Thursday, July 9, 2009

How a $155 Billion Dollar Cut Affects Hospitals

According to the American Hospital Association there are 5,708 registered hospitals in America The Census Bureau estimates there may be up to 7,500 depending on how they are counted. The president proposed to cut reimbursement to these institutions by $155 billion over 10 years to save money on his socializing medicine plan. These hospitals will see a net decrease on this amount assuming everything else stays equal.

Simple arithmetic shows that $155B divided by 5,708 hospitals results in a cut in reimbursements results in them losing $27,154,870 in revenue on average during the next 10 years. Divided by 10, holding the dollars constant, this results in an annual cut of $2.715 million per hospital. This would seem to be a fairly steep cut. To absorb it a single hospital has a few options:

1. If an average full-time nurse earns $60,000 per year, they can layoff about 45 nurses per hospital from the budget.

2. If an average doctor earns $250K per year, they can layoff about 11 doctors per hospital.

3. If an average hospital profession position employee earns $80K per year, they can layoff about 34 of them per hospital.

4. If an average admin assistant or receptionist earns $40K they can layoff about 68 of them.

5. They can deduct it from their IT budget, they can reduce the amount of equipment such as new stethoscopes, or the amount of supplies such as gauze or whatever else.

6. Rather than cut, they can increase fees for hospital parking or on other services along those lines. Maybe charge everyone who parks $10 per car to recoup the loss of $2.7M annually.

7. Perhaps offer new services that generate additional revenue. This could be anything for which a private party is willing to pay in cash. The problem with this is that these services may divert the doctors to doing activities that generate new revenue for the hospital and away from the new patients who walk in the doors. Maybe the interns can take care of the non-paying, non-revenue generating customers.

They will likely combine these items and cut in several areas. It can't really be doctors who get cut. They will actually be in short supply since there is no way the existing number of doctors can adequately provide services once the floodgate of patients come in. It will probably not be as many nurses either since there is a shortage of nurses. It will likely be administrative staff. Cutting admin staff is potentially problematic because they are the ones responsible to ensure bills get paid and there is no fraud associated with the new program.

It is unclear how hospitals can improve the quality of service by cutting staff or how much they can raise revenue by imposing new fees. In any event, how any group involved in providing healthcare services can be for these cuts is mind boggling to me. It also defies common sense as Obama urges that his policy will improve the quality of care. The funny numbers he's proposed just don't make a whole lot of sense. No surprise there.

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