Hospitals follow through on cost trimming, job cuts

With a growing number of people losing employer-sponsored insurance, the belt-tightening moves hospital executives talked about in the fall as possibly necessary to survive the recession have become reality. Demand for subsidized or free services is increasing, but budgets are being slashed. The hospital job sector, which has long been buffered from economic swings, is feeling the pinch.

Those are among the conclusions of a report issued April 27 by the American Hospital Assn., based on a survey taken in March.

"Community need for care remains high and, in these tough times, communities turn to their local hospital," said AHA President and CEO Rich Umbdenstock. "Hospitals are walking a tightrope, trying to balance the growing needs of their communities with today's economic challenges."

The AHA last queried chief executive officers of its member institutions on this subject in November 2008, and plans to survey them quarterly to determine the impact of the recession on hospitals.

The organization's first inquiry of 736 CEOs revealed 59% were considering or already cutting administrative costs and 27% were looking at or actually reducing staff. This more recent questionnaire filled out by 1,078 CEOs indicated that 90% made some sort of change, such as cutting administrative expenses, reducing staff, eliminating some services, debating a merger or divesting assets.

The prior survey also found that 56% were reconsidering spending money on expanding capacity or other renovations. Approximately 45% were questioning whether to invest in clinical technology or equipment.

In March, 77% actually did reduce capital spending and 46% scaled back ongoing projects.

The more recent survey also found 65% had a moderate or significant decrease in total margins, which includes investment income, and 57% had a moderate or significant drop in operating margins, a ratio that involves only revenue and expenses associated with patient care.

The concern is that hospitals may not be able to serve their communities either because they don't have the most up-to-date technology, or they are forced to close their doors.

"The impact of the economic downturn is increasing on hospitals," said Caroline Steinberg, AHA's vice president for trends analysis. "We could see increases in closures and more mergers, and hospitals definitely won't be investing as much in modernizing their facilities."

The economy is also affecting employment in this setting. An analysis of data from the Dept. of Labor's Bureau of Labor Statistics revealed that job growth at hospitals may have stopped. In January 2008 this sector grew 0.2% while the larger economy lost 0.1% of its jobs. Preliminary data from March indicate that hospitals did not add a significant number of jobs while the broader economy lost 0.5% of positions. The number of hospital mass layoffs also grew.

In addition, economic issues are affecting the kind of relationship physicians seek with hospitals. The November 2008 survey revealed that 56% of hospital CEOs were receiving more requests from physicians for increased pay for on-call or other provided services, for a job, to sell a practice or to partner on purchasing equipment. That number jumped to 65% in the more recent report.

This situation is believed to be a result of rising unemployment in the country as a whole. This means larger numbers of uninsured patients are reporting for emergency department care. In November 2008, 23% of hospital CEOs noted a moderate or significant increase in emergency department usage. The March survey found that 58% were saying the percentage of visits to this part of the hospital by those without insurance had grown at least moderately.

Requests for elective procedures also declined. Approximately 31% of CEOs said in November 2008 that their institutions were experiencing a moderate or significant decline in these types of procedures. This number jumped to 59% in the March survey. Demand for subsidized services grew for 37% of institutions in the November 2008 survey. This number increased to 53% in the March one. Charitable contributions to pay for these services went down for 37% of institutions in November 2008 and for 39% in March of this year.