Medicare is a central issue in the current presidential campaign. As neither President Barack Obama nor Governor Mitt Romney wishes to be perceived by the large and important voting bloc of senior citizens as the one that "hurts" Medicare or the one that cuts Medicare more than the other candidate, Romney and his vice presidential running mate Paul Ryan have contended, citing an estimate provided by the Congressional Budget Office in a July 24, 2012 letter to Speaker of the House John Boehner, that the Patient Protection and Affordable Care Act will reduce the federal government's spending on Medicare by $716 billion from 2013-2021.[1]
A deeper analysis of the CBO report indicates that a majority of that figure, $415 billion, reflects reductions in the annual updates to Medicare's payment rates for most services in the fee-for-service sector (other than physicians' services), including reduced payments for hospital services of $260 billion from 2013-2021.[2] For 2013, the decrease in hospital reimbursements by Medicare will be roughly $20 billion.
What will be the impact of just that single-year cut on hospital employment? In early September, the American Hospital Association, the American Medical Association and the American Nurses Association released the findings of a study by healthcare consulting firm Tripp Umbach. The study assessed the employment impacts of the Medicare cuts specified by the Budget Control Act of 2011 or the so-called debt deal." Under the BCA's sequestration procedure, Medicare will be cut by two percent per year over the next 10 years. For 2013, the total cut to Medicare is slated to be approximately $11 billion,[3] of which almost $5 billion would be taken from hospitals. Although it was intended to be an assessment of the negative employment effects of the BCA, the Tripp Umbach study also furthers our understanding of the general relationship between revenue and employment levels for healthcare providers. Per the study, every $1 billion in reduced funding of hospitals — absent other cost-saving measures — would directly necessitate the shedding of approximately 20,000 hospital jobs.
Thus, in 2013, the PPACA-mandated $20 billion cut to Medicare reimbursement of hospitals could directly result in the elimination of 400,000 hospital jobs, which would translate into the loss of over 100 positions for the average hospital. (For the sake of conservatism, what Tripp Umbach terms the indirect and induced employment impacts — the so-called "multiplier effect" — are excluded from these figures.)
What would be the likely impact of these staffing cuts on access to and/or quality of care? Bill Galston, a former adviser to President Bill Clinton and senior fellow at the Brookings Institution, commented, "Whether the providers will respond by reducing access to services or the quality of those services, or respond the way the administration hopes they will by continuing to deliver the services at a lower profit margin, remains to be seen."[4] Wishful thinking aside, given the already-thin or negative profit margins for many hospitals and the enormity of the PPACA-driven reimbursement reductions — over four times the possible cut resulting from the BCA in 2013 — the former would appear to be most likely outcome, ultimately to the detriment of Medicare beneficiaries.
Since hospitals will also be subject to numerous fee-for-value healthcare delivery reforms which provide economic carrots and sticks based on quality performance, they could very well find themselves sitting on the horns of a dilemma — tempted to reduce the volume and/or quality of patient services as a way to cope with the PPACA's reimbursement cuts, while at the same time motivated to not cut corners and excel at the fee-for-value programs.
Footnotes:
[1] Elmendorf, Douglas W., letter to Speaker of the House John Boehner, July 24, 2012, p. 13.
[2] Ibid., p. 14.
[3] Tripp Umbach, “The Negative Employment Impacts of the Medicare Cuts in the Budget Control Act of 2011,” September 2011, p. 7.
[4] Dwyer, Devin, “Fact Check: Romney’s Plan to ‘Restore’ Medicare Spending Cuts,” http://abcnews.go.com, Aug. 16, 2012.
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A deeper analysis of the CBO report indicates that a majority of that figure, $415 billion, reflects reductions in the annual updates to Medicare's payment rates for most services in the fee-for-service sector (other than physicians' services), including reduced payments for hospital services of $260 billion from 2013-2021.[2] For 2013, the decrease in hospital reimbursements by Medicare will be roughly $20 billion.
What will be the impact of just that single-year cut on hospital employment? In early September, the American Hospital Association, the American Medical Association and the American Nurses Association released the findings of a study by healthcare consulting firm Tripp Umbach. The study assessed the employment impacts of the Medicare cuts specified by the Budget Control Act of 2011 or the so-called debt deal." Under the BCA's sequestration procedure, Medicare will be cut by two percent per year over the next 10 years. For 2013, the total cut to Medicare is slated to be approximately $11 billion,[3] of which almost $5 billion would be taken from hospitals. Although it was intended to be an assessment of the negative employment effects of the BCA, the Tripp Umbach study also furthers our understanding of the general relationship between revenue and employment levels for healthcare providers. Per the study, every $1 billion in reduced funding of hospitals — absent other cost-saving measures — would directly necessitate the shedding of approximately 20,000 hospital jobs.
Thus, in 2013, the PPACA-mandated $20 billion cut to Medicare reimbursement of hospitals could directly result in the elimination of 400,000 hospital jobs, which would translate into the loss of over 100 positions for the average hospital. (For the sake of conservatism, what Tripp Umbach terms the indirect and induced employment impacts — the so-called "multiplier effect" — are excluded from these figures.)
What would be the likely impact of these staffing cuts on access to and/or quality of care? Bill Galston, a former adviser to President Bill Clinton and senior fellow at the Brookings Institution, commented, "Whether the providers will respond by reducing access to services or the quality of those services, or respond the way the administration hopes they will by continuing to deliver the services at a lower profit margin, remains to be seen."[4] Wishful thinking aside, given the already-thin or negative profit margins for many hospitals and the enormity of the PPACA-driven reimbursement reductions — over four times the possible cut resulting from the BCA in 2013 — the former would appear to be most likely outcome, ultimately to the detriment of Medicare beneficiaries.
Since hospitals will also be subject to numerous fee-for-value healthcare delivery reforms which provide economic carrots and sticks based on quality performance, they could very well find themselves sitting on the horns of a dilemma — tempted to reduce the volume and/or quality of patient services as a way to cope with the PPACA's reimbursement cuts, while at the same time motivated to not cut corners and excel at the fee-for-value programs.
Footnotes:
[1] Elmendorf, Douglas W., letter to Speaker of the House John Boehner, July 24, 2012, p. 13.
[2] Ibid., p. 14.
[3] Tripp Umbach, “The Negative Employment Impacts of the Medicare Cuts in the Budget Control Act of 2011,” September 2011, p. 7.
[4] Dwyer, Devin, “Fact Check: Romney’s Plan to ‘Restore’ Medicare Spending Cuts,” http://abcnews.go.com, Aug. 16, 2012.
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