Jefferson to eliminate 500 positions and trim top executives’ pay as losses mount from COVID-19

Thomas Jefferson University plans to cut 500 positions through attrition, cut the pay of top executives, and stop retirement-plan contributions for a year as one of Philadelphia’s largest employers struggles to stem losses.

Jefferson Health, which expanded from three to 14 hospitals from 2015 to 2018, has been hit extra hard by COVID-19 shutdowns that have delayed elective surgery and weakened its finances.

“The reality is, unless addressed, the pandemic will dramatically affect our ability to fulfill our mission,” wrote Stephen K. Klasko, president of the university and chief executive at Jefferson Health, in an internal email to staff, which was obtained by The Inquirer. “If there is just one takeaway from this communication, it should be that our primary goal was to do all we could to preserve jobs and maintain current levels of pay for as many employees as possible.”

The announcement in an email last week represents a rare reversal for Klasko, who is continuing to build Jefferson’s hospital empire and a new 19-story tower at 11th and Chestnut Streets, while he dreams of challenging the region’s largest insurer, Independence Blue Cross, by expanding into health insurance.

Has Klasko undertaken too much especially as COVID has wreaked havoc with hospitals all over the region?

“It’s a really hard business," said Joseph “Chip” Marshall, chairman of the Temple Health System, who stressed he was speaking generally of hospitals since he has not seen Jefferson’s finances. "Add to it what’s going on with COVID and a lot of your bread and butter has been cut off for months. It’s more than elective surgeries not happening. It’s also people afraid to come onto the campus, even to the emergency room, which is a source of referrals. And people not engaging in behaviors that get you into the hospital.”

“They took an enormous hit from Covid. They got clobbered," as would-be patients are staying home, and also suffered a big increase in pension obligations after actuaries adopted more-realistic investment assumptions, said Joshua Nemzoff, chief executive officer at StoneBridge Healthcare LLC, a hospital merger-and-acquisition consultant in New Hope.

Jefferson logged an operating loss of $298.71 million in the year ended June 30 even after it received $320 million in government grants to help it withstand the financial devastation of COVID-19, plus $420 million in advance federal payments, which it will eventually have to return.

That adds up to a $1 billion drop in patient cash flow, partly masked by the temporary government aid, noted Nemzoff. “They still have a lot of cash,” he added. "But they have not gotten back all the way to where they were pre-Covid, which is why they are trimming expenses, as they should be. Now who knows if they or anybody will get back to where they were?” (Added Oct. 13)

Klasko wrote that he remains determined to keep upgrading facilities and remain competitive even if it means leaving hundreds of jobs unfilled. Jefferson employs more than 32,000 people and ranks as the city’s second-largest employer after the University of Pennsylvania, according to state records.

Penn is a tough competitor: it plans to open a high-rise expansion along 33rd St. next year, a move that is expected to attract doctors looking for new patients, at the expense of Jefferson and other rivals.

Jefferson’s losses drove results below bank lenders’ profit targets, forcing the system to hire a consultant to help it work on financial recovery plans. It also canceled a landmark deal on May 5 to acquire the prestigious Fox Chase Cancer Center from the Temple health system.

Now a Jefferson committee charged with “enterprise turnaround and transformation” has recommended cuts, and Jefferson is executing them, Klasko told staff:

- An effective hiring freeze that will “reduce our headcount by 500 [to] 600 fulltime employees” by leaving open jobs unfilled and “reassigning work to already busy colleagues.” Klasko did not say if any current employees will be terminated.

- “Significant reduction” -- how much, he didn’t say -- in compensation to Klasko and other senior executives

- “Consolidation of services and restructuring of positions” in unnamed departments.

- Jefferson will temporarily suspend employer contributions to all retirement plans for employees in 2021, saving $140 million.

- A pay freeze will be instituted, including a ban on merit and annual increases normally paid in January.

The cuts, Klasko added, will “preserve at least 2,000 [to] 2,500 jobs.” They will also allow Jefferson to continue the empire-building “capital investments” that Klasko believes will keep Jefferson “state of the art” competitive amid “the reimagining of healthcare, education and discovery.”

So Jefferson will continue building its planned hospital towers in New Jersey and the proposed Specialty Care Pavilion at 1101 Chestnut St. , which will cost a cool $762 million, according to Jefferson. Updates to medical records technology and other infrastructure will also continue at its Northeast Philadelphia and Abington hospitals.

“This IS our future and we must stay the course!!” Klasko added for emphasis. It’s all “for the greater good of our fellow colleagues,” he wrote, urging prospective critics to “think of the whole.”

Klasko blamed COVID-19 restrictions, which he said were the most disruptive event of his career, for Jefferson’s weak finances.

“Prior to the pandemic, we were on a path to see a record number of patients and enroll a record number of students,” he wrote. After the virus is overcome, “we will put the financial struggles of 2020 well behind us and continue that growth trajectory," emerging “a stronger institution.”

Jefferson has been on an expansion tear. Its 14 hospitals include the former Aria hospitals in Northeast Philadelphia and lower Bucks County, as well as Abington Hospital in Montgomery County. Jefferson is in federal court seeking to take over four more hospitals of the Einstein Healthcare Network, giving it a broad geographic sweep across Bucks and Montgomery Counties. The Federal Trade Commission -- along with the Pennsylvania attorney general -- are seeking to block the takeover, saying it will raise hospital prices in the area.

Staff writer Bill Bender contributed to this article.