National industry leaders are warily eyeing the horizon for a potential recession, but for healthcare organizations, an economic downturn could bring some benefits.
Hospitals, health systems and other provider organizations have struggled to recover from the COVID-19 pandemic, battling the financial impacts of rising prices and historically high labor costs. The organizations have pledged to reduce reliance on contract labor and normalize pay increases for workers, but an ongoing staffing shortage is forcing providers to keep hiking wages and bonuses and/or look outside the industry to fill gaps.
Recession fears are waning for 2023, but the Federal Reserve Bank of New York projects a 71% chance of recession by May 2024. Economists and industry experts say a recession could be the cooldown healthcare needs to slow wage growth and tap into a larger talent pool, but others warn it could still mean disaster for many workers.
Wages and workers
A recession could slow exorbitant wage increases in healthcare, particularly as demand wanes for expensive contract labor and lower-skilled employees turn to other industries for work. Entry-level workers in food service or housekeeping, for example, could look to healthcare for work as the hotel, hospitality and restaurant industries falter, said David Cutler, an applied economics professor at Harvard University.
In a more skilled position like nursing, higher national unemployment rates often coincide with more nurses joining the workforce, said Doug Staiger, a healthcare economist at Dartmouth College. He attributes that trend to the added worker effect, when one spouse joins the workforce due to the other’s job loss or other family financial stressors.
Travel nurses, who saw their pay increase by multiples in 2021 and 2022, may also be attracted to the stability of a permanent role, Staiger said..
“My sense is that healthcare would do pretty well in a recession, simply because the people who they want to hire would be more available,” Cutler said.
Healthcare organizations would also do well to invest in training programs to upskill workers, a move that builds company loyalty, said Matt Wolf, senior healthcare analyst at consulting firm RSM. He said a recession could impact the larger healthcare industry in different ways, depending on the services provided, the skills needed and the geographic location of care facilities.
Not a win for all
A recession could bring benefits to struggling healthcare providers, but the silver lining may not extend to everyone.
In the past year or so, dozens of healthcare organizations have laid off employees as they restructure operations, cut costs and adjust to new care delivery models. Minneapolis-based Allina Health said this week it will lay off fewer than 350 employees, mostly in leadership and non-direct caregiving roles, due to “unprecedented financial challenges.” Prisma Health in Greenville, South Carolina, will lay off nearly 700 employees in August, following an announced partnership with Compass One Healthcare to provide environmental services.
Wolf noted the increased push to automate back-office functions, which he thinks is unlikely to fully eliminate those types of positions but will greatly impact the demand for those workers.
Linda Aiken, a nursing and sociology professor at the University of Pennsylvania, said she doesn’t think clinical, patient-facing staff would be safe in a recession either, creating additional problems for performance and patient outcomes. HealthAlliance-Clinton Hospital, part of Worcester, Massachusetts-based UMass Memorial Health, plans to close its maternity inpatient unit in September due to staffing challenges and a decline in births. The hospital would not say how many employees are affected.
“All the hospitals are screaming, ‘We don’t have enough staff,’ but they are laying them off already, so I think we already see what hospitals are going to do," Aiken said. "They are going to reduce their staff, and they’re especially going to choose their high-skilled staff and try to reduce them.”
She said public policies on healthcare staffing could help to blunt the impact of a recession and other external threats.
