Healthcare Business News

Economic wear and tear

Despite growth, industry feeling the strain

By Melanie Evans
Posted: September 12, 2011 - 12:01 am ET

Healthcare, long a resilient corner of the U.S. labor market, is showing signs of economic strain.

Healthcare—and its heavyweight sector, hospitals—continued to hire during and after the recession even as the nation's economy jettisoned millions of jobs and then failed to add enough to instill confidence in the recovery. But beyond the welcome job growth are indications of healthcare's vulnerability to the economy. And as policymakers seek to pare down the federal deficit, the slowdown to hospital revenue, blamed on the economy and prior cuts to public healthcare spending, is expected to worsen.

President Barack Obama delivered a speech to Congress last week that highlighted the gravity of the nation's jobs outlook and signaled the administration is looking for deeper Medicare and Medicaid cuts to offset the costs of a jobs bill and deficit reduction.

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Hospitals, fearful Congress will opt for Medicare cuts to help reduce the deficit, moved to capitalize last week on the sector's job growth and current anxiety over a double-dip recession. “Now is not the time for Congress to make cuts to a sector that is driving economic growth and creating jobs,” American Hospital Association President and CEO Richard Umbdenstock said in a written statement. The trade group released a report commissioned by the AHA that projected hospitals would cut 194,000 jobs during the next decade should Medicare reduce hospital rates by 2%.

The overall positive healthcare job growth masks rare contractions in hospital employment. Hospital layoffs and hiring freezes that followed the sudden financial strain of the credit crisis have persisted as the sector grapples with the weak recovery and a drop in Medicare rates. In the past decade, monthly hospital employment figures have declined on just 11 occasions, federal jobs figures show. Of those, nine occurred after the Great Recession began and have continued through this year.

Obama's speech last week signaled that cuts to Medicare and Medicaid may be near.
Obama's speech last week signaled that cuts to Medicare and Medicaid may be near.
Other data highlight a squeeze on hospital wages and benefits, not unlike the rest of the economy. By one measure, hospital spending on wages and benefits slowed during the worst of the recession and nearly stalled as the recovery faltered. Another snapshot found hospitals markedly slowed spending on wages and benefits for the second straight year in fiscal 2010.

That does not mean hospital margins have stumbled during the downturn. The payroll cuts and frozen wages have contributed to aggressive cost cutting that analysts credit for healthy operating performance among stronger hospitals and health systems.

The Milford (Mass.) Regional Medical Center moved to curb labor spending as a growing number of patients struggled with medical bills or delayed imaging and elective procedures in recent years, said officials with the 121-bed hospital.

Francis Saba, CEO of Milford Regional, said the financial pressure prompted executives to speed up job cuts that would have otherwise occurred through attrition. Nineteen part-time licensed practical nurses were laid off roughly one year ago. The cuts were part of the hospital's strategy to phase out the professionals in favor of registered nurses, but were accelerated by the economic downturn, he said. Another 23 vacant jobs that ranged from housekeeping to laboratory workers to physical therapy were eliminated last October.

For most of the last decade, hospitals accounted for one-fourth to one-third of healthcare's annual job growth. That changed abruptly in 2009 as hospitals all but stopped adding jobs. Hospitals increased payroll by a meager 2,600 workers that year—or roughly 1% of the year's 237,500 new healthcare jobs.

Of course, that marginal gain was an enviable one as the U.S. economy shed 5.1 million jobs that year.

Hospital hiring rebounded modestly in 2010, adding half the jobs of an average year before the recession.

So far this year, more robust hospital hiring has added 52,600 jobs through August—though figures for the most recent two months are preliminary—compared with 37,000 for all of 2010.

Outside hospitals, hiring proved far steadier. Across all ambulatory settings, such as doctors' offices or outpatient clinics, new hires emerged briskly from a minor slump in 2008 to add 180,200 jobs the following year, surpassing the pre-recession average yearly growth.

Employment gains across ambulatory healthcare remained strong in 2010 with 166,100 new jobs.

Edward Kelly, president of Milford Regional, said the hospital continues to respond to financial pressure and has made cuts to nonlabor expenses such as supplies, but the hospital also froze employee wages to control costs and prevent further cuts to payroll. “One goal was to preserve jobs,” by freezing pay, he said.

The average increase to hospitals' annual pay slowed markedly in 2010 to 1.2% (See chart), according to preliminary figures from the U.S. Bureau of Labor Statistics. That's down from 3.7% the prior year and 4.7% the year before. Rating agency Moody's Investors Service recently reported the median wage and benefit expense growth for 401 hospitals and single-state health systems declined to 4.1% for fiscal year 2010 from 5.7% the prior year and 8% the year before that.

In Goldboro, N.C., Wayne Memorial Hospital froze wages last year as the number of patients seeking care declined as a result of market competition and operating changes, according to Moody's. The gambit worked: the 267-bed hospital ended the year with an operating margin of 1.7%.

Richard Rogers, the hospital's vice president of human resources, said officials have since resumed pay raises tied to performance for Wayne Memorial's 1,500 workers. He said while no one wants to go without a wage hike, he believed employees understood the rationale for the decision.

“The economy was pretty clear to everybody,” Rogers said.

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