Hospitals Face Recession Woes

By Amanda Sounart, associate editor

The escalating credit crisis and it’s ripple effect on the economy in the past months has caused companies to fold, unemployment to rise and retail to falter. While no amount of economic hardship will reduce the medical needs of patients, the impact of the recession is beginning to be felt by U.S. hospitals. Once thought to be recession-proof institutions, hospitals are now looking for ways to tighten their belts without compromising care.

“In the face of a recession, people will lose their jobs and insurance,” said Caroline Steinberg, vice president of trends analysis for the American Hospital Association (AHA). “They may drop their elective surgeries and might discontinue their preventative care.”

In a recent survey conducted by the AHA, respondents from 736 U.S. hospitals and information from DATABANK, a Web-based reporting system, revealed that elective procedures are down by 40 percent and admission rates are dropping as well. However, Steinberg noted that despite the decline in elective procedures, patients will inevitably return to hospitals as the need for medical care will always be present.

“I think in some ways the demand for healthcare is largely recession proof because people will always need care,” said Steinberg.  “If people don’t take care of themselves, don’t take their medications and don’t get their preventative treatment, they will come back to the hospitals, often sicker and in need of more complex care.”

Despite the need for care, the lack of insurance and state funding could put a squeeze on the bottom line.

“Even though the patients keep coming, state budgets keep getting cut, as does Medicare and Medicaid funding. Medicare and Medicaid fund about half of what hospitals make,” added Steinberg.  “Unlike the car industry, where people just stop buying cars, patients are still coming to the hospital for services, there is just less money to pay for it.”

In fact, uncompensated care is up 8 percent from where it was last year, according to the survey. As a result, hospitals are putting off expansions and delaying their investment in technology in order to make ends meet. According to the AHA survey, 56 percent of hospitals were postponing renovations to increase capacity and 45 percent were delaying purchasing clinical equipment.

“It’s almost like, in this particular situation, hospitals are collateral damage,” noted Steinberg. “The bad loans weren’t hospital loans but hospitals are still suffering.”

Many hospitals have become dependant on investment income in order to supplement the lack of government compensation. With the dip in the stock market, once valuable stocks have lost their worth, leaving hospitals scrambling to fill the financial hole. The AHA notes that revenue for hospitals has dipped 1.6 percent, despite a 6.1 percent increase in revenue for the same time period last year.

Across the country, hospitals are showing strain from a lack of funding. In New York, the State Health Department has promised a loan to a community hospital in Brooklyn in order to keep its obstetrics and pediatric departments from closing, yet hospital officials have stated that they don’t know if the loan will be enough to operate through 2009. In Ohio, a health system is reducing their staff by 112 jobs in order to break even.

“What we’re seeing right now, in this initial wave, is that the focus of the job cutbacks is really on the administrative staff, not the clinical care,” explained Steinberg.

However, a reduction in any staff members can put a strain on an already overburdened system.

“Hospitals not only provide healthcare to the community, they are an important part of the economy,” Steinberg noted. “They employ more than 5 million people. It’s an important sector that we want to stay financially healthy.”

The AHA has been advocating for hospitals at the federal level, hoping to gain more support and increase Medicare and Medicaid reimbursement rates so hospitals can remain operational.

While there is little hospitals can do to thwart the affects of the recession, what they are doing is continuing to provide the best care possible to their patients and wait for the economy to recover.


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