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What the Looming 'Fiscal Cliff' Means to Your Hospital's Bottom Line

Fiscal Cliff

What is this fiscal cliff that is being perceived by many as some financial Armageddon that is threatening the American economy by the beginning of 2013? 

Among others, the culprit is a combination of expiring tax cuts and mandated Federal spending cuts that is sure to run havoc to American industries. The sectors that are at most risk are defense and the health care industry.

Here are some possible scenarios for health care and tips for helping you prepare: 

Possible Scenarios

  1. While analyses across all sectors vary, many are leaning toward certain possible scenarios in the health care sector. Medicare and Medicaid are long standing medical insurance programs that the American federal government has been providing to its qualified citizens for more than 50 years now. Take that away from them and you have an angry populace and a crippled health care system. Health care is first and foremost a social service but health care service providers need to fund the costs for providing the service. If the fiscal cliff is not overcome, the following scenarios can happen:
  2. If the mandatory federal spending and tax cuts are totally stopped, this will mean the compulsory purchase of health insurance by individuals who are able and willing to fully cover their health needs. For employers who contribute to such insurance costs, they may anticipate a potential increase in expense because more employees may, by force of circumstance, take this option.
  3. The expected 2% health care budget cut is going to directly impact on health care providers like nursing homes, long-term health care facilities and hospitals. This will result to a reduction of reimbursement levels of doctors, hospitals and other health care service providers, adversely affecting their bottom lines. Add to that another 8% budget cut to the National Institutes of Health (NIH), one of the world's foremost medical research centers, and you can expect an economy that is sure to slow down because it can lose a good fraction of the close to 20% contribution of health care to the U.S. GDP.
  4. With the impending tax raises and Medicare and Medicaid cuts, employees are more likely to be going home with less, which means lesser money for purchases that are crucial to spur the economy.
  5. Medicare is expected to decline by about 25%, not a welcome news for doctors, hospitals and other related health care agencies. Medicaid payments which represented more than 23% of state spending in 2011 are seen to experience a similar decline, all the more denting hospital bottom lines.


Preparing for the Fiscal Cliff

While the effects of the fiscal cliff have begun to appear even before its impending occurrence, the most that everybody can do, especially the sectors that are most vulnerable, is prepare. In the health care sector, it is best that hospitals and health care facilities take a proactive stance to weather any downturns that may happen by examining significant areas in their operations that help improve profitability such as:

  1. How to improve cost savings – The need for evaluating opportunities for cost savings may be necessary, focusing on those that can be maximized within a short timeframe.
  2. How to maximize collection rates – While increasing the number of payers may be difficult at this point, hospital bottom lines can still be enhanced by efficient collection methods with the help of professional collection companies.
  3. How to prepare and analyze reports – Reports are mere paperwork if not properly analyzed to measure key performance indicators. While measuring current performance levels, it can also be compared with historical data to arrive at informative and accurate forecasts.

Topics: fiscal cliff, healthcare receivable management