The second half of 2008 is beginning to look like a turning point in the financial lives of hospitals and health systems.
New data and anecdotal evidence are beginning to darken the optimism that surrounded hospital finance outlooks from earlier this year. They show healthcare providers are moving from record-breaking profits in 2007 to widespread hospital layoffs and tanking investments this fall to deep uncertainty about the sure-to-be faltering economy of 2009.
Hospitals not only suffered the effects of high joblessness and a corresponding rise in uninsured patients, but also contributed to those trends as they laid off more than 5,000 healthcare workers in October and November.
It wasnt like this the last time around. In 2001 when the economy rolled through an eight-month recession, community hospitals never stopped hiring more workers and posted a profit margin of 4.2%, which closely tracked profits in the years before and afterward.
Such results might have reinforced the old notion that healthcare was recession-proof because of its steady supply of customers and its reliance on the federal treasury as its single largest payer (April 21, p. 6).
But experts say those factors are becoming less important than in years past. Investment firms issued a cascading series of negative outlook reports in healthcare last week, citing softening patient volumes, limited access to credit markets, and a rising tide of bad debt and charity care.
Healthcare benefit structures are different now, with more cost-sharing. And I think this is going to be a different recession, nastier. The longer it goes on, the worse it is, said Glenn Melnick, healthcare economist with RAND Corp., and a healthcare finance professor at the University of Southern California.
Observers from New York Gov. David Patterson to Merrill Lynch & Co. Chairman and Chief Executive Officer John Thain are now saying publicly that economists need to look all the way back to 1929 for another example of the kind of slowdown witnessed today. It is not like 87. It is not like 98. It is not like 2001, Thain told a financial services conference audience in New York last week, news services reported.
Leo Brideau said he has come to the same conclusion. This is just the beginning. I think its going to get worse before it gets better, said Brideau, president and CEO of Columbia St. Marys, the Milwaukee-based three-hospital system.
Brideau is in the ironic position of imposing some of the kinds of health insurance costs on his employees, like higher deductibles and copayments, that are widely blamed for a softening demand and a gloomy financial outlook for hospital services. His staff is already considering a fundamental restructuring of its employee healthcare plan for 2010.
Brideau also announced this month that Columbia St. Marys cut 141 positions, placing 67 of the affected workers in different jobs throughout the system and laying off another 74 people.
As we see demand drop, we need to adjust. Pretty much everyone I know is going through reductions, either through attrition or layoffs, Brideau said. Youd have to have your head in the sand not to be taking a look at this.
When the American Hospital Association publicly released its latest annual Hospital Statistics guide Nov. 7, it seemed to represent a continuation of the rosy public perception that hospitals had been receiving up until that point.
The latest annual statistics guide reports that in 2007 overall profit margins at U.S. community hospitals hit their highest level in at least 15 years at 6.9%, and total profits topped $43 billion for the first time ever.
Only one state in the nationKansashad hospitals that posted an overall decrease in revenue in 2007, mainly because of uncollected patient revenue.
The operating margin at community hospitals, calculated using only revenue from patients and other operating sources, was 4.3%a more modest growth from the 2006 operating margin of 4%, the AHA statistics show.
Analysts at Moodys Investors Service calculate that based on the sampling of hospitals they analyze, the peak in operating profits for many hospitals actually came in fiscal 2005 and has been sliding ever since.
Staffing at hospitals in 2007 also was well above recent trends, even though inpatient levels were down. The total number of employees at all U.S. community hospitals grew using both measures the AHA uses to gauge staffing levels: full-time equivalent positions (2.8% growth) and the number of FTEs per 100 patients (2.4%). Both of those rates of growth were the highest in at least a decade.
Moreover, the Bureau of Labor Statistics confirmed Nov. 7 that healthcare hiring was continuing to show steady growth in October, even though employment numbers for the nation as a whole fell for the 10th consecutive month. In the 12 months that ended in October, hospitals increased their workforces by 3% and physician offices increased by 3.1%, the bureau reported.