Looming Sequestration Cuts Put Rural Providers on Edge
In addition to the effect on care access and delivery, sequestration will almost certainly mean job cuts. Morrow estimates that the 2% Medicare cuts will result in about 73,000 lost jobs, including more 12,100 jobs at rural hospitals. The money once generated by those axed employees will no longer circulate in their communities.
"You are talking about jobs because the biggest single budget line item in a hospital budget is labor, 60% on average nationally," he says.
"If you are going to reduce reimbursement for the Medicare payments, which are typically 50% to 55% of a hospital's payer mix, by 2% that in effect reduces total revenues by 1%. The simple arithmetic is you take out 1% and if 60% of a hospital's budget is labor then .6% is going to be directly labor and the rest of it is highly capital intensive. You can't take the bricks and mortar and sell them off. You have a big capital infrastructure and there are only so many things you can control. It ends up being labor, which is a big one. Those are middle-class jobs. These would be really good jobs, career jobs. That is a little scary."
But wait! It gets worse!
The footing for rural providers becomes even more treacherous when the sequestration cuts are combined with other federal mandates, such as the Patient Protection and Affordable Care Act.
"Part of our message to Capitol Hill is that it is not just sequestration," Elehwany says. "It's a whole bunch of things hitting small rural providers at the same time. If you are a rural (Prospective Payment System) hospital, you lost your Medicare-dependent status for several months last year. Fortunately in the fiscal cliff bill you regained that. If you were a rural hospital with a low-volume hospital adjustment you also lost that. Those are going to expire again at the end of September."
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