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May 2, 2017

Why some hospitals, large and small, are scaling back their workforce

Daily Briefing

Read Advisory Board's take on hospital strategy in today's uncertain environment.

Facing flat reimbursements and uncertainty about the future of the Affordable Care Act, many hospitals—from small rural providers to major academic medical centers—are scaling back their workforces, Casey Ross reports for STAT News.

Within the past month, hospitals in 10 states have publicly disclosed plans for staff reductions. Several other providers are considering cuts to clinical services, such as labor and delivery, substance misuse counseling, and psychiatric care, Ross reports.

For instance, the Gila Regional Medical Center in Silver City, New Mexico, cut more than a dozen jobs, including several nursing administrators and the chief operating officer position. Hennepin County Medical Center, a public hospital in Minneapolis, said it will cut 2 percent of its full-time staff—about 130 jobs—with the potential for more cuts by the end of the year. The hospital said it lost about $11 million in 2016, in part because of a large uninsured and low-income patient population.

Officials at Brigham and Women's Hospital, which recently announced plans to offer voluntary buyouts and the possibility of layoffs later this year, also cited an in increase in Medicare and Medicaid patients, coupled with declines in reimbursements for those programs, Ross reports. The organization said it is "at a point where we also need to right-size our workforce. ... We owe it to our current patients—and those who will need our care in the future— to tackle the unprecedented financial challenges we are facing."

Staffing cuts reflect shifting patient population, higher costs

According to Ross, the staffing cuts reflect broader industry market changes—such as an aging population that is shifting residents from private coverage to Medicare, which typically reimburses hospitals less than private insurers do—as well as other financial challenges—such as  flat reimbursements, rising salaries, and growing supply costs—affecting all U.S. hospitals.

Further, Ross reports hospitals' financial challenges are "intensifying" as President Trump and congressional Republicans push to repeal and replace the Affordable Care Act (ACA). The replacement plan—which the Congressional Budget Office says would lead to 24 million more uninsured U.S. residents—has drawn strong opposition from provider organizations, including the American Hospital Association and the American Medical Association.

There also is some regional variation in the financial pressures hospitals face, Ross reports. When it comes to the effects of the proposed ACA replacement, Fitch Ratings in a report published in March wrote that "hospital providers in states that expanded Medicaid ... are at particular risk" (Ross, STAT News, 4/30).

Advisory Board's take

Christopher Kerns, Executive Director

Hospital leaders today are operating in an environment of uncertainty, and not just because of the debate over the future of the Affordable Care Act. Adding to the uncertainty is that CMS in the near term could employ a variety of strategies to reduce Medicare spending, including further rate cuts, increased claims scrutiny, changes to value-based payment programs, and a more aggressive site-neutral payments policy. And long-term Medicaid spending and payment rates are likely to be lower, too.

But finance leaders can't afford to respond to this uncertain environment with inaction. We're in a new era of health reform, and executives need to respond to the increasingly consumer-driven marketplace and the broad, bipartisan consensus on payment reform with a deliberate strategy that sets them up for success.

Specifically, no matter what happens with the ACA, finance leaders need to redouble efforts to improve revenue cycle performance through a multi-stakeholder, multidisciplinary approach; craft a cost reduction strategy that includes both near-term savings tactics and high-upside, longer-term cost restructuring; and develop a proactive strategy for embracing risk-based payment in Medicare.

We've detailed Advisory Board's most recent and impactful best practices and strategic guidance for each of those priorities in our new research briefing, "The Finance Leader's Resource Guide." The guide includes 20 specific recommendations for boosting margin performance beyond traditional cost-reduction tactics.

Download the Guide

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