Increased Pressure on Healthcare Finances from Labor Expenses – Where to Turn?

Consider a world where your expenses, in particular, labor seem to be going up at exponential numbers in comparison to the past, but you have no ability to change your pricing to offset that from revenue. Seems hard to imagine in today's world within the free enterprise system of the United States of America. Welcome to healthcare.

While the nation was gripped by political intrigue regarding national and even statewide elections, I found two very small initiatives within cities to be even more impactful long-term for the community’s healthcare needs. In Inglewood, CA, and Duarte, CA, city leaders placed minimum wage initiatives on the ballot. Both would require a $25 per hour minimum wage within private healthcare facilities. Not community-wide. Not for every industry. Just within private healthcare. Which, for all intents and purposes, means hospitals. Also, doctor's offices, clinics, urgent care centers, and other types of medical facilities. While the results will not be known until December, if passed either would have a profound effect, both intended and unintended. 

While it's no surprise that labor likes the effort, the initiatives fail on a basic economic principle. I am a huge believer in supply and demand and free enterprise. The problem is that hospitals are price-takers. They can't change their pricing for the services they provide. They, for the most part, take reimbursement rates from commercial payers and the government based on what they want to pay. Thus, when inputs, in this case, labor, go up they can NOT increase their prices to match on the revenue side. And if you look at the financial reporting over the past few months in the healthcare sector, this would scare me if I worked in Duarte or Englewood.

If passed, don't be surprised if you see hospitals, clinics, urgent care centers, and other facilities just decide to close. Or, move into another city that doesn't have that requirement of compensation. It won't be because they're bad people but because they want to keep their doors open.  From a public long term communication perspective, it will be spun negatively. But the great thing about free enterprise and capitalism is it eventually people will make changes to make sure they stay in business. No matter what one might say.