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Rapid City-based Regional Health is undergoing a period of belt-tightening to address a 2-percent budget shortfall over the final three months of its fiscal year.

Regional operates five hospitals and 24 clinics, employing more than 5,000 physicians and caregivers in 20 communities in western South Dakota and Wyoming.

A March 29 memo sent to physicians and caregivers from Regional Health CEO Brent Phillips, obtained by the Journal and later confirmed by a Regional Health spokesman, outlined the steps being taken to address the shortfall, caused, the memo stated, by “soaring health care industry costs, uncompensated care, declining reimbursements and regulatory and policy changes.”

The measures, to be implemented from April 1 through the end of Regional Health’s fiscal year on June 30, include:

• Minimizing overtime and premium pay.

• Intentionally not filling non-essential, currently vacant positions, or open positions resulting from natural attrition.

• Restricting expenses, including non-critical minor equipment purchases, travel and discretionary spending.

Additionally, members of management are being asked to take seven days (56 hours) of paid time off, with all caregivers who are within 10 hours of the paid time off maximum asked to take seven days off between April 1 and June 30.

One factor cited in the shortfall included the cost of implementing a system-wide electronic medical records system, called Epic, which Regional Health began using last fall.

“While this investment was foundational and necessary to meet the future needs of our community, the costs of the software licensing fees, training, hardware, consulting fees and other operational costs has impacted our financial performance,” said a statement emailed to the Journal.

The system has reportedly slowed doctor production, reducing the number of patients seen, and slowed the payment process, with cash flow suffering as a result.

According to information supplied by Regional, the health care system is not alone in seeing a drop in cash flow with the implementation of an electronic records program.

They cited the case of the MD Anderson Cancer Center in Houston, which suffered a $160.5 million (or 56 percent) drop in adjusted income after implementation of electronic health records system, contributing to a loss of 1,000 jobs, a 5 percent drop in its workforce.

California-based Sutter Health’s one-time EHR implementation costs contributed to the health system’s 31 percent decrease in operating income.

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The drop in cash flow because of implementation of a records system is temporary, according to a 2017 study by Moody’s Investors Service. Those hospitals which saw an average 10 percent decrease in cash flow saw improved results in revenue and bad debt the following year.

“Epic costs a bit to implement at this point, but in the long term, we’ll make that up, and then some,” said Regional Health spokesman Dan Daly.

Phillips said the budgetary measures, in effect through the end of June, will not affect services offered by Regional Health or the safety and quality of the care provided to patients.

“We have been very thoughtful in our decision-making to minimize the impact on our caregivers and patients,” Phillips said.

“Our commitment to our patients and each other is unwavering,” he said. “Together we will work through our current financial challenges.”

(Editor's note: the above story has been changed to reflect paid time off for caregivers within 10 hours of the maximum time off.)

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