent that it ran a deficit for the first time last year. The only response to these changes thus far has been a tightening of requirements for equipment or supply purchases. However, this is not enough.

The projected deficit for the coming year was $3,865,000, unless some additional revenue sources were identified or some additional savings were found. The Board of Directors recommended you consider laying off up to 10 percent of the hospital's employees with an emphasis on those in "nonessential" area. However, the director of Human Resources has a concern that the layoffs themselves might be costly in terms of lost investment in some of the laid-off employees, higher turnover costs, lost efficiency, potential lawsuits, and lower morale.

Here are some financial and personnel statistics.

Table 1. Percentage Distribution of Performance Appraisal Summary Ratings by Department at the hospital.

Department

Unsatisfactory:

Needs to Improve Substantially

Questionable:

Needs Some Improvement

Satisfactory:

Meets Normal Expectations

Outstanding:

Substantially Exceeds Norms

Nursing

6.4

6.4

54.2

33.0

Allied Health

5.7

6.2

47.8

40.3

Central Administration

2.7

3.1

67.5

26.7

Dietetics/Nutrition

2.1

6.2

68.3

23.4

Housekeeping/Maintenance

7.8

12.4

54.6

25.2

Medical Staff

1.1

6.2

63.8

28.9

Table 2. The Distribution of Employment and Payroll Expenditure at the hospital.

Department

Number of Employees

Payroll ($)

Annual Turnover Rates (%)*

Nursing

602

$15,050,000

12.2

Allied Health

261

5,741,000

8.7

Central Administration

154

6,160,000

3.5

Dietetics/Nutrition

65

1,430,000

7.3

Housekeeping/Maintenance

36

540,000

8.4

Medical Staff

32

1,680,000

2.1

Total

1,150

$30,602,000

9.5*

*Represents weighted average turnover for all employees.

Please use given information to:

A.Identify the major problem or problems at the hospital and the cause of each.

B.What are some alternatives for dealing with these problems? For example, Given the debt level, is it possible to avoid employee layoffs through the use of attrition?

C.Given the instructions of the board, identify what areas are non-essential and why.

D.Develop a plan for implementing employee layoffs over the next year that will generate $3 million in savings. Give specific details concerning departments affected, the use of seniority versus merit, the amount of notice, and out-placement activities. What additional information will you need? Provide a rationale for each recommendation, together with reasons why other alternative approaches were not chosen.