Not Worried About the Fiscal Cliff? You Should Be

Philip Betbeze, for HealthLeaders Media , December 21, 2012

No one believed this could occur. But now that it's pretty clear that Congress can't negotiate itself out of a wet paper bag, reality should be starting to sink in for those in charge of multimillion-dollar budgets.

"Even if they cut a deal, I have to believe if the Republicans are holding out for cost reductions, [thus] more is going to come out of Medicare," Fenstermaker says. "Maybe it was naïve that nobody was paying attention to it, but it could be their entire bottom line for next year."

So, what should you do?

Fenstermaker recommends putting on hold all capital expenditures in the near term that are already planned, and starting an aggressive operating expense planning process that has 90 days run time, beginning January 1.

Wait longer—say, until spring—and "because of severance and layoffs, at best, you'll only get six months' benefit out of it."

"If you have a budget that says you'll make a bottom line of 2%, you have to cut 4% by the middle of the year to retain that 2% margin," he says. "For planning purposes, there's a much more aggressive impact the longer you delay."

A deal before January 1 would remove the urgency, but cuts associated with the PPACA, set to be implemented in 2013–2014 are in effect already here for planning purposes. Many big systems have been working for quite a while on the conundrum of how they will restructure and maintain quality, but if the fiscal cliff stalemate isn't resolved, they will have to look even more aggressively at dropping overhead expenses.

"If it comes to a choice between a clinical staff person or nurse, and an administrative support person, it's a no-brainer on what job goes first," Fenstermaker says. Hard choices may have to be made soon.

Philip Betbeze is senior leadership editor with HealthLeaders Media.
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