Going out on a professional limb here with my first leadership prediction for 2024. It may well be my last.
Employee organizing at large nonprofit organizations across the country will increase this year and more nonprofit-based unions will be recognized by the federal government.
First and in the spirit of transparency, I am neither pro-employee organizing nor pro-management. I do not subscribe to binary thinking here nor do I wish to reinforce a dysfunctional “us vs them” mentality that is rampant in our political discourse.
Next, in my heart I am pro-mission impact and believe that every nonprofit has a moral and ethical obligation to create the greatest impact in furtherance of its mission. I too believe that such impact can be achieved by individual nonprofits with collective bargaining units provided that (1) management and union leaders are fully aligned on the organization’s overall strategic direction; (2) management and union leaders are committed to maintaining a healthy and respectful working relationship; and (3) management and union leaders follow clearly defined processes to resolve differences.
My perspectives are informed by 15+ years of leadership experience at a community health center. Nearly half of our employees are represented by 1199SEIU United Healthcare Workers East and the local bargaining unit was established many years before my arrival at Whitman-Walker Health. Over time I relied on an engaged management team to successfully negotiate multi-year agreements with union leaders with little drama or operational disruption. With each new agreement, I gained greater understanding of the myriad of cultural, financial, and operational impacts on our business model and our teams. And that translated into more complexity for our operations and greater pressure on our already challenging financial model.
Lastly, when referring to large nonprofit organizations, I think about federally qualified health centers, Planned Parenthood affiliates, and other community health and human services groups born out of social justice and equality movements. These organizations—and notably their employees—have strong emotional ties to community through the day-to-day provision of health and support services. Many employees in fact share lived experiences with patients and clients around their identities, health and racial inequities, food and housing insecurity, public safety, crime and gun violence, and a host of economic concerns. These employees also wish to live in a more equal, more equitable, more just community and, in pursuit of that goal, they will champion specific issues closest to their hearts. And sometimes that means seeking meaningful and equitable change within their workplace.
Now back to my prediction. At a macro level, conditions are ripe for more employee organizing in 2024. Financially, nonprofits are facing significant post-COVID operational and funding challenges. For the first time since 2019, nonprofit leaders are operating their businesses without the benefit of COVID emergency funding from government. This new reality is in stark contrast to the last few years when some organizations received $10 million or more in emergency funding. Today these leaders are openly wrestling with two strategic business questions. What is our post-COVID operating model to advance our organization’s mission? And how do we responsibly fund that model over time?
Now, without the financial security blanket of COVID emergency funding and with no realistic path back to a pre-2020 business model, some leaders are resorting to operational restructurings to close major budget gaps. By restructuring I mean program reductions, employee layoffs or salary reductions, and other non-personnel cost-cutting measures. On the revenue side, leaders are pushing for increased productivity from their health care teams in the hope that it will generate higher 3 rd party and pharmacy revenues. Both options can provide short-term relief from budget hell, yet they do not light the way towards a sustainable, post-COVID operating model. Finding that strategic path will require new and different leadership as well as innovative business planning.
One last thread about my prediction for 2024. It is influenced by selected data points regarding employee organizing in 2022-2023. During this 2-year period, many for profit and nonprofit entities reinstated in person workplace requirements as well as new productivity or accountability standards for telework. And as one might imagine after nearly 3 years of largely working from home, some employees are now pushing back on these management-led initiatives.
Need a few examples of employee organizing? At least 4 major urban nonprofits are in the midst of navigating this new world [check out news searches for Howard Brown Health Center in Chicago, Fenway Health in Boston, and Unity Health Care and Mary’s Center in Washington, DC]. Even the for-profit health and human services world is seeing the first signs of employee organizing [see news on Allina Health of Minnesota and Wisconsin]. Please note that, by offering these examples, I am not calling out or criticizing any specific organization or leader as that would be totally unprofessional. Moreover, humility tells me that I have no earthly idea behind the reasons why individual employees at these organizations want to establish collective bargaining units. My intent here is to simply offer real-world examples where employee organizing is advancing and presenting new challenges and opportunities for leaders.
Of course, a few data points do not make a trend nor validate my prediction. But there are interesting forces at play here that are worthy of reflection. First, more and more clinical care employees at federally qualified health centers are wanting a seat at the decision-making table when their leaders are setting productivity standards and telework accountabilities. Leaders should anticipate more robust discussions and greater employee engagement on productivity and all other workplace matters that directly impact employees’ health and well-being. And leaders should never be surprised if certain employees move to organize at their workplace. Why? Because greater employee engagement on all things operations is the new normal in the post-COVID workplace.
Next, leaders should be aggressively preparing contingency plans to achieve greater financial diversification and long-term sustainability in 2024 and beyond. Specifically, we should outline how our organizations would weather at least 2 years of level funding of our core programs and services from state and federal governments. And such contingency plans must be informed by a cautionary tale from which all can learn.
For far too long, leaders at federally qualified health centers have implemented programmatic expansions built on a one-legged financial stool—namely the net pharmacy income derived from the federal 340b program. Over the years, individual leaders pursued growth strategies and constructed new facilities without ever developing an achievable financial contingency plan. As health center leaders, we could never imagine a time when the pharmacy goose would stop laying golden eggs. After all, federally qualified health centers are the political darlings of our national health care non-system and have operating footprints in hundreds of counties (read congressional districts) across the country. Fast forward to 2024 and the day of reckoning is upon us. So where is our contingency plan now?
One strategic business question continues to perplex me about the overall financial health and well-being of federally qualified health centers. Given that COVID had little or no negative financial impact on health centers’ operations and those centers also benefited from millions of dollars in COVID emergency funding, why are some centers facing major financial difficulties right now? Clearly, there is something more to the story here.
My first assumption here is that the current financial crisis at these centers is not directly attributed to or exacerbated by COVID. The rationale for this assumption goes like this. During COVID, most health centers continued to bill their existing Medicaid and Medicare rates as well as grants from public and private funders as if the pandemic never occurred. Public and private funders wanted to ensure that nonprofits and other safety net organizations could survive this once-in-a-lifetime pandemic. And so this community-wide funders’ response continued long after individual nonprofits receive large amounts of COVID emergency funding (i.e., PPP loans, provider relief funds from Medicare and Medicaid, and various state and local grants). In reality, and as hard as this may be to imagine in the midst of a global pandemic, many health centers reported record levels of operating cash during 2020-2022.
Next and in an odd side benefit, health centers’ short-term operating costs were suppressed during COVID. In the first half of 2020, we quickly implemented telehealth and work from home protocols to provide mission-critical services to the community. This macro transition to telehealth fundamentally altered our existing cost structure. Budget savings are realized from lower than expected medical and office supplies, utilities, and many other non-personnel costs. One thing is for certain during the pandemic. COVID may have wreaked havoc with our patients and clients, our teams, our operations, and our organizational culture, but it did little harm to our underlying financial model.
So then what is the root cause(s) of major financial challenges at some centers?
My working hypothesis is that the financial challenges are in part attributed to market-based and predictable losses in net pharmacy income. Significant losses can occur when one or major high-cost drugs move from brand to generic, when there is a new lower-cost therapeutic intervention introduced to the treatment modality, or when a health insurer or its pharmacy benefit manager limits the health center’s number of contract pharmacies eligible for 340b program savings.
Most health center leaders are acutely aware that their pharmacy generates significant net income derived from the federal 340b program and that this net income heavily subsidizes operations. These leaders also know that certain classes of high-priced brand medications (i.e., antiretroviral, behavioral health, hepatitis, and oncology medications) are major sources of pharmacy net income. Therefore, any market change related to brand-to-generic pricing or therapeutic replacement would significantly reduce net pharmacy income in the short term. In most instances, the health centers know far in advance of such market changes and can reasonably forecast expected operating losses. We also receive advance notice when a health insurer or its pharmacy benefit manager plans to limit our number of contracted pharmacies eligible for the 340b program. There are really no surprises here.
Yet for some unknown reasons during the pandemic, individual leaders at these centers did not take concrete actions to significantly increase revenue or reduce operating expenses in anticipation of known market changes. Instead, these leaders decided to offset the pharmacy net income loss with tens of millions in federal COVID relief funds. Individual leaders effectively chose to fill an ongoing and structural budget deficit with one-time relief money related to the pandemic.
Now at that time, leaders could justify this decision to government agencies using somewhat loose interpretations of provider relief rules related to projected loss revenue. These rules did not require correlation or causation just the mere documentation that the health center lost revenue during COVID. Under such rules, market forces, planned business decisions, or other factors could result in revenue loss yet a health center would still be eligible for relief funds related to that loss. This is somewhat counterintuitive to most laypersons and even more confounding when one considers that, throughout the pandemic, health center pharmacies continue to fill prescriptions and patients continued to take their medications.
There is another leadership factor here to consider. In the face of known pharmacy market changes as well as the continued uncertainties around COVID, some of the very same leaders also elected to spend the remaining COVID emergency funds on a host of one-time priorities rather than to hold such funds in reserve. Now I make no judgments about the veracity or validity of such decisions as such spending may have been justified at that time. Yet I cannot ignore the fact that by doing so leaders accelerated the very timing and size of impact of the forecasted financial storm. Or that this major storm is battering their organization today.
Today many leaders are facing difficult and painful decisions to balance their budgets in 2024. And they can no longer rely on COVID emergency relief as those funds were all but depleted last year. Leaders are also under intense scrutiny as many employees are openly questioning what leaders did or did not do to prepare for the impending storm. Candidly, some do not trust the leaders’ rationale for making hard decisions now that negatively impact employees. Still others are infuriated by what they believe are unnecessary and avoidable restructuring decisions made by leaders who completely missed the ball here. They feel that employees are paying the price for what they believe is ineffective leadership. No surprise then that employees at affected organizations are demanding greater accountability and seeking honest and direct answers from their leaders right now.
For these and a host of other reasons, I offer my leadership prediction for 2024. Employee organizing is here to stay and will likely increase at nonprofits for many years to come. The gauntlet has been thrown down and leaders now face another challenge.
Once more unto the breach, dear friends, once more.