“Hospital Doctors Brace for Layoff.”
As I was scanning an online news source recently, the headline above caught my eye. The story detailed a U.S. hospital experiencing a loss in the past year, and one of the cost-cutting measures being considered by the hospital administration was a layoff of some of the health system’s hospitalists.
Now, while the story caught my eye, I was not surprised. All hospitalists and hospital medicine group leaders should take this as a warning and be prepared for potential cost tightening at your local hospital in the next year. Many hospitalist groups are vulnerable to cutbacks, because support often is needed to maintain the viability of the HM program and, in tough economic times, all HM support receives closer scrutiny.
It’s no secret; the U.S. economy is in a decline. A recession has yet to be declared, as a recession normally is defined as two consecutive fiscal quarters of negative gross domestic product growth. However, this economy has been flat the past two quarters, in terms of GDP, and expectations for the fourth quarter aren’t good. Additionally, the country is experiencing increased costs across the continuum related to oil prices, food prices, the housing downturn, and the mortgage mess. So, while there may not be an official recession, many businesses are experiencing a financial tightening, with decreased revenues from slower growth and higher costs from a variety of areas.
Even Healthcare Has Soft Spots
On Wall Street, conventional wisdom dictates the healthcare industry is more stable and resistant to recession than other industries. The general belief is people get sick no matter the state of the economy. But the healthcare industry is diverse and revenue has many avenues. Certainly in biotechnology and pharmaceuticals, there is a greater degree of recession resistance, but within the healthcare industry, hospitals and providers are much more sensitive to an economic downturn, even though a large percentage of revenues are from government sources.
In an economic downturn, hospital demand decreases secondary to a less admissions and elective procedures, particularly in patients with non-government payers. Additionally, the number of uninsured rises, which results in a change in payer mix at hospitals. Finally, due to the rise in out-of-pocket expenses associated with health insurance, it is highly likely patients will forgo healthcare at a quicker rate than in past recessions. When things get tough, patients must pick and choose what to pay for, and with the higher out-of-pocket expenses, healthcare is not as easy to access for many people.
In the meantime, the cost of running a hospital continues to escalate. Labor shortages continue, so hospitals must continue to pay competitive salaries to attract and maintain employees. Hospitals have made significant investments in patient safety, information technology, new construction, and physician practices in the past several years. All of these factors continue to contribute to the high fixed costs of hospital financials.
And so, as hospitals begin to look at costs that are not as fixed, and thus easier to cut, payments to physician groups are one of the early items undergoing close examination. Hospitalists aren’t alone in this budgetary fix, as hospital CEOs are scrutinizing all physician support. Emergency medicine, surgeon on-call pay, medical directorships, and group practice support are just a few examples.