Expected revenue cuts lead to staff reductions for providers
Anticipated reductions in federal funding for care is prompting organizations to layoff staff to maintain razor-thin margins.
Some disturbing trends are waiting in the wings for healthcare organizations, particularly as those influences come together to put providers in a bind.
The combination of workforce shortages and financial shortfalls, exacerbated by the impact of federal policies and healthcare funding changes, is likely to make 2026 a challenging year for provider organizations.
Already, expected reductions in Medicaid rolls and Congress’ unwillingness to extend subsidies for those relying on insurance from the Affordable Care Act are leading to expectations that millions of Americans will not be able to afford health insurance, thus increasing the burden on providers, which are likely to face increases in uncompensated care loads. Rural facilities are likely to feel the brunt of the pressure, and 18 have closed this year already, an analysis shows.
Despite the potential for increased patient loads, providers are looking for ways to deal with tighter times ahead.
Financial woes
Tougher times are ahead for healthcare organizations, which are continuing some belt tightening they’ve already experienced this year, according to analysis by Strata Decision Technology.
Providers are experiencing widening disparities in financial performance metrics between large and small health systems, accelerating non-labor expense growth and shifting care patterns, according to the reports from Chicago-based Stratus, which provides a cloud-based platform for software and service solutions.
“The widening performance gap between large and small systems, the potential erosion of access to critical services like maternity care, and the structural imbalances in academic research programs all point to an urgent need for reliable data and predictive analytics,” says Steve Wasson, Strata's chief data and intelligence officer.
In a report on financial benchmarks for October, Stratus analysts concluded that operating margins rose slightly to 1.2 percent, but they noted that those margins are historically narrow. Hospital expenses continued to rise in October, with supply expenses posting the largest year-over-year increase at 9.2 percent. Also, physician expenses climbed, with the median total expense per physician hitting about $1.1 million, up 6.2 percent year over year.
On the positive side, patient volumes showed “modest growth,” with outpatient visits rising 2.8 percent and inpatient admissions going up 1.5 percent in October, compared with the same month a year ago.
But Strata’s other report on performance trends highlighted some of the challenges facing the industry. For instance, revenue gaps widened between large and small health systems. “Smaller and rural hospitals face deepening losses in essential services like obstetrics, and sizable shifts in outpatient volumes reflect the growing impact of sustained migration of care to lower-acuity settings,” Strata analysts concluded.
Certain specialties faced specific pressures. For example, inpatient obstetrics margins fell further nationwide, with the smallest hospitals (those with 25 beds or less) posting losses exceeding $6,700 per case, “threatening access to maternity care,” the analysts said.
But pressures are rising in different provider segments, the analysis added. For example, “academic medical centers face mounting research strain, with expenses rising faster than revenue amid drastically reduced grant funding and expanded staffing,” the reports noted. Facilities treating patients who need more complex care are facing the sharpest drug expense increases, Strata analysts found.
Other factors are increasing spending and adding to providers’ burdens, often in new and unforeseen ways.
For example, emergency departments are facing an unprecedented surge in psychiatric patients, now estimated at one in six ED arrivals, according to data provided by Acuity Behavioral Health, which develops technology for behavioral care. Those departments report low confidence in managing behavioral-health cases and are enduring severe operational strain. That, and emergency department overcrowding is causing an estimated $1.6 million per year in lost revenue for an average hospital as patients are likely to leave before treatment is complete.
Workforce reductions
Changes to Medicare and Medicaid will have financial implications, and providers are already making adjustments in their biggest budget line item – staffing.
Reporting in HR Brew indicates that several health systems have already laid off workers because of current or anticipated cuts to federal health programs.
Layoffs have included those at major health systems such as Providence, Adventist Health, the University of California San Francisco and Children’s Hospital Los Angeles, just to name a few.
It’s not just the programs that finance direct patient care, the article notes. “HR leaders at healthcare institutions that have historically depended on federal research grants to fund their work are seeing that money dry up, as well,” the HR Brew article notes. “The Trump administration canceled an estimated $1.8 billion in medical research funding allocated by the National Institutes of Health earlier this spring.”
In light of anticipated reductions to revenue, organizations are seeking ways to maintain levels of patient service.
“When fewer clinicians and support staff are available, patients don’t just wait longer — they feel less seen, less heard and more frustrated,” says Amy Brown, founder and CEO of patient engagement company Authenticx.
Cutbacks can lead to increased frustration and obstacles to attaining care or resolving issues quickly, Brown says. Degraded patient experience data “can be a ‘canary in the coal mine’ for identifying and addressing deeper workforce concerns before they become an urgent problem.”
As the effects of funding cuts become evident in the new year, healthcare organizations will need to look at new approaches – including novel uses of technology – to keep expenses in line with revenue.
Fred Bazzoli is Editor in Chief of Health Data Managment