HEALTHCARE: Anticipating the impact on Southcoast

In September, Southcoast Health Systems, the largest employer in the region, announced that there would be 105 job reductions with 50 to 60 people losing jobs. These reductions were attributed to “challenges” stemming from the Patient Protection & Affordable Care Act (PPACA).

Most hospitals across the country are taking similar actions, mostly due to health care reform requirements and the overall changing landscape of health care, but also due to the $9.9 billion in government sequester cuts to Medicare reimbursements which have already taken place.

The PPACA’s $260 billion reduction to Medicare’s funding of hospitals over the next 10 years will amount to a 9 percent cut to hospital reimbursements that will need to be addressed, while hospitals need to serve more patients. These “challenges” are widely misunderstood by most, including the people who passed the law and who are trying to implement it.

The “challenges” that Southcoast Health Systems and many other hospitals are facing include reduced income to providers, increased cost to the providers, and additional administrative and reporting burdens, and will impact how and where care is delivered and what patient services will be available.

The hospital sector lost 9,000 jobs in May, the worst month in 10 years, along with an additional 4,400 jobs in July, according to the most recent estimates from the Bureau of Labor Statistics.

Hospitals must recalibrate their operating model to shift patients from inpatient to outpatient services. Reduced admissions and increased outpatient and observation stays mean dramatically less reimbursement to the hospitals and more importantly a cost shift to the patients whom they serve.

A material consequence of the PPACA is that there will be increased payment expectations from the patients. This issue is not widely discussed and is clearly understated.

Most patients will have high deductibles and coinsurance in their insurance plans making the patients responsible to cover a larger portion of outstanding balance of their bills.

This trend has already begun to materialize, increasing provider’s bad debt related to patient responsibility and reducing cash flow daily to hospital and providers.

Given the overall economic climate that is impacting us all with items such as higher unemployment, and high gas and food prices, payments to health care providers will naturally be deprioritized by patients as a matter of necessity.

This is bad news for our region’s hospitals and physicians.

The Congressional Budget Office has stated that, on average, Medicare reimburses hospitals at 81 percent of commercial payers, while Medicaid reimburses at 56 percent of commercial payers.

For a hospital system like Southcoast Health, where approximately 67 percent of its patients are insured through Medicare and Medicaid, reductions in reimbursement translates to a loss of millions of operating dollars, jobs, patient access and quality patient care.

The new health care law is meant to ease the burden on hospitals by expanding Medicaid coverage to more low-income Americans who often use hospital services in emergencies and then are not able to pay their bills. Though hospitals will be receiving Medicaid reimbursements instead of writing off bad debt, they will have to deal with a rapidly growing patient population whose medical care will be reimbursed well below what it cost to run and operate a health care facility while meeting patient’s service needs, investing in growth and technology, and retaining the best resources.

Our region’s hospitals are operating on modest profit margins, if any at all. The cumulative, drastic and poorly planned and executed roll out of the law will leave our regions health care providers and all of us who depend on them searching for answers for the foreseeable future,

I guess we are all in this together.

David MacDonald is CEO of Aegle Advisors (, a boutique health care consulting firm. Contact him at or (617)331-7169.

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