Cuts in Health Care May Undermine Role in Labor Market

By REED ABELSON and KATIE THOMAS

Published: August 17, 2011 - New York Times

Even during months of stubborn unemployment, the health care industry has provided a solid underpinning, reliably adding jobs in an otherwise dismal environment.

For example, hospitals, nursing homes and the like added about 430,000 jobs during the recession, as the country shed 7.5 million jobs. With the latest government reports showing a meager overall gain of 117,000 jobs in July, health care remained a significant contributor with an additional 31,000 jobs for the month, a tad higher than an average monthly addition of 25,000 health jobs in the last year. Hospitals, which had a slight decline in June, added 14,000 jobs in July.

While few experts can predict how the stock market’s gyrations and government cutbacks this month will affect the health industry, several health industry analysts warn that the sector is showing signs of economic sluggishness that has long kept other business sectors beleaguered.

The situation has led many in the health industry to caution that it cannot be relied upon to keep hiring workers. “It’s not realistic to believe that we’re going to continue to generate job growth when you’re speaking about Medicare and Medicaid reductions in the hundreds of billions of dollars over the next few years,” said Daniel Sisto, president of the Healthcare Association of New York, which represents the state’s hospitals and health systems.

Companies that rely on government spending have been bracing for deeper reductions, and President Obama recently alluded to another round of belt-tightening from one of the industry’s bedrock payers — Medicare.

Signs of a gloomier outlook have been surfacing in various spots, from a slowing in new construction plans to falling share prices of nursing home companies to announced layoffs among hospital support staff.“Nobody is sure what will happen,” said Alan M. Garber, a physician and health policy expert at Stanford. The cuts in government programs like Medicare and Medicaid, and pressure to reduce costs, are thwarting health care employers in trying to meet the rising demand for their services.

“The health care industry is facing greater uncertainty than in any time in memory,” Dr. Garber said.

Yet even though economists and other experts still predict increasing demand for health care as the population ages, with an accompanying demand for job growth, health care officials and executives cite a daunting cascade of recent events as reasons to reassess any expansions.

They point to Congress’ intent to reduce spending, economically depressed states struggling to deal with a rash of cuts in Medicaid programs and the continued uncertainty of financial costs that will be imposed by the federal health care law, including contradictory lower court decisions about the constitutionality of various provisions.

A survey by the Conference Board, a business research group, found that help-wanted ads for health care providers and technicians fell by 61,200 listings in July.

In Florida, for example, health care led the state in job gains during the recession — it was the only industry that did not lose jobs during that time. But since September of last year, the leisure and hospitality industry has been adding more jobs, according to a state economist.

The Palo Alto Medical Foundation, a large physician group in Northern California that employs 5,500 people, including 1,000 doctors, says it has no plans to add many more people in the near future. “Really our focus these days is to do more with the assets we have,” said Cecilia Montalvo, the vice president for strategic development for the medical group.

Hospitals also appear to be slowing the pace of building, as projects begun before the recession started are now being completed. The volume of tax-exempt debt for hospitals in the first half of the year has fallen by nearly half from a year ago, said David Johnson, a managing director at BMO Capital Markets. “We’re overinvested in hospitals and hospital beds,” he said.

The University of Michigan Health System, for example, is adding some 560 jobs as a result of new children’s and women’s hospitals it plans to open soon and an expansion of its emergency department. But Doug Strong, who heads the system’s hospitals, said his overall goal is to shrink his work force in future years as he tries to make the system more efficient.

While he expects the demand for health care services to rise, he believes he needs to deliver that care with fewer people at less cost. “I think that is what the nation is asking of all of us,” he said.

The impact of state cuts in Medicaid are already being felt in doctor’s offices, hospitals, nursing homes and home health agencies around the country. Hospitals experienced reductions in Medicaid reimbursement in 37 states for next year’s budgets, according to Lisa Goldstein, an analyst at Moody’s, who predicts further cuts.

At the Elliot Health System in Manchester, N.H., the seemingly abrupt decision by state lawmakers to sharply reduce hospital reimbursements led the hospital to recently lay off 182 people.

“For the last 10 years, we’ve been pretty stable and we’ve been able to grow,” said Elliot’s chief executive, Doug Dean. But faced with the loss of millions of dollars in Medicaid revenue that would wreak havoc on the coming hospital budget, Mr. Dean said he had no choice but to cut jobs. “It was simply because of the economics of Medicaid,” he said. Elliot is among a group of hospitals filing a lawsuit to stop the cuts.

Health care employers are also confronting cuts to the federal Medicare program. In July, nursing home operators learned their reimbursements would be cut by 11 percent in October, and hospitals expect further reductions in what they are paid under the new health care law as well as in future efforts to reduce the federal deficit.

Still, these continue to be boom times in many corners of the industry. Partners in Care, a New York nonprofit provider of home health care services, is hiring so many home health aides that it recently opened a second training center to handle the flood of new employees.

Its staff of aides has grown from close to 5,800 in 2006 to about 9,200 today. In June, the group, which is part of the Visiting Nurse Service of New York, hired 374 new people, the second-biggest month in its history.

Jay Conolly, vice president of human resources at Partners in Care, said his group is benefiting, not just from the growing elderly population, but also from the consolidation of nursing homes and hospitals in the New York area and a heightened interest in low-cost alternatives to inpatient care. The Bureau of Labor Statistics has predicted that jobs will grow faster in the home health care area than in any other section of the health care industry.

“There’s never been enough home health aides, and there never will be,” Mr. Conolly said.

And many expect that when the economy finally does rebound, hiring will, again, take off, especially when more people are expected to be insured under the federal health care law. Geraldine Bednash, chief executive of the American Association of Colleges of Nursing, expects there is pent-up demand for their services, especially for nurse practitioners and nurse midwives, who would work in primary care. “We are going to see this huge onslaught of need for nurses,” she said. “So we’re in a blip, that’s all.”

There are some who wonder whether the country should continue to rely on health care as a stalwart supplier of new jobs. If spending on health care continues at its current pace, it will choke out other vital sectors and end up hurting the rest of the economy, said Joshua Shapiro, chief United States economist at MFR Inc. “I think the path that we’re on now is clearly unsustainable,” he said.

Tom Torok contributed reporting.