Marshfield Clinic cuts executive pay by 15%

Marshfield Clinic Health System has announced what it calls a temporary pay and benefits cut for employees, including executive staff, as it continues to try and cope with ongoing financial difficulties.

The pay cuts come after the company engaged in layoffs earlier this year. Marshfield is also expected to finish a merger with Minnesota-based Essentia in several months.

According to a company announcement, executive staff and the Marshfield CEO will take a 15 percent pay reduction. Directors’ pay will be cut by 10 percent, and the system will suspend all company-match contributions to employee retirement accounts.

In a statement to WSAW, Marshfield executives stressed that the cuts were temporary, necessitated by what they called a need to weather financial challenges impacting the health care industry, which is facing rising supply and labor costs, low reimbursement from Medicaid and Medicare, among other hardships. 

“These temporary changes will help us achieve financial sustainability while maintaining patient care, access and safety,” the company stated. “We are among the largest employers and economic drivers in the communities we serve, primarily rural communities who depend on having access to high quality care delivered locally. Our patients, employees and all who reside in those communities expect us to take the necessary actions to achieve financial sustainability.”

The cuts will take effect Dec. 3 for salaried prepaid or Nov. 26 for salaried postpaid or hourly, according to WSAW. 

A mighty struggle

The announcement comes after a gruesome fiscal year in 2022.

For the year, the System suffered a major downturn with its operations bleeding into the red by nearly $368 million, its cash on hand plummeting by more that 25 percent over the previous year, and its income levels falling below the minimum required by a debt service covenant.

The bleeding continued into 2023, as the system reported a 4.2 percent first quarter operating margin loss of $32.6 million. That ranked the System just 26th out of 30 large ranked hospital systems in the country.

The System attributed the mounting financial woes to ongoing inflationary pressures and problems arising from the implementation of a health records system, as operating margins for hospitals around the country continued at below normal averages.

However, consultants hired by the system also flagged lagging physician productivity, inefficiencies in revenue cycle management and inpatient care, and the need to reduce staff size and salaries.

Earlier this year, the System’s credit rating was downgraded both by Fitch and S&P Global.

“The rating action reflects our view of Marshfield’s history of uneven performance with sizable operating losses in fiscal 2022, with expectation of lighter performance in 2023, and a weakened balance sheet profile,” Suzie Desai, S&P Global Ratings credit analyst, said in February.

In March, the System announced the layoff of 346 employees.

“We are not immune to the immense pressure and unprecedented challenges gripping the health care industry in recent years, which has required us to identify ways to be more efficient and more resourceful,” Dr. Susan Turney, then the System’s CEO, said in announcing the layoffs. “Reducing staff is always painful. This is ultimately about preserving the long-term efficiency and sustainability of our organization.”

The system also eliminated more than 500 unfilled positions.

Because it missed its debt covenant requirement that its income available for debt service be at least 110 percent of the maximum annual debt service requirement, the System was obligated to hire a consultant to assess its operations. 

The consultant hired by Marshfield, Forvis LLP, recommended even more action. Among other things, Forvis stated that, based on historical and budgeted data, “it appears that the System is becoming more inefficient in its care for its inpatient population,” its initial denial rates were significantly above industry benchmarks, and salaries, benefits and contract labor as a percentage of net patient service revenues were high compared to peer health systems.

In an April 21 filing, Marshfield amended its debt service coverage ratios for 2022 and the first quarter of 2023, effectively having them waived.

Marshfield is expected to close its deal to merge with Essentia sometime in the next few months.The merger would create a new and integrated regional health system serving rural and mid-urban communities across four states — Wisconsin, Minnesota, Michigan’s Upper Peninsula and North Dakota.

“Discussions the past few months have made it clear that this is an incredible opportunity to enhance both health systems, solidify our futures, and take patient care and services to an even higher level,” Turney said last spring. Turney has since stepped down.

By joining together, Essentia and Marshfield Clinic say they will combine the strengths of both organizations and will bring greater access to primary, specialty and hospital care through a diverse network of 3,800 providers and 150 sites of care, including 25 hospitals.

The organizations also says that through their merger, both organizations will be better positioned to navigate current and future challenges to health care — especially rural health care — and preserve the sustainability of high-quality care in our communities.

The integration agreement was preceded by the signing of a memorandum of understanding in October 2022.

Richard Moore is the author of “Dark State” and may be reached at richardd3d.substack.com.