A major Eastern Kentucky hospital laid off 100 employees Friday in an effort to cut costs and fix what its CEO called the "poor business decisions" of the Pikeville Medical Center's previous administration.
The news comes a week after the credit rating agency Moody's lowered the hospital's credit rating two notches, citing increased labor costs and limited cash flow.
CEO Donovan Blackburn told the Herald-Leader that poor business decisions between 2014 and 2016 — including the hiring of 480 employees that the hospital couldn't afford — were to blame for the hospital's financial problems.
"The financial downturn was really self-inflicted," Blackburn said.
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The hospital hired many of those employees when it opened a clinic in 2015. The following fiscal year was the best in the hospital's history, but as expenses piled up and revenue stagnated, it became clear the hospital needed to cut costs, he said.
The wages of those 560 employees and unexpected turnover of physicians led to a significant decline in the hospital's operating cash flow margin — a figure used by financial analysts to determine the financial efficiency and health of businesses — from 11.7 percent in fiscal year 2016 to 3.1 percent in fiscal year 2017.
The hospital also has seen a decline in cash on-hand, from $174 million to $158 million, and hospital officials told analysts they expect that level to drop to $140 million by the end of the year, according to the Moody's report.
Blackburn said the hospital eliminated about 250 positions by attrition over the past few months. By the end of January, the hospital had also eliminated all of its traveling nurse positions.
"There’s a lot of things that we’ve done that will help us turn the finances around," Blackburn said.
Despite the center's financial woes and the drop in its credit rating, Blackburn said the problems "certainly won’t stop our current growth plans."
The hospital will still have about 130 employees more than it needs following the layoffs, but they will be kept on staff because of growth and expansion projects, including a cafe and expanded pharmacy.
Blackburn said he also hopes some of the employees laid off Friday will be rehired as those expansions take place.
"It’s never an easy time," Blackburn said of the layoffs. "These are great people. My heart and prayers certainly go out to them."
Affected employees will get a 2-week severance package and will be allowed to keep their health benefits through the end of June.
Blackburn said the layoffs do not signify that the hospital is struggling financially. It is simply correcting the poor decisions made when the clinic opened, he said.
"We’ve got a lot of growth going on," he said. "This does not impact our quality of care."