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First, let me set the scene.
Hospitals continue to merge, consolidate and affiliate in record numbers. The reasons for such business marriages vary, but two goals thread most of them together: the desire to cut costs and the drive to make healthcare delivery more efficient.
Efficiency, however, comes with a heavy price, much of it in the form of human bloodletting. Tough choices require tough solutions, and no manager relishes the idea of firing employees, many of whom are loyal, valuable contributors and solid denizens of the community.
Yet, duty calls in the face of competition and payer pressure. Downsizing, rightsizing, restructuring, re-engineering and total quality management often march in lock step with the merger process. After all, fancy business school/consulting firm programs are as much a part of the efficiency quotient as reductions in payroll and increased purchasing clout.
But what if I told you one of your biggest and best customers would bankroll the cost of the organization's merger and restructuring activity?
All the healthcare industry has to do is seek the same kind of treatment that the federal government affords defense contractors. A close look at the fine print of the federal budget shows that more than $1 billion has been earmarked since 1994 to help weaponmakers defray the cost of merging.
This corporate welfare bonanza is soothing such "struggling" companies as Lockheed Martin, General Motors Corp.'s Hughes Electronics Corp. unit and United Defense (formed through a merger of defense subsidiaries of FMC Corp., Northrup Grumman Corp. and Harsco Corp.). More than $300 million already has been doled out in hard, cold taxpayer cash to cover such items as severance payments and retraining thousands of terminated workers. The 1997 budget approves hundreds of millions of dollars in new restructuring payments. Lockheed Martin, which has laid off nearly 20,000 workers, ultimately may receive up to $1.6 billion in handouts.
They don't call Sam everybody's favorite uncle for nothing. Somehow, the Pentagon has convinced Congress that this insane payoffs-for-layoffs strategy represents sound public policy.
The Cold War may be over, but that doesn't mean the military can afford to relax. Maintaining a viable cadre of private defense contractors, the Defense Department believes, is essential, even if it means heavy subsidies to bankroll mergers.
As Gannett News Service put it, there is "no longer a need, in the Pentagon's mind, to have competing research facilities and factories that produced similar products. The (Clinton) administration said a substantial investment aimed at eliminating redundancy would result in large savings later as it bought weapons from slimmer and more efficient providers."
Why can't healthcare lobbyists make a similar argument? What's good for the Pentagon can be good for HCFA. Technological and clinical advances, coupled with healthier lifestyles, have created an oversupply of hospital beds. That has prompted a flurry of hospital consolidations and closures. But with the rapid aging of society and the baby-boom generation sliding into senior status, it might make sense for the government to subsidize the efficient hospital survivors so they can better prepare for more demanding tomorrows.
The Defense Department says its procurement and research/development budget is down about 60% in real dollars since the peak in 1985. Some call it the peace dividend, even though this really isn't a guns-vs.-butter debate. Instead, it's a debate about costs and efficiency and taxpayer subsidies and manipulating the economic equilibrium.
The Defense Department claims that without the efficiency incentives, the contractors could bill the government for their bloated overhead costs. While nobody has ever used the words thrifty and Pentagon in the same sentence, this billion-dollar boondoggle borders on the ridiculous.
Maybe the guns (defense contractors) and the butter (hospitals) should receive the same treatment. Rewarding merged healthcare providers to deliver more cost-effective medical services also can save major money for the Medicare program. Helping displaced workers with severance payments, retraining and career counseling also would buffer their pain.
To protect against charges of hanky-panky, Congress next year will require defense contractors to show that $2 will be saved for every $1 in government handouts. That's up from the dollar-for-dollar formula used in previous years that critics have challenged. I guess this is what Washington politicians meant when they vowed to end welfare as we know it.
Rather than fight payoffs-for-layoffs, healthcare lobbyists may want to get in line and hold out their hands.
Or better yet, hospitals can show the Pentagon and Congress that free-market downsizing can be achieved through leadership and sound management. If subsidies are in order, they should go directly to the displaced workers instead of being filtered through the employer. In this case, it's better to stand tall and stand proud.