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The University of Pennsylvania Health System laid off 450 employees and eliminated a total of 1,100 positions on Tuesday, marking the most aggressive effort to date made by Chief Executive Officer William Kelley to balance the troubled system's budget. The cuts — which come almost entirely from the system's managerial infrastructure — represent a nine percent reduction in the total health services workforce of 13,000. Among those affected are employees of the Finance, Information Systems, Human Resources, Facilities and Marketing programs. The move does not affect the system's 5,000 academic employees, nor are the jobs of those directly involved in patient care affected. The system employed a total of 18,000 people in Fiscal Year 1998. "Our intent is that the patients wouldn't know that there are 1,100 fewer people around here," Kelley said Tuesday morning. The cuts will save the Health System an estimated $50 million in the long run, but administrators acknowledge that there will be heavy short term costs associated with the layoffs. The Health System ran a deficit of $90 million in Fiscal Year 1998 and a similar deficit is projected for the current fiscal year, which closes June 30. Kelley attributed the losses to a combination of payments below the actual cost of treatment and delays in reimbursements, both from the federal government and from private insurers. "This fiscal year will look worse than we had originally expected," Kelley said, though he declined to say exactly how bad the deficit would be. UPHS's financial problems are typical of those affecting hospitals — particularly academic medical centers — nationwide as insurers continue to squeeze payments in an effort to reduce their own costs. Indeed, every major health system in the Philadelphia area posted a loss for the last fiscal year, including UPHS's main competitor, Jefferson Health System, which lost $30 million on revenues of $1.7 billion. Kelley told the University's Trustees in 1997 that he planned to have a balanced budget in Fiscal Year 2000 — which begins July 1 of that year — and these cuts undoubtedly represent the most dramatic measures taken thus far to reach the goal. Administrators have "identified" several possible methods to cut costs, including re ne gotiating vendor contracts and delaying some previously planned space renovation. The workforce reduction will only account for less than one-third of the total amount needed to break even. Kelley explained that hospitals, under the current health care system, are generally not as profitable as they once were. For example, while Penn's own outpatient visits have increased exponentially to 2.54 million in 1999 — up 10 percent this year — its revenue has been largely flat. Professor of Health Care Systems Mark Pauly called UPHS's cuts "inevitable" and said the decision seemed logical given the Health System's current financial crisis. "The costs were running way ahead of their revenues. You can't lose money forever," Pauly said, adding that such personnel restructuring is "pretty much happening across the board." Although administrators expressed their sympathy for the hundreds of laid off employees, they still maintained that their decision was ultimately for the best. "Any layoff is regrettable. However, in this challenging climate, the Health System has