Detroit Medical Center became the first hospital in Southeast Michigan to announce layoffs today to prepare for millions of dollars in Medicare sequestration cuts.

"In corporate/administrative and selected hospital areas across the DMC that do not affect care, we are reducing and realigning staff levels by approximately a 2 percent FTE reduction or 300 employees," said Joe Mullany, DMC's CEO, in an employee e-newsletter released today.

In delivering the news of cuts, Mullany wrote: "Health care providers across the country currently are facing revenue shortfalls as a result of the 2 percent sequestration of Medicare funds and further reductions in payments from the State of Michigan Medicaid programs to our hospitals. DMC needs to address the magnitude of these financial shortfalls this year and in the next several years, finding expense reductions equal to our anticipated revenue reductions."

Mullany also said salaries for corporate executives, at the vice president level and above, would be reduced for the fourth quarter 2013.

Over the past several weeks, Crain's has reported that DMC has been laying off top executives and a number of mid-level corporate employees as it conducts department-by-department efficiency reviews at its eight hospitals.

For example, Mary Zuckerman, DMC's executive vice president of administrative services, left last month in a restructuring that phased out her job.

Thomas Malone, M.D., president of Harper University Hospital and Hutzel Women's Hospital, also left DMC after five years.

Last month, Mullany told employees in a company newsletter to expect budget cuts and employee downsizing to match the millions of dollars in expected Medicare cuts over the next year.

Mullany said DMC also has been going through a restructuring program to prepare for more changes under the Patient Protection and Affordable Care Act, or Obamacare.

While expected to kick in during 2014, Mullany said DMC is still reviewing financial implications to projected cuts to the state disproportionate share program that helps fund care to the poor.

Experts believe disproportionate share funding cuts will be phased in as the number of uninsured goes down in a region or state.

DMC receives the bulk of state disproportionate share dollars in Michigan because it cares for one of the largest groups of Medicaid and charity care patients. In 2011, four of DMC's hospitals received $30 million of the $45 million in the state fund.

Despite Michigan hospitals reporting improved profit margins over the last two years because of cost-containment efforts, experts believe hospitals will have to make additional cuts to cope with additional Medicare reductions coming from budget negotiations in Washington aimed at reducing the federal deficit.

"There are actual reimbursement cuts and then there are utilization reductions that are occurring" at hospitals, said Tony Colarossi, partner for health care consulting with Southfield-based Plante Moran.

Colarossi said hospitals will first look at their workforce to reduce costs because that accounts for 50 percent of overall expenses.

"There is no other way for hospitals to maintain their margins," he said.

Several Southeast Michigan hospitals have told Crain's they have planned for the 2 percent sequestration cuts this budget year. Those hospitals include Beaumont Health System, St. John Providence Health System and Henry Ford Health System.

But Colarossi said smaller hospitals that don't have large reserves and that have been struggling for some time might have to consider closing.

"If you can't find a suitable partner you can always close your facility," he said. "This is a serious issue that the state will look at carefully over concerns about access."

Colarossi said some hospitals might simply cease inpatient services and convert to outpatient facilities.

Over the long term, Colarossi said hospitals will begin to look at individual clinical services and whether their patient volumes and profit margins justify maintaining those services.

Correction: An earlier version of this story should have identified Tony Colarossi as partner for health care consulting with Southfield-based Plante Moran.