Temple University Health System executives announced a major reorganization today as they attempt to staunch mounting losses and restore financial health to the North Philadelphia hospital network.

All told, some 500 positions, or about 6.3 percent of the nonprofit health system's 8,000 jobs, will be eliminated by June 30.

That includes about 350 employees from across the four-hospital network who will be laid off with the remainder coming from attrition and elimination of now vacant positions.

In addition, certain "non-core" programs will be scaled back or closed, including the obstetrics program at Jeanes Hospital in Northeast Philadelphia. That closure would make Jeanes the eleventh area hospital to stop delivering babies in the last decade.

"A year ago we got knocked off stride in regards to our financial performance," said Joseph W. Marshall 3d, Temple's chief executive officer. "As we look at fiscal 2008, we wanted to reduce our expenses to better align them with our revenues."

That meant taking the difficult decision to lay off good people to cut costs, Marshall said. Management would share in job cuts. Executives who kept their jobs would face salary reductions and freezes.

In fiscal 2006, which ended June 30, the Temple system lost $17 million on about $925 million in revenues, he said. "We were budgeted to lose $27 million this year, but we will do better than that."

Marshall said he expects the changes will result in net savings of $35 million to $40 million.

Anchored by Temple University Hospital at Broad and Tioga Streets in North Philadelphia, the health system is a key safety-net provider in the city.

As other hospitals in the area closed or were converted to non-acute care, the system's hospitals have gotten more patients covered by the low-paying Medicaid program. Those changes undermined Temple's fiscal stability.

"Our Medicaid business has grown dramatically," Marshall said. "In 2001 we were 40 percent Medicare and 32 percent Medicaid. Now we are nearly half Medicaid and 32 percent Medicare."

Some of the problem was self-created as Temple closed and converted acute-care beds at Neumann Medical Center and Episcopal Hospital. But much remained outside the health system's control.

For example, the slow decline of MCP Hospital in East Falls and its 2005 closure increased the Temple's Medicaid burden.

In addition to the layoffs, Marshall said Temple has attempted to eliminate the hiring of temporary or agency workers including nurses. And in order to maintain savings from the job cuts, overtime spending would be limited.

"You don't want to get creep back, he said.

Temple's financial woes led Moody's Investors Service to put the system's $340 million in bond debt on a watch list for possible downgrade earlier this month. The New York bond-rating agency cited revenue pressures from Medicaid as reason for concern.

Moreover, Moody's stated it was concerned the system's "strategies to reduce losses may potentially have a negative impact on future performance."

Marshall, however, remains upbeat about the system's long-term prospects. He said the system continued to look for opportunities to grow in certain areas even as it dealt with losses through spending cuts.

But major challenges still loom with proposed federal cuts to Medicare and Medicaid spending in addition to state Medicaid reductions.

"We have an environment that is probably beyond the individual control of anyone . . . and that is why we have to do things like" job and program cuts, Marshall said.

In addition to the university hospital and Jeanes, the Temple system includes Northeastern Hospital and Temple Children's Medical Center.

Contact staff writer Josh Goldstein at 215-854-4733 or jgoldstein@phillynews.com

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