Oct. 8—An analysis of hospital impacts from Medicare cuts over a recent 13-year period indicates cuts required by the healthcare reform law over the next decade could result in more hospital layoffs and increased hospital insolvency.

Researchers at the Center for Studying Health System change examined the effect of Medicare hospital cuts from 1996 through 2009 and concluded the cuts reduced Medicare median inpatient revenue by about 11 percent. Because that cumulative median hospital payment cut is about the same as the reduction in Medicare spending hospitals expect to absorb through cuts required by the Affordable Care Act (ACA), the authors concluded that hospital reactions to cuts required under the ACA might be similar.

The researchers found that when Medicare inpatient hospital prices drop, many hospitals respond by reducing their expenses—principally through staff reductions. The findings run counter to previous research that indicated hospitals that lose money on Medicare recoup that revenue through increased charges to private payers.

"For each $100,000 reduction in Medicare inpatient revenues, a hospital reduces its total staff by 1.69 [full time employees]," the study authors wrote.

The cuts impact for-profit hospitals more severely, with even deeper personnel cuts required by them to offset the lost revenue.

Additionally, the authors projected the effect of the coming ACA-required cuts on revenues, operating expenses, and profits and concluded that the share of hospitals operating at a loss would increase by roughly 15 percentage points, from 10 percent to 25 percent of facilities.

"The claim that large numbers of hospitals will be driven to insolvency by the ACA cuts appears to hold true only for for-profit hospitals—not-for-profit hospitals, over the period examined, fully adjusted their operating expenses to match their newly constrained revenues," the authors wrote. "Hospitals’ operations will clearly have to adjust in coming years to a more constrained revenue environment."

Publication Date: Tuesday, October 08, 2013