The Conundrum of Health Care Reform- Expressed in a Single Local News Article

Southcoast Hospitals, a network of 3 hospitals in southeastern Massachusetts, has announced 93 layoffs (1 1/2 % of staff). The article in the local newspaper includes the following lines:

  • Southcoast Hospitals Group today announced it is eliminating 93 positions in a restructuring triggered in large part by lower expectations for state and Medicaid managed care reimbursements.
  • Southcoast also announced ...[it] will continue to reevaluate its health insurance benefits, which after wages is the single largest item in its budget, costing about $35 million annually
  • [Southcoast is] the region’s largest employer with some 6,000 employees

So - the hospital is being hurt by lower reimbursement rates -- but its health insurance budget is strained by the weight of high reimbursement rates. Those high rates are most likely charged in part by ... Southcoast Hospital, since many employees get their care from local providers. Further, the hospital system is the largest employer in the area.

My conclusions:

1) Providers face a paradox. They want and need high rates to sustain their costs of care delivery, but chafe at paying high rates for their own employees. In this way, health care providers look just like all other employers.

2) It's painful to take a big bite out of rates, because hospitals are a major employer in every community that has a hospital. Remember the 30% of health care costs that could be eliminated when we reduce variation and decrease waste? That will cost a lot of jobs.

Right now we have a special problem in the US. States are running short of money, and they are cutting Medicaid reimbursements, which can be devastating for hospitals serving poor neighborhoods. Things are worse still for "safety net" hospitals in Massachusetts, where we just about eliminated the uncompensated care pool -since so many fewer people are uninsured. But it turns out that uncompensated care at these hospitals has not decreased as much as policymakers had hoped.