Twin Cities nurses strike exposes hospitals' big profits, iffy outlook

  • Article by: CHEN MAY YEE , Star Tribune
  • Updated: June 14, 2010 - 9:43 AM

The problems facing Twin Cities hospitals - a shaky economy, patients not paying - factor into their stance with union nurses.

As they walked the picket line last week, outraged union nurses were quick to point out that hospital groups that operate in the Twin Cities turned a profit of $750 million last year.

Why, they asked, couldn't some of that money go into paying nurses? Why the need to push for cuts in nurses' pension and health benefits?

But behind the hospitals' apparent fortune, economic clouds lurk that have forced them to keep a sharp eye on the bottom line. The hospitals continue to grapple with rising unpaid patient bills and cuts in public programs, problems that are unlikely to ease until federal health reform fully kicks in during 2014 with expanded coverage for millions.

And while it's true the hospitals made money in 2009, that came after losses the previous year and an accompanying reduction of some 1,700 jobs.

"I think the next three to four years are likely to be difficult times for hospitals," said Allan Baumgarten, a Twin Cities health care analyst. "The market for services doesn't seem to be growing."

Those challenges, experts say, explain why Twin Cities hospitals were willing to dig in their heels last week, shelling out millions to fly in replacements nurses for a day, rescheduling lucrative elective procedures and risking a protracted confrontation with the nurses.

Thursday's 24-hour strike by 12,000 Twin Cities nurses is over, with no solution in sight. As the Minnesota Nurses Association and 14 Twin Cities hospitals continue the stand-off, the nurses hint that focusing on the hospitals' finances may be their next tactic.

Rose Ann DeMoro, executive director of National Nurses United, the group with which the Minnesota Nurses Association (MNA) is affiliated, said nurses are now considering spilling the beans on "the financial dealings of the hospitals."

The nurses say they are stretched thin and want hospitals to limit how many patients each nurse cares for, citing patient safety.

They also want pay raises of 3.5 to 4 percent in each of three years.

The hospitals want more flexibility in scheduling nurses and cuts in nurses' pension and health benefits, citing economic pressures. They propose raises of 0, 1 and 2 percent.

Comfortably in the black

On the picket line and elsewhere, the nurses have questioned the hospitals' claim of financial hardship.

If the hospitals are really suffering, they say, why did they build all those fancy new buildings? Allina's Abbott Northwestern Hospital built a $110 million heart hospital in 2005, and others have continued to add facilities.

And what about that $750 million profit? Allina, the biggest hospital group, made $292 million last year.

Fairview turned a profit of $240 million, Children's Hospital and Clinics of Minnesota made $78 million; North Memorial Health Care, $42 million; HealthEast Care System, $23 million in profit; and Park Nicollet, $78 million.

In the case of Allina, Fairview and HealthEast, those numbers include some hospitals that aren't involved in the labor dispute, but by any accounting it's clear the hospitals were comfortably in the black.

The nurses are scathing on what they perceive as corporate greed and accuse hospitals of unnecessary extravagance at the expense of patient care.

"If patients could pick between highly skilled nurses and the piano in the lobby and the waterfall, I think they'd pick the nurse," said Mary Scatarelli, a veteran nurse at Phillips Eye Institute.

The hospitals, which are not-for-profit, say they need a bigger cushion to deal with changes coming from health reform and that they can no longer rely on investments because of the volatile market. For example, Allina's operating profit margin doubled last year to about 6 percent.

"Where we've had smaller margins before, we can't going forward, with all the changes coming," said Maureen Schriner, a spokeswoman for the hospitals. "We can't rely on investment revenue the way we have in the past."

Expansion, then crisis

Twin Cities hospitals expanded rapidly in recent years, building new specialty centers and buying up independent clinics.

Then came the 2008 economic crisis, and the realization that health care is not recession-proof.

That year, the hospitals collectively lost $530 million as their investments plunged, borrowing costs spiralled and patients put off seeing the doctor.

Suddenly, the hospitals hunkered down. In addition to cutting 1,740 jobs, they froze salaries for management and other non-union employees and consolidated facilities.

Hospitals also deferred capital projects. HealthEast Care System, which owns four east metro hospitals, delayed a $68 million expansion of St. John's Hospital in Maplewood and another $100 million expansion of Woodwinds Health Campus in Woodbury.

Fairview Health Services put off a $200 million outpatient building on the University of Minnesota campus.

Meanwhile, more patients continue to leave unpaid bills after losing their health insurance along with their jobs. Those who still have insurance have higher deductibles, and not all can pay.

"It's a new day," said Maureen Swan, principal at MedTrend, a consultancy. "Hospitals all get it. People are saying health care is too expensive, how do we get costs down. We can't have a labor cost the market won't pay for."

Swan noted that "nurses have a whole lot of equity with the public. People will say oh, how could we not pay nurses well. The reality is they're part of the cost structure."

Labor is by far the biggest single expense for hospitals, making up between 50 and 60 percent of operating expenses. For example, Allina Health System spent $2.8 billion in total operating expenses last year, of which $1.7 billion went to salaries and benefits. Nurses make up a big chunk of that, since many doctors get paid by medical groups, not the hospitals.

Big pay for bosses

The nurses have also complained about hospital CEO salaries. Allina's former chief executive Dick Pettingill, for example, took home $1.8 million in 2008, the year he retired. His successor, Ken Paulus, made $1.1 million in salary and other compensation in 2008, while he was still chief operating officer. Paulus' promotion would have come with a raise, but his 2009 compensation isn't yet publicly available.

By contrast, a full-time Twin Cities registered nurse makes $79,000 a year on average. Most nurses don't work full time and the average wage overall is $62,600.

Swan, the health care consultant, said that's simply the way the market works. "That's like a flight attendant saying I should be paid under the same model as the guy who runs the airline," she said. Nurses "are barking up the wrong tree."

The nurses bristle when compared to flight attendants or auto workers, groups that have taken big concessions in recent years as their industries restructured.

But some nurses are already feeling firsthand the effects of hospital cost-cutting.

At North Memorial in Robbinsdale, Debbie, a laid-off nurse, marched in the picket line Thursday alongside her red-shirted former co-workers.

Debbie, who declined to give her full name, was laid off in December. She still gets calls from North Memorial when they need extra nursing help. She does it, she says, because it's hard to find a comparable job at her level of pay: $42 an hour.

"I want my job back," she said.

Chen May Yee • 612-673-7434

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