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Lawrence & Memorial Hospital is expanding as never before, completing its acquisition of The Westerly Hospital for $69 million, constructing the $34.5 million Dana-Farber cancer center in Waterford and investing $32 million in an electronic medical records system. So does it make sense that the community hospital recently laid off 14 full-time and eight part-time employees to cut costs? Given the rapidly changing health care environment, the answer appears to be yes.
The rising cost of providing medical care in this country is unsustainable over the long term. This fiscal year the United States expects to spend $1.5 trillion on Medicare and Medicaid - about 5.5 percent of the Gross Domestic Product - accounting for roughly half the amount of money that will be collected in federal taxes, according to Congressional Budget Office figures. Left unchecked, federal spending on health care will approach 8 percent of GDP in a decade and an ever larger share of the federal budget.
While the re-election of President Obama will mean the implementation of the Affordable Care Act along with its goal of providing access to health insurance for all citizens, slowing the growth in health spending would be a necessity regardless of who won the election. Medicare reimbursements will likely remain steady, and could well be reduced, over the next several years. Private insurers are likewise becoming more aggressive in their cost containment efforts.
"It is a new revenue reality for hospitals," Bruce Cummings, president and CEO of L&M Hospital, told the editorial board Tuesday.
These growing revenue pressures leave hospitals more vulnerable to short-term variances. In the fiscal year that ended Sept. 30, L&M cared for 14,942 inpatients, about 400 less than the previous year. Also down was the average length of stay for hospital patients, while drug costs were up due to shortages.
This leads us back to the layoffs. Going forward, the L&M Board of Directors prudently insisted on a 3 percent cushion of projected revenues over projected expenses, which meant finding $3.2 million in savings. When leaving vacant positions open, encouraging early retirements and taking steps to approve efficiency did not produce the targeted savings, the administration turned to layoffs.
But facing such financial pressures, should L&M be expanding with the construction of a cancer center and acquisition of Westerly Hospital? Well, yes, because resisting change would only ramp up the financial pressures on L&M's legacy facility, its hospital. Indicators point to a continued decline of inpatient hospital care over the next decade as treatment shifts to outpatient facilities.
Given those trends - including outpatient cancer care growing 27 percent while inpatient hospital care declines - the construction of the Dana-Farber cancer center is a good business, as well as medical, decision. Patients now traveling out of the region, and often out of state, for state-of-the-art cancer care will find that care in the region. By L&M projections, that new source of revenue will significantly improve the non-profit's ability to maintain a healthy operating margin.
Meanwhile, modernizing L&M's medical records system will produce long-term savings and is a requirement for meeting federal and private insurance cost reimbursement demands.
Dicier, it seems, was the decision to take over the fiscally struggling Westerly Hospital. Yet the L&M leadership is making a logical calculation that having one entity running both hospitals will reduce administrative costs and provide for a wider range of services across two facilities, while reducing unnecessary duplication.
The coming decade will be a time of dramatic change in the health care field. Major challenges will have to be met, including addressing a growing shortage of primary care physicians while treating a population that is growing older. Many more difficult decisions will come. Standing pat will not be an option. And, unfortunately, good people will find themselves suffering collateral damage, as was the case with the layoffs.