Has Healthcare Reform Made Hospital Layoffs Inevitable?

Federal authorities and industry experts say the link between the healthcare reform law and layoffs is becoming more pronounced.

This week, the Federal Reserve issued its "beige book," which analyzes the economic conditions across various Federal Reserve districts throughout the country. "Employers in several districts cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff," the Fed wrote in the document.

Aside from changes in hiring, some districts like Atlanta are experiencing shortages in compliance experts due to the regulatory complexity of the Patient Protection and Affordable Care Act. Atlanta also reported that higher healthcare costs have "contributed to a modest decline in consumer confidence" related to consumer spending and tourism.

Chicago also reported higher healthcare costs, and the Kansas City district reported that changes in healthcare policy and "fiscal uncertainty" were reasons for delayed hiring.

The PPACA has also been an increasingly causal factor to layoffs at hospitals and health systems. Ken Perez, senior vice president of marketing and director of healthcare policy for Emeryville, Calif.-based MedeAnalytics, led an analysis of hospital layoffs from October 2011 through January 2012. This choice of this timeframe was salient, given the presidential campaign, election outcome and fiscal cliff developments.

Mr. Perez and his team identified at least 60 hospital or health system layoffs announced in that time span, eliminating roughly 4,000 positions. The layoffs were especially concentrated in California and New York.

"Furthermore, the top expressed reason by far for the layoffs was reimbursement cuts to Medicare, almost always with reference to the [PPACA]," says Mr. Perez. "As roughly 4,000 hospitals take Medicare patients, the 60 organizations that announced layoffs represent just the tip of the iceberg."

Even without cuts to federal health programs, more than half of hospitals lose money on Medicare — the average total Medicare margin for all hospitals was negative 4.5 percent in 2010, according to MedPAC. The PPACA's $260 billion reduction to Medicare's funding of hospitals over the next 10 years will amount to a 9 percent cut. The across-the-board federal cuts known as sequestration will chip off another $9.9 billion from Medicare, with a significant portion of that cut carried out via reductions to hospital reimbursements. Sequestration's reductions to reimbursement rates will take effect on or after April 1.

CMS's chief actuary estimated that up to 20 percent of hospitals may become unprofitable as a result of the PPACA's Medicare cuts, but that estimate doesn't factor in the effects of sequestration. "These cuts constitute serious threats to every hospital's financial viability," says Mr. Perez.

In its analysis of layoffs, MedeAnalytics found 53 percent of hospitals cited "reimbursement cuts" as a reason for their workforce reductions. Other reasons included decreased patient volume (27 percent), weak economy or an increase in uninsured patients (25 percent), and restructuring within the organization (20 percent).

Becker's Hospital Review has reported several incidences of hospital layoffs in the past six months. St. Rose Dominican Hospitals in Las Vegas announced it would cut 100 jobs in January due to declining reimbursement. Akron, Ohio-based Summa Health System also attributed its workforce reduction of 54 employees to changes under healthcare reform. These are just a few of the organizations to do so. 

It remains unclear whether the influx of newly insured patients in 2014 will outweigh the effects of reimbursement cuts, but it's important to note both federal officials and industry experts are pointing to what may be considered predictive trends for hospital and health system workforces.  

"It's important to understand the unintended consequences of legislative moves, especially since hospital layoffs can adversely impact both the availability and quality of healthcare, which would undermine some of the core objectives of health reform," says Mr. Perez.

More Articles on Hospitals and Layoffs:

11 Recent Hospital and Health System Layoffs
Outlook for Healthcare in 2013: The Biggest Trends, Opportunities and Threats
12 Recent Hospital and Health System Layoffs


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