How to Manage the Impact of Sequestration

February 7, 2014
iVantage Health

Sequestration, Strategy and Colonoscopies


Scott Goodspeed, Principal and Vice President

Rest assured. Only one of these is painful. This week, I attended the National Rural Health Policy (NRHA) Institute in Washington DC and spoke about Medicare Sequestration and its impact on America’s hospitals. Sequestration began in March 2013 and iVantage has researched its impact using data from the most recently available cost reports (9/30/2013) and evaluated almost 4,700 US short-term acute care hospitals to determine the impact of the 2% reduction in Medicare reimbursement.

To request a copy of the Sequestration analysis, click here.

The impact included an analysis of the reduction in (1) patient revenue, (2) the impact on operating profit margin and (3) community job loss. What did the analysis show? The total cumulative impact is cuts of more than $3.3 billion in Medicare reimbursement, almost 83,000 lost community jobs and 2,697 unprofitable hospitals (out of 4,688 in the study group).


To be frank, many hospitals can’t sustain these cumulative cuts through 2023 which is the most recent timeframe for sequestration. To say these cuts are painful is a gross understatement! Moving forward, the challenge becomes how to position (or reposition) an organization strategically in the marketplace in the face of continued cuts.

Strategic Steps to Address Sequestration

A number of CEOs at the Policy Institute asked how to best respond to these cuts, beyond typical lobbying efforts. Here are my thoughts:

  1. Understand the external market and design a plan around strategic themes such as quality and patient safety, growth and provider relations, people, infrastructure and technology and financial health.
  2. Review analytics related to population health and health status. Hospitals may likely see decreased demand for services as a result of the many innovation and demonstration grants.
  3. Know commercial payer rates and determine whether you are being paid what you’ve negotiated and more importantly, ensure you’re paid at a fair and competitive rate.
  4. Reduce expenses by 15-20%.  This can only be done by using an organization’s proprietary data to look at both functional and clinical excess balanced by quality and patient safety.

A lot of these tactics can lessen the impact of sequestration but what I really worry about, beyond sequestration and strategy is the impact of all this on patient care-both quality and safety. That brings me to my recent colonoscopy\”¦


Late last year, I had a screening colonoscopy at Exeter Hospital in New Hampshire (a Top 100 Hospital based on the Hospital Strength INDEXTM) and it was a great experience — except for the preparation! Actually, taking the prep felt a little like delivering bad news about sequestration-it just felt a little uncomfortable.

I arrived on time, was greeted in a friendly and professional manner by all my caregivers and my physician. I was given the informed consent outlining the benefits and risks. Prior to the drug versed, I met the professional who cleans the endoscopy instruments. Did you know that according to the CDC, about 50 million Americans undergo colonoscopies each year to screen for colon cancer and that more outbreaks have been linked to contaminated endoscopes than to any other medical device?

It has been recognized more recently that the use of contaminated endoscopic equipment can lead to serious and occasionally fatal infections (footnote 1). I would never want to see any professional who cleans the endoscopy instruments laid off because of sequestration. Talk about unintended consequences! Well my procedure was uneventful and my caregivers were extraordinary. As a patient, not once did I think about sequestration or strategy. Getting screened for colon cancer is a very good thing and colon cancer is preventable. By the way, I think sequestration is more painful than strategy and a colonoscopy any day of the week!

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