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Mount Ascutney Hospital
Mount Ascutney Hospital plans to close its skilled-nursing facility and lay off 35 employees by September.

Cause and effect

Providers respond to sequester with layoffs, cuts

By Rich Daly
Posted: March 30, 2013 - 12:01 am ET

A Vermont hospital plans to shutter its skilled-nursing facility this year and is fingering Washington for much of the blame.

The 35-bed Mount Ascutney Hospital and Health Center in Windsor announced last week that it plans to close its 25-bed skilled-nursing facility and laxy off its 35 employees by September because of the combined financial impacts of the looming federal budget sequester and a new state revenue cap. The sweeping federal spending cuts mean Medicare reimbursement dips 2% for every service rendered after March 31. Mount Ascutney and many other organizations are making plans to absorb the hit.

“We’re a small community, and so many of our residents are related to our employees,” hospital CEO Kevin Donovan said in an interview. “So it’s a tough message to hear for an employee that my job can be at risk and my aunt or mother or father may need to find a new home.”

The Budget Control Act of 2011 cut payments to providers and insurers from 2013 until 2021 to help reduce the deficit. The reduction will save the government $10.7 billion in fiscal 2013, according to the Congressional Budget Office.

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The sequester also reduced many agencies’ budgets by 8% or more beginning March 1, and the Obama administration has yet to provide an accounting of how that is playing out across HHS.

In response to queries about how the cuts might affect the launch of insurance exchanges under the Patient Protection and Affordable Care Act, federal officials have repeatedly promised the new marketplaces would begin enrolling members as scheduled Oct. 1. Sens. Chuck Grassley (R-Iowa) and Orrin Hatch (R-Utah) wrote HHS Secretary Kathleen Sebelius last week suggesting the department is insulating the money provided to states to help them establish the exchanges. “Given that your department will be making $55 billion worth of cuts, we would like to better understand how these grants fall into the bigger picture of sequestration reductions,” they wrote.

Providers may ultimately feel some pain from those broader cuts in areas such as graduate medical education and research grants. It will take some time before federal agencies process grants at the lower rates, said Beth Feldpush, senior vice president for advocacy and policy at the National Association of Public Hospitals and Health Systems.

In the case of Mount Ascutney, hospital leaders expect the not-for-profit’s revenue to sink $500,000 a year because of the sequester. “We are essentially a break-even organization structured today and so any decrease in reimbursement is going to negatively impact us and there is going to need some response,” Donovan said.

Local media reports have begun to chronicle other small providers blaming recent layoffs on the debt-control measure.

For instance, 77-bed Adirondack Health, Saranac Lake, N.Y., recently announced layoffs of 18 employees and blamed the impending sequester cuts, said Bill Conley, a labor relations representative with the New York Nurses Association. However, the union disputed that explanation and instead attributed the layoffs to ongoing losses stemming from poor management. A hospital spokesman did not respond to calls for comment.

Among larger providers, Detroit Medical Center warned its employees that the sequester will cost the health system “millions” this year and that it will implement “expense reductions equal to our anticipated revenue reductions,” according to a March 21 staff memo from CEO Joe Mullany.

Fitch Ratings calculated in a report last week that most not-for-profit hospitals would survive the $5.8 billion in cuts expected over nine years through reductions in personnel, lower margin services, research and education.

The scattered reports of cost-cutting and layoffs could accelerate once Medicare actually begins sending reduced payments this week, according to some projections. The American Hospital Association says the Medicare cut will kill 496,000 jobs, including those of 92,984 hospital employees, by the end of 2013.

Some providers, though, didn’t wait.

William Henderson, administrator for the Neurology Group, Albany, N.Y., said that despite a national provider push to avert the sequester cuts, his eight-physician practice assumed it would happen. The practice cut pay and benefits last year and put off capital improvements.

“We didn’t believe that Congress would actually address it. So rather than wait and hold on, we just thought it would be better to anticipate that it would go into effect,” Henderson said.

Five-hospital Legacy Health, Portland, Ore., laid off 260 employees in 2012 to prepare for lower reimbursement under provisions of the Patient Protection and Affordable Care Act. As a result, “Legacy Health doesn’t believe it will require lay-offs or other significant reductions given the work that has already been done,” Senior Vice President David Eager said in an e-mail.

Hospital associations that Modern Healthcare contacted in several states said they expect the effects to bubble to the surface in the coming months.

“What we do know is that hospitals are being forced to make some tough decisions,” said John Palmer, spokesman for the Ohio Hospital Association. “As with previous federal payment reductions, hospitals will be challenged to make difficult adjustments to their services and operations while ensuring quality patient care.”

The impact on patients is similarly unclear.

Medicare patients were promised by members of Congress and the Obama administration that the sequester’s Medicare cuts would not affect their benefits. Some, however, have reported receiving warnings from physicians that their offices may not accept new Medicare patients because of the federal belt-tightening. David Lipschutz, an attorney for the Center for Medicare Advocacy, said that anecdotal reports of such warnings may be part of a providers’ efforts to rally support to roll back the sequester.

“The extent to which this is just trying to raise fear about the issue is not clear,” Lipschutz said.

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