It has been more than two months since sequestration triggered automatic, across-the-board federal spending cuts. The cuts, a result of the inability of the so-called “super committee” to reach consensus in November 2011, will total $1.2 trillion over the next 10 years. Around $85 billion in spending reductions will happen through the end of September this year.
The ramifications of these cuts are wide-ranging, and their impact was pulled to the forefront of the nation’s consciousness in April as furloughs for air traffic controllers began. Thousands of flights across the country were delayed before the House and Senate were able to pass legislation to end the furloughs.
Cuts to Medicare providers also drew considerable attention very early into the sequester. We first learned of cancer doctors turning away patients and sending them to hospitals for care. While Medicaid was exempt from the sequester cuts, the 2 percent reduction in Medicare reimbursements is having broad impact across the nation’s healthcare environment – and not just on those doctors who are treating cancer patients.
Mayo Clinic President and CEO John Noseworthy stated in a speech to the National Press Club in April that the clinic stands to lose $47 million annually because of the rate decrease. The first big layoff announcement came in mid-April when the Detroit Medical Center said it would cut up to 300 jobs. Though Noseworthy said Mayo Clinic would lay off employees as a last resort only, last year the American Hospital Association and the American Medical Association issued a joint report in which they stated that up to 776,000 industry jobs could be lost by 2021 if the sequester took effect.
The unexpected disruption in funding for hospitals and physicians, and the consequences brought about because of it, highlights the critical need to create an intersection where business and medicine come together – and quickly.
Outside of the healthcare industry, businesses deal with similar challenges caused by the sequester. And competitive businesses do not always implement mass layoffs when navigating unexpected, short-term price reductions, especially when maintaining high-value employees is part of a competitive strategy that is critical to retaining market share.
So how do successful businesses prepare for sudden revenue reductions?
These businesses develop agile internal capabilities and align their suppliers to share the risks and rewards of changing market dynamics. To become agile, they use different approaches to achieve the same end, including implementing IT systems to facilitate better consolidated planning and forecasting, developing a continuous improvement culture, and building accountability into an empowered decision-making structure. These approaches frequently lead to superior financial performance in the most competitive and complex global markets.
Integrating these practices into healthcare requires physicians, nurses, pharmacists, and other clinicians to be trained in the business of medicine. It can’t start and stop with streamlining administrative paperwork to reduce costs. It must begin with the way in which healthcare is delivered, and how suppliers support clinical care. At the forefront of agile healthcare is delivering better care at lower costs and building a learning organization that reduces waste and inefficiencies.
With healthcare reform on the near horizon, unexpected sudden changes in the marketplace are likely to become more commonplace. Without developing new, agile ways of delivering healthcare, a train wreck may also be in healthcare’s future. Adopting proven business practices and educating transformational physician and clinician leaders may be the only strategy that drives critically important long-term systematic change.