Not Worried About the Fiscal Cliff? You Should Be

Philip Betbeze, December 21, 2012

You don't have any control over whether it happens or not, but you might have to plan for a contingency that almost everyone said last year would never happen: the fiscal cliff. Of course, no one called it the fiscal cliff then. That term was coined as we edged closer and closer to the ticking time bomb that legislators settled on after failing to come to agreement on a package of federal spending cuts and tax increases in 2011. There are other big, possibly economy-damaging spending cuts that will go into effect Jan. 1, 2013, if Congress cannot agree on a budget deal, but the one that should concern healthcare executives is a 2% cut in Medicare reimbursements to hospitals.

I get it: It's almost Christmas, the holidays are here, and yet here's one more thing you have to pay attention to, and yes, plan for. And it's not good. Already faced with PPACA provisions that will force cost cuts over the next couple of years between 15% and 30%, senior executives at hospitals and health systems now have to worry about what will happen to their Medicare payments if Congress can't come to agreement on how to resolve the fiscal cliff.

Doug Fenstermaker, who was CFO of HealthEast in St. Paul, MN, for 10 years before becoming a consultant, says failure to resolve the fiscal cliff could be a serious problem in the short term for healthcare organizations, where the average margin is only 2-3% annually. Some do better and some do worse, of course, but that margin level has been pretty standard for about 25 years or more, since DRGs came into place.

"So if in 2013, starting January 1, they face a 2% cut, that could wipe out the calendar year budgets," Fenstermaker says. "The only way they can deal with that in the short term is make significant across-the-board cuts."

Philip Betbeze

Philip Betbeze is the senior leadership editor at HealthLeaders Media.

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