With the advent of an economic crisis, Dome has a candid conversation with Johns Hopkins Medicine’s chief financial officer.
Rich Grossi: “One of our highest priorities is to provide jobs for our employees.”
Like millions of other Americans, we may be feeling miserable about our savings and retirement accounts, but we can take heart from working in an industry where job growth is predicted. In fact, the Bureau of Labor Statistics forecasts that health care will generate 3 million new jobs during the next eight years, accounting for 20 percent of all jobs added to the economy over that period, more than any other industry.
Recently, Dome sat down with chief financial officer Rich Grossi to discuss how the economy is affecting Hopkins and its workforce.
How is Hopkins doing?
For the first couple of months of this fiscal year, we’re ahead of target. That’s not saying we won’t be affected by the markets at some point; it depends on how deep this problem drills. But we’ve done about as well as you can do in terms of positioning to avoid being drawn into the credit crisis.
How have we positioned ourselves so well?
First, we have an approach to debt and investments that is pretty conservative. Second, we’ve tended to select partners—banks, investment management firms—that we felt were the strongest we could get. Third, when we see an issue, for instance in the debt market, we respond quickly. Then, the thing that helps us the most is that we’re well respected in the marketplace. That allows us to do some things that others with poor debt ratings might not be able to do. If there is a shortage of available credit, those with higher credit ratings are going to get that money.
What are the institutional priorities during these times?
In addition to being attentive to daily operational issues, our next leadership retreat, which will be held later this month, will focus on human capital. Are we still recruiting good people? Are we providing people with the right kind of workplace? Are we compensating them in a way that is in line with what they do at Hopkins? Are we measuring and appropriately rewarding performance? Then the recommendations that come out of the retreat get converted into a very specific plan. The 10-year capital plan came out of a retreat, as did our diversity plan and our patient safety efforts. There’s a great value in this kind of an exercise.
Are you always monitoring the financial situation?
We have a finance team meeting every Friday. We ask, What do you think is going to happen in ’09 and beyond? Do you think we’re going to have less research and patient care? Will there be the same amount of patient care and more bad debt? What about fund-raising? We know that our investment portfolio and our endowments are already being affected by the investment markets. Then we ask how we’d respond to a range of scenarios from moderate to serious and prioritize potential action steps to maintain the operations of the organization.
What are your goals right now for the organization?
Certainly one of the highest priorities we have is to maintain our organization, keep the enterprise going and provide jobs for our employees. Job security is one of our primary objectives. This is a big deal. We’re proud that we haven’t had any major reductions in force. We’re actually going in the opposite direction. The train is still chugging down the track at 150 miles per hour. The key issue now is how to adjust behavior while we assess the impact of the economy on our businesses.
That’s a rather enviable position.
The nature of our business would suggest that we won’t get the same kind of impact from the economy as others. People will continue to get sick. A major funder of our research is the federal government, so while we might see a reduction in research funding, it won’t be the kind of reduction that you see in the automobile industry, with year after year, 20 and 30 percent drops in sales, or real estate, where basically nobody’s selling anything. We cannot, however, be complacent and must use the opportunity for each employee to rededicate their efforts in areas such as safety, service and efficiency.
I’ve heard the safest jobs are in health care, education and government.
People who work in these industries are very fortunate. In fact, the economy may in some ways work to our advantage because we’ve had shortages of employees and have had to deal with temporary workforces. Some of those people who are in temporary positions might now think that having job security is more important than the level of compensation or convenience.
Does our management style play a part in all of this?
We need to continue to manage as we have. Because we’ve never had large margins, our organization is required to manage every operational and financial issue at a detailed level.
Then there’s oversight. I don’t know if employees know about the caliber of the people who make up the board of trustees.
We have a magnificent group of people, both local and international, who come from all sorts of industries. But it’s not only where they’re from and their qualifications, it’s also the fact that they spend an awful lot of time looking over our shoulder. I would say one of the major accomplishments of the tenure of Ed Miller as dean/CEO has been the depth and transparency of the information that we provide the trustees, which allows them to use their own talents and advise us. That means that when we’re facing times like these, we don’t have to educate them about what our risks are, what our businesses are all about. They know because we deal with them in an intricate fashion. What that creates more than anything else is trust between the organization and its trustees. That’s very important at this time.
What kinds of things do you envision might make the work environment better?
This is just an idea at this point, but think about people who are having stress, not so much in the work environment but because their economic situation has changed. I can imagine that we probably have a few employees who are caught up in the mortgage crisis and have mortgages that exceed their home values. Perhaps they will need a financial adviser. There’s nothing like a recession to bring this sort of stress out.
You mentioned that we’ve had a good couple of months, but we also had a good year last year, too, didn’t we?
We had an excellent year last year and the year before that. The major challenge that we’ve been absorbing in the past two years is the flattening of the NIH funding, which is affecting the medical school, but other than that, we’re ahead of our targets. That’s why, if you look at the results and you look at the behavior of the organization, you look at the demand and the business that we’re in, it’s understandable that there’s no sense of crisis here at Hopkins yet. But, as you can see, in many other areas of our economy, life can change quickly and dramatically.
What if the dominoes begin to fall?
Then there’s going to be some impact, and we can predict some of that right now. We can see that our investments will be affected this year. We think that Maryland’s Health Services Cost Review Commission may roll back future hospital rate increases. The federal government has already gone under a continuing resolution for its budget and that will affect NIH funds. And, even if we work hard, chances are that fewer people will have insurance and there will be a higher probability of bad debts. Then we rely very heavily on gifts. Are we going to get the same number of gifts? It’s a complex model, and I think we need to look at everything and take a best guess as to where we are on them. Finally, and most importantly, we must act decisively and focus our efforts on safety, service and efficiency.
–Reported by Mary Ellen Miller