CHICAGO – Pennsylvania hospitals are facing $280 million in proposed payment cuts by the General Assembly and Gov. Ed Rendell (D), resulting in more than 13,000 jobs lost. New York hospitals are setting up contingency plans to counter significant proposed cuts to Medicaid reimbursements numbering in the tens of millions.

What's happening in Pennsylvania and New York are reflective of what's happening all over the country, said Paul Osborne, managing director at Huron Consulting Group. "By mid to late summer, the state issues should shake out," he said, and hospitals will know what budgetary strategies to pursue.

Labor costs continue to be hospitals' biggest expense and an area where job cuts can provide the quickest impact to the bottom line. Strategies for workforce reduction, however, must take into account an emerging trend on the labor front.

The nursing shortage is not as bad right now as it has been in the past because the continuing economic downturn is forcing many nurses to stay put, Osborne said. As a result, the turnover rate for the entire hospital staff has slowed, and that includes nurses.

"It's gone down quite a bit," Osborne said, noting that nursing students coming out of school are finding it difficult to find jobs.

The good news is that hospitals don't have to pay for overtime or the more expensive nursing agencies, he said. The downside is that hospital administrators can't rely on the usual attrition for staff reductions. "Hospitals are being forced to do actual layoffs," Osborne said.

Another trend Osborne highlighted is hospitals buying up primary care physician practices in an effort to capture more patient volume. He noted that this reverses a previous trend of hospitals shedding practices.

While hospitals are fighting to capture more market share, their expenses in acquiring and maintaining physician practices are going "way up," according to Osborne.

Some markets are better off than others. Osborne said many hospitals are still making margins but are very concerned about the future.

"There are a lot of unknowns," he noted, citing healthcare reform efforts and changing CMS reimbursement rates.

Ultimately, Osborne reflected, while hospitals deal with the current problems wrought by the economic downturn, nine months from now they could be facing even larger issues.