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Medicare Cuts Could Have NJ Healthcare Hemorrhaging Jobs

Automatic reductions in the federal budget, scheduled to kick in this January, could do some serious damage to the state's hospitals and private practices.

New Jersey could lose more than 14,000 jobs next year and nearly 22,000 jobs by 2021 if a 2 percent cut in Medicare spending mandated by a 2011 federal budget bill goes into effect.

That projection comes courtesy of a recent report produced by consulting firm Tripp Umbach for the American Hospital Association, the American Medical Association, and the American Nurses Association. It looked at baseline figures issued by the Congressional Budget Office that placed the total cuts to the Medicare program at $10.7 billion next year, climbing to $16.4 billion in 2021.

The cuts are mandated by the federal Budget Control Act, a compromise measure passed by Congress that ended a stalemate over increasing the federal debt limit. The bill created a set of budget caps to cut federal spending by $1 trillion over a 10-year period ending in 2021 and created a joint committee charged with cutting the federal budget deficit by an additional $1.2 trillion.

The Joint Select Committee on Deficit Reduction -- known as the Supercommittee -- reached an impasse in November 2011 and has not been able to agree to cuts. That means a set of automatic cuts, known as sequestration, is scheduled to be triggered in January.

The across-the-board cuts include 8.4 percent in most nondefense discretionary programs, 7.5 percent in defense, 8 percent in mandatory programs other than Medicare, and 2 percent in Medicare provider payments.

The Tripp Umbach report focused solely on the Medicare cuts and said they would have a direct impact on the healthcare sector and an indirect impact on other sectors of the economy.

The report breaks the impacts down into three categories:

  • Direct Impacts, which include job cuts in the health sector and those caused by the loss of spending by health agencies, employees, and consumers, such as the purchase of office supplies, uniforms, and food service and money spent on rent;

  • Indirect Impacts, or jobs lost regionally caused by reduced spending by those firms that do business with the health sector; and

  • Induced Impacts, which is the overall response within the economy to job and income losses.

According to the report, 211,756 jobs across the U.S. will be lost in 2013 as a direct effect of the Medicare cuts, with another 88,453 in indirect effects, and 196,222 in induced effects, for a total of 496,431 lost jobs.

The Burden on Hospitals

The greatest impact would be felt by hospitals, with 92,984 jobs being lost nationally in 2013, while medical offices are projected to lose 40,220, nursing facilities 38,115, and medical labs and other outpatient services likely to lose 38,350.

Losses in nonmedical sectors are projected to include 22,705 jobs in the real estate industry and 21,865 in food service.

New Jersey would see the 10th highest loss in jobs, according to the report, which does not break down state figures by business sector.

In addition, McKnight’s, a magazine that focuses on the long-term care industry, says that sequestration would cost skilled nursing facilities $782.5 million in 2013. The cuts to nursing facilities, outlined in an analysis by Avalere Health and the Alliance for Quality Nursing Home Care, could cost the industry about $9 billion over 10 years. New Jersey would see the sixth-highest loss in funding, according to the report.

Direct Impact on NJ Healthcare

Kerry McKean Kelly, vice president for communications and member services for the New Jersey Hospital Association, said the reimbursement cuts and job losses would have a “direct impact on healthcare services.”

The report shows that there will be “resulting job losses, which creates an access-to-care problem for patients and then a significant downstream impact to the economy,” she said. “The big concern is that these cuts come on top of big cuts industry is already forced to absorb from the Affordable Care Act.”

The ACA, the health-reform law passed in 2010 and upheld over the summer by the U.S. Supreme Court, imposed spending reductions on Medicare between 2011 and 2020. The savings come in the form of reduced payments to providers through Medicare Advantage and by cracking down on waste and fraud.

“Hospitals just can’t take the added burden of deficit reduction cuts that we are looking at,” McKean Kelly said. “Under the Affordable Care Act, the whole premise is that we need to do something very different to make healthcare sustainable for the future. There is a big emphasis on efficiency, quality of care, and insuring more people. If we do those three things well that will produce the savings.”

Hospitals are adopting models to meet those goals, she said, by integrating into larger systems, moving to electronic medical records, and finding ways to better coordinate care.

“But under the sequestration cuts, there is no balancing act,” she said. “It is a flat-out cut, and it is hard for organizations that are trying to work very lean to cut any further.”

Consumer groups also are concerned about the Medicare cuts.

Jeff Brown, policy director for New Jersey Citizen Action, said the report’s findings “are not really surprising.” The sequestration cuts, he said, balance the federal budget “on the backs of seniors and working families.”

“It is proof that cutting Medicare is not only bad for seniors, but it is bad for the economy,” he said. “Medicare is one of great policy achievements in American history, and I hope it is a priority of both parties to preserve it."

Hank Kalet is a veteran journalist and editor, who has covered economic issues, government, and entertainment in central New Jersey for more than two decades.

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