The Intersection of Austerity & Maintenance of Quality

Open Letter to Pathology Staff:

By now you have read Nancy Schichting's perspective in the Monday Monitor on the economic impact of the economy on HFHS and specifically the fact that the System now needs to make up $50 million from our operating budget to fund our employee pension plan in 2009 due to the loss of investment income. This is a 2009 unbudgeted deficit but required by federal law for pension plans.

I am writing to provide you further important perspective on the financial status of our organization; to tell you the steps we are taking to remain strong and competitive in this market; and to outline what we need from you to succeed. The name of the game is our competitive laboratory business strategy, delighted customers and job security.

I am no predictor of the future. In fact, the future is unknowable. But the strategies we have laid out for integration of the System's laboratories, a unified lab information system and work tools, and a LEAN process improvement culture involving empowered employees contributing to rapid and continual improvement form the framework for our adaptability to the unknown and our ultimate success.

As all of you know the economic environment has been both depressed and unpredictable. The business cycle was hit hard, especially the local autos and their supplier network. The impact to healthcare has trailed the business cycle and, like other health systems, we are seeing some reduction in clinic and hospital visits, and reduction in HAP membership, as more people become unemployed, lose coverage, and become self pay. Pension and retirement funds all over the world lost value and losses to pension funds, including our own, must be caught up with funds from operations. In April of last year we saw some softening in the market and reacted early to hold some positions vacant and reduced spending. These proactive measures helped us avoid more severe adjustments that our competitors are making right now.

The end of this economic downturn is still uncertain and all HFHS business units will be reducing 2009 expense budgets to match declining revenues. In Pathology at HFH and the Medical Centers we are eliminating a number of open positions and delaying some replacements. John Waugh has the particulars and has reviewed these changes which are difficult but necessary. This will reduce costs $1.1 million and eliminate the equivalent of 15 full time positions from the Henry Ford Hospital and Health Network Laboratories.

We are able to do these without layoffs because we started early, and planned well. With your involvement we have and will continue to leverage improvements using LEAN, informatics, and the collective expertise of our team. We will need your understanding and continued support, and we will need you to accept and lead these changes for our technical and support staff.

In addition to these changes in labor costs we must reduce the following: Travel 40%, Advertising 20%, Membership Dues 20%, Subscriptions 40%, Consulting 40%, Moving expenses 20%, Cell Phones 30%, Publications and Reprints 20%, Postage 30%, and Agency and Overtime 20%. For senior professional staff that translates to a $1500. limit for participant travel in 2009. Your PDA funds are not impacted and will remain available to you (non-participant travel and qualifying professional expenses). It is better for us to do these changes than to have outsiders come in and do it for us or to us. I am asking all of you to exercise restraint with requests for staff, travel, and expenses that we cannot honor at this time. We must remain focused on our clinical and academic missions.

Lastly, we will need your understanding and support. It is important that you accept and lead these changes and serve as role models for our technical and support staffs that are being impacted as well. As a leader I expect you to cast a good and positive shadow. It's everyone's hope that we will get through this and return to better days. We have been in difficult positions before and proven that we can be resourceful and get through these pinch points.

We will continue our Service Line integration initiatives that drive quality and value and differentiate us in the marketplace. We need to focus on being the laboratory of choice for new clients and patients to generate new revenue. That means we are all involved in our success, each day, each patient encounter, each specimen, each result, as only superb customer satisfaction, both internal and external, will lead the day. We can no longer tolerate any defect and must move rapidly with our educated staff using the tools and principles of the Henry Ford Production System to design them out of our processes for rework is not a profitable business model and leads to dissatisfied customers who won't return.

Richard J. Zarbo, MD, DMD
John Waugh

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