Health Care Lay-offs Becoming the Norm

6793824321_398d881757_nThe figures in the government’s monthly jobs reflect the massive layoffs occurring in the health care industry. Health care companies eliminated 6,000 positions in December after a year of slow hiring. Nursing homes had the largest numbers, with a loss of 3,900 jobs. Home health care was a close second with a loss of 3,700 positions. In addition, there were only 207,600 jobs added in the industry in 2013, which was down from 320,600 in 2012, making it the slowest year of growth since 1999.

Amy Youngblood Amacker is an industry leader in the area of health care business development. “I recall when the Prospective Pay System was first a whisper in the 1990s,” says Amacker.  “I can remember the knee-jerk management strategies that unfolded from attempts to proactively address the forthcoming changes. I believe that some of what we are experiencing now in terms of downsizing, across the board in health care, is another knee-jerk management reaction to the changes we are incurring with the unfolding of the Affordable Care Act (ACA).

“It is impacting healthcare on all fronts,: continues Amacker. “From the independent practitioner/MD to the larger health care systems, such as the Cleveland Clinic, not one provider of health care is immune. Reimbursement, the ability to continue to provide under certain plans, regulatory changes, all of these factors are funneling the field of available providers and options down to a few. Health care delivery is becoming more streamlined than ever. Tele- health and the elimination of all non-revenue producing positions in the industry are just two of the immediate responses to the looming changes.

“Our health care needs are growing, but the ability to fund the programs and providers that are necessary to sustain our growing aging population and the number of ill consumers is shrinking exponentially,” Acker explains. “Our primary traditional provider reimbursement resource, Medicare, is undergoing major changes. This historically broken system is now the springboard for a new reimbursement system, the Healthcare Market Place, courtesy of the ACA. Knee-jerk management strategies, as we have seen with the roll out of the Healthcare Market Place website, will no longer suffice. The management strategy of gutting an already broken system of its vital resources (clinicians and employees), will also not prove to be an effective long-term strategy. As those of us in healthcare know, change in the system is inevitable. How we manage around the changes determines everything.”

Healthcare management and marketing professional Rajib Ghosh  agrees that the ACA is having an effect, but he is optimistic about the future of health care employment. “Health care delivery is undergoing rapid disruption, primarily caused by the ACA.  I believe the disruptions will continue, and the industry will change. ‘Fee-for-service’ will be out and ‘pay-for-performance’ will be in. Providers will be compensated by the quality of care they deliver not by the volume of care as in the past. Penalties are in place to prevent unnecessary hospital readmissions within 30 days of discharge. Value-based Purchasing and Triple Aim will drive provider behavior towards decentralization of care. That means more patients will be seen in ambulatory care settings. ‘Prevention and population health management’ will be the new mantra. Staff requirement for those areas will increase during the next few years until the aging doctors, nurses and technicians start to retire. That will then drive up demand for employment in big hospitals again.”

Ghosh also believes that technology is partly responsible for budgeting issues and that it will continue to do so in the near future.  “Healthcare organizations are forced to adopt electronic medical records (EMR) systems and comply with Meaningful Use requirements. It’s a huge cost for many organizations but the investment will pay off as the state of health care becomes more integrated with data interoperability. It will drive down operational waste including reduction in staff hour demand and create transparency that is lacking in the system today. Currently budgets are limited and technology adoption is not left to organizations’ choice – it is mandated. This trend will also continue for next few years leading to slow employment growth or possible decline.”

With more than 30 years of experience in medical billing and coding, Sue Kraus has a unique perspective. “The layoff of healthcare workers will continue as reimbursements from all payers continues to decline. The cost of a private medical practice continues to rise. This is from rising cost of malpractice insurance, as tort reform was not addressed with the ACA. The increase of regulations for healthcare providers, including EMR , takes a financial toll on medical practices.”

Krauss explains that in October 2014 there will be a mandated conversion in terms of the International Classification of Diseases, the mechanism that healthcare utilizes to provide the diagnosis with numbers and letters. She warns that the conversion from ICD 9 to ICD 10 will further complicate the financial situation in health care. “ICD 10 is a tremendous change from ICD 9, which contains about 15,000 codes. ICD 10 contains 150,000 codes. All software has to be purchased or upgraded to be able to go from 5 digits to 6-8 digits. The coding is very different and requires intense training from physicians to billers. This comes at a high cost. There is NO additional payment to medical practices to cover the cost of this mandated change. For example, in 1985 a radiologist was paid $25 to read a chest x-ray by Medicare, now that payment is $4.80. How do you make up the difference in payment?”

Senior Analyst Matthew Morrill expects the trend in layoffs to continue as well. “The layoffs will likely continue for the next year or so for a number of reasons. The Baby Boomer generation is only just beginning the years when health service utilization is the highest, meaning there is significant demand on the horizon that is unrealized at the moment. So, at the moment, many service areas in this country actually have too much hospital capacity. Looking at the labor-supply side, Baby Boomer nurses, doctors, and other medical staff are only just now reaching retirement age, and many of these professionals plan to continue working.  Few staff leaving the workforce voluntarily means more providers will need to involuntarily lay off workers when budgets get tight.”

Like the other experts, Morrill stresses that EMR and the change to ICD-10  have a big effect on budgets. “It’s no secret that many hospitals are under great financial pressure due to reform. Apart from the outright Medicare fee-for-service cuts such as the double-digit reductions in CT and MRI payments in 2014, hospitals experimenting with shared savings models and other payment innovations are now motivated to do less, meaning they may need fewer staff. To function in accountable-care organizations, providers need to make expensive IT investments in electronic health records, and only some of that money is reimbursable through the Meaningful Use program. Moreover, many providers are unprepared for the transition to ICD-10. All of the above factors make future revenue streams uncertain, driving providers to hire fewer employees and, in some cases, lay off administrative and clinical staff.

“The final trend worth mentioning is industry consolidation,” concludes Morrill.  “On the physician payment side, payment reductions and cost inflation have hit cardiologist and oncologist practices and diagnostic imaging centers especially hard, motivating many to become employees of hospital systems. The same is happening for small community hospitals that have insufficient volume to cover fixed costs. In both of these cases, large hospital systems are purchasing these facilities and either shutting them down to reduce unused capacity or laying off redundant positions after the merger. I expect once the health care market completes this transitional phase hiring will pick up dramatically due to the exploding demand from the Baby Boomer generation’s retirement.”

John Kurvink is an experienced chartered accountant with significant leadership experience in the health sector with both for-profit and non-profit organizations and public private partnerships. “Health care providers are acting quickly to shed costs in order to compete as value pricing becomes more prevalent. I believe this trend is likely to continue. To succeed providers must understand their cost structure and identify areas when efficiencies can be found through benchmarking and other strategies.”


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