The Sequester’s Impact on Healthcare: Dangerous Unintended Consequences
By Rich Temple
It has been three months since the sequester hit the healthcare industry, and the effects are more profound than they might seem. What’s most troubling is that the budget cuts in many cases will wind up costing the government more money and will have a particularly negative impact on cancer patients and those living in rural areas.
Cost of Caring for Unemployed
Across the healthcare spectrum, providers can anticipate about $11 billion in cuts. A joint study by the American Medical Association and the American Hospital Association estimates the loss of 330,127 healthcare jobs and 496,000 indirect job losses by 2021. Victims of job losses tend to require extra care to sustain their health and well-being while out of work, and the cost of these interventions may wipe out the perceived benefits of the sequester’s capricious cost-cutting.
Another Hit for Providers: Cuts in Medicare Reimbursement
For individual healthcare providers, the 2 percent across-the-board Medicare reimbursement cut will exacerbate challenges for providers who are already struggling to adapt to value-based purchasing and other mandated reimbursement cuts. Mercifully, Medicaid was exempted from this cut, but even Medicare Meaningful Use incentives will sustain the 2 percent reduction.
Particularly hard-hit will be rural hospitals, which according to a study by iVantage Health Analytics are twice as likely to be thrown into the red as a result of these cuts. That’s because rural hospitals treat older, poorer, and less-insured patients and are thus directly dependent on Medicare for their economic sustainability. This financial damage will ripple down to the communities they serve since these organizations tend to be among the largest employers and are likely to be a key focal point of much of the activity in their local economies.
Cuts Disproportionately Affect Community-Based Cancer Clinics
Cancer care is the area most profoundly impacted by the sequester. Reimbursement cuts are making it financially untenable for community-based cancer clinics — one of the more cost-effective treatment sites — to continue to serve many patients, thereby forcing them to either seek care in a more expensive hospital setting or not seek care at all.
Historically, Medicare reimbursement for cancer drugs has been the average price of the drugs, plus a 6 percent administrative fee to cover the cost of providing care. The sequester reduces that fee to 4.3 percent for both drugs and services, which in essence translates to a 28 percent cut in actual reimbursement.
According to a study conducted by the actuarial firm Milliman, the sequester is already resulting in layoffs, closings, cutbacks, and is driving patients into hospital settings. The study also says that the government could pay an average of $6,500 more per year for cancer patients in a hospital versus a community clinic.
Cuts to Cancer Research Means Fewer Clinical Trials
Another area where cancer patients are hard hit involves cuts to research funding. Besides the estimated loss of 20,500 research jobs, NIH research indicates that every $1 invested in cancer research yields over $2 in incremental economic activity. This translates to a $3 billion direct negative hit on overall economic activity.
Significant cuts to cancer research mean that fewer clinical trials will be available to help identify better treatments and thus, more protracted, costly, and painful care for patients will continue.
Most Vulnerable are Hardest Hit
In summary, the sequester’s effects are causing great pain on many levels to some of the most vulnerable segments of our population. And the perceived cost-reduction benefits are actually not likely to be realized since the unintended consequences of the sequester look like they will cost even more than the mandated cuts. These consequences could take the form of:
- More expensive, less efficient care due to patients losing access to primary care physicians
- Incremental unemployment insurance for those who have lost their jobs
- Protracted inpatient stays due to less readily available preventative research
- Other forms of public assistance these individuals will require
The effects of the sequester on healthcare have not been discussed extensively of late in the media. However, it should be noted that there are unintended consequences that we will most likely pay for in the coming years ahead.
Rich Temple is national practice director for IT strategy at Beacon Partners.