From: "Norman F. Gruber" <Norman.Gruber@salemhealth.

org> Date: Tue, 21 Feb 2012 17:08:04 -0800 Subject: Important Budget Update To All Salem Hospital Employees Our future as a premier healthcare provider depends on how we react to the challenges around us, how we prepare for what may happen, and the actions we take. We continue to face fundamental challenges in how healthcare is delivered, funded and consumed. Those challenges include lower patient volume, a significant gap between our budget and actual revenues, and the upcoming changes related to healthcare reform at state and nationallevels. The financial reality: lower volume = budget gap You may have heard some of this from your manager or director. The key financial problem we face is that our inpatient volume in the first quarter was down 16 percent. This decline is happening all over Oregon, with hospitals on the coast and I-5 corridor hit the hardest. As a result, Salem Hospitals budget is currently short $8.5 million for the first four months of our budget year. We project the shortage will grow to $24 million for the remainder of the budget year. West Valley Hospital is on budget. Willamette Health Partners continues to demonstrate improved financial performance which is being accelerated by the consolidation of obstetrical services. The new normal in healthcare This isnt just a period of upheaval and uncertainty. What we are experiencing is really the new normal in healthcare. We need to make lasting changes and accept that circumstances will continue to change. Constant change is our reality. Over the last several weeks, directors and Executive Leadership Council have worked to understand the causes of the shortfall and identify areas of greatest impact. We explored options that have the least impact on people, do not involve across-the-board cuts, and offer opportunities to grow and capture revenue. In other words we didnt focus on cuts. Our first priority remains high-quality patient care. In the short term, we need to address the current financial shortfall in a way that preserves this priority. Our long-term approach is to use the Lean Management System to improve quality while reducing costs. The coming changes We have identified almost $30 million in annualized opportunities. While this is higher than the current projected need of $24 million, it will proactively address even more budget challenges we expect in the future.. The opportunities cover four areas, which include: Revenue: Capture revenue by improving clinical documentation, payer contracts and surgery scheduling. Also grow cardiac, orthopedics and bariatric service lines. Expenses: Reduction in contracts, devices, pharmaceuticals, and fixed-cost department overhead. Discontinue the annual picnic. Also, work with staff to eliminate activity that is not adding value to patients as well as make adjustments in department budgets that arent meeting budget. Position: Thirty vacant positions will not be filled, fewer than 30 staff of our more than 3,900 staff will have positions eliminated and will be offered redeployment, and non-productive hours will be reduced.

 Standardization of care: We are working with Medical Staff to standardize care processes as much as possible. By reducing variation, we can reduce costs while improving quality. Our Joint Replacement Center of Excellence is an example. The surgeons, anesthesiologists, nurses and therapists all agreed on a standard process. Quality and patient satisfaction scores increased and costs were reduced by $2 million. We are expecting $5 million in savings by reducing variation in care processes during the next 12 months. In our review process we also reviewed the redeployment policy. We made some changes that give affected employees in good standing more choice, and have confirmed our commitment to redeployment. Facing this new normal in healthcare will continue to require much of us, now and in the future. We need to rely on each other to develop new approaches to manage costs and ensure patient safety and quality. Our leadership team believes we can do this together. Thank you, in advance, for your commitment to our patients and community, and for your support of one another as we move into the future. I encourage you to share your concerns, ask questions and stay involved as we move forward.

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