iProtean—Impact of Sequestration on Hospitals

Hospitals face a 2 percent reduction in Medicare payments as early as April 1 under sequestration—this could cost hospitals $3 billion and 73,000 jobs nationwide this year, according to iVantage Health Analytics.


Hospitals, physicians and other providers are hoping that Congress will put together a solution to avoid the cuts before they are actually felt.  If sequestration stands beyond April 1, the cuts would force hospitals to again examine ways to make up for the reimbursement shortfall without compromising medical care.


Many hospital and health system executives have been preparing for the impacts of sequestration since the national deficit talks first began in the summer of 2011. Most hospitals will lose millions in Medicare reimbursements, with larger providers taking cuts up to eight figures. The CEO of an 18-hospital system told Kaiser Health News his system expects to lose $12 million on $2.5 billion in revenue.


Medicare will remain a high-priority issue for hospital executives this year and into 2014, where some say adept budgeting will become paramount.  In anticipation of the 2 percent cut and other recent and projected Medicare reductions, many executives have budgeted very conservatively, and have made or expect to make the necessary budget cuts.  (“Sequestration Set to Kick in, Cut Medicare by Billions,”Becker’s ASC Review, March 1, 2013.)


Experts from Huron Consulting Group’s healthcare division recently offered their perspectives on how sequestration would hit hospitals, three of which are noted here:


  • The healthcare industry needs to reduce its cost structures between 20 and 40 percent, whether the sequestrations cuts take effect or not, said a Huron executive.  Providers still have an urgent need to develop multi-pronged, strategic approaches to reducing costs and improving revenue across their entire enterprise.


  • Cost reduction through better operational and clinical positioning for value-based purchasing becomes more important.  More providers have shown movement on this strategy over the past six to 12 months.


  • Healthcare spending cuts are in the government’s budget crosshairs, whether through sequestration alone, or sequestration plus additional cuts down the road.

(“6 Key Observations on Sequestration and Hospitals,” Becker’s Hospital Review, February 27, 2013)


Health and Human Services says that sequestration will not noticeably affect implementation of the Affordable Care Act.  “Only a small fraction of the $1.6 trillion the Affordable Care Act spends to cover the uninsured over the next decade is subject to the so-called sequester,” said a HHS spokesperson.


iProtean subscribers please note that the recently published advanced courses, Value-based Purchasing & Accountable Care Organizations, Transforming Your Organization into an Integrated Delivery System and Financing Considerations for Integrated Delivery Systems, feature financial experts Marian Jennings, Lisa Goldstein, Nate Kaufman and Dan Grauman.  They offer their perspective on Medicare payment reductions in general and suggest approaches to weather the increasingly restrictive payment environment.




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