Hospitals follow through on cost trimming, job cuts

An industry report suggests job growth is flat and more CEOs are getting requests from doctors for financial help.

By Victoria Stagg Elliott — Posted May 11, 2009

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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.

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Belt tightening, asking for help

The American Hospital Assn. surveyed CEOs of community hospitals in November 2008 and March of this year. A total of 736 completed the first questionnaire on the changes being taken or considered to maintain fiscal viability; 1,078 CEOs responded to the second survey, which focused on action taken. Both surveys also asked the CEOs about the numbers of physicians seeking monetary help. Respondents came from all over the country, and represented small and large institutions in urban and rural settings.

CEOs considering November 2008 March 2009
Cutting administrative costs 59% 80%
Reducing staff 53% 48%
Eliminating services 27% 22%
A merger 8% 9%
Divesting assets 12% 8%
Taking other action 21% 39%
Physicians seeking
Any form of financial backing 56% 65%
Increased pay for on-call or other services 83% 79%
A hospital job 69% 71%
To sell their practice 31% 37%
A partner on an equipment purchase 23% 22%
Some other form of financial relationship 11% 14%

Sources: American Hospital Assn., "The Economic Crisis: Impact on Hospitals," November 2008 and "The Economic Crisis: The Toll on the Patients and Communities Hospitals Serve," April 27 (link)

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Stalled job growth

The growth of health-related jobs has long outpaced that of many other industries. But the most recent numbers from the Dept. of Labor's Bureau of Labor Statistics indicate that, while the hospital job sector is still doing better than the economy as a whole, the number of positions appears no longer to be increasing. Here are seasonally adjusted percentage changes in hospital industry employment compared with that of all sectors. Numbers for February and March are preliminary.

All non-farm
industry jobs
Hospital jobs
January 2008 -0.1% 0.2%
February 2008 -0.1% 0.3%
March 2008 -0.1% 0.3%
April 2008 -0.1% 0.2%
May 2008 -0.1% 0.4%
June 2008 -0.1% 0.1%
July 2008 -0.1% 0.3%
August 2008 -0.1% 0.3%
September 2008 -0.2% 0.2%
October 2008 -0.3% 0.3%
November 2008 -0.4% 0.2%
December 2008 -0.5% 0.2%
January 2009 -0.5% 0.1%
February 2009 -0.5% 0.1%
March 2009 -0.5% 0.0%

Source: American Hospital Assn., "The Economic Crisis: The Toll on the Patients and Communities Hospitals Serve," April 27 (link)

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Passing out pink slips

The number of times hospitals laid off at least 50 people at once is growing, according to data from the Dept. of Labor's Bureau of Labor Statistics. Here is how the number of times hospitals had mass layoffs compares with the health care sector in general.

Health care
January 2008 18 9
February 2008 13 5
March 2008 11 6
April 2008 6 4
May 2008 18 7
June 2008 27 10
July 2008 22 11
August 2008 27 13
September 2008 45 18
October 2008 29 11
November 2008 23 13
December 2008 17 5
January 2009 29 13
February 2009 23 12

Source: American Hospital Assn., "The Economic Crisis: The Toll on the Patients and Communities Hospitals Serve," April 27 (link)

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External links

American Hospital Assn. on the economic impact on hospitals and their communities (link)

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