Hospitals Slash Labor Costs to Make Up for Lost Medicare Revenue

Hospitals spend less on operations-largely by squeezing labor costs-to make up for lost revenue when Medicare cuts hospital prices, according to a study.

Hospitals spend less on operations—largely by squeezing labor costs—to make up for lost revenue when Medicare cuts hospital prices, according to a study published in the journal Health Services Research.

The study found that hospitals eliminate 1.7 full-time jobs for every $100,000 drop in Medicare revenue. Nurses accounted for one-third of the reduced workforce. The study did not look at any impact on quality of care.

The results suggest that hospitals have the flexibility to respond as Medicare continues to squeeze hospital prices under the Patient Protection and Affordable Care Act, said co-author Chapin White, a senior researcher with the Center for Studying Health System Change and former principal analyst for the Congressional Budget Office.

“When Medicare cuts prices, it looks like hospitals figure out how to operate in a lower-cost way,” he said in an interview.

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Source: Modern Healthcare