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Spotting the Turnaround

Michelle Ponte, for HealthLeaders Magazine, August 12, 2009
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When will we know healthcare is on the mend? Experts say look to employment rates, state and federal trends, and reimbursement rates.

Think you can predict when healthcare will start to see a grand-scale turnaround? All right, even healthcare economists can't say for sure when things are going to get better. Analysts are reluctant to flip the "when" switch, but they do cite certain markers we can all watch that may signal a change in the market.

"When do people start getting employed, when is the payer mix going to bottom out and start getting better, and when will state funding improve to the point that there is more robust Medicaid reimbursement," says Martin Arrick, managing director in corporate and government ratings at Standard & Poor's and sector leader and group spokesman for the nonprofit healthcare group in New York City. Those are the kind of questions organizations need to be asking and the areas they need to be following to identify a change in the market, say Arrick and other healthcare experts.

National, local trends
On a macro level, healthcare faces dwindling revenue. "One of the big worries we have is the issue of what happens with government reimbursement as it just becomes a bigger and bigger part of the state budget," says David Wyss, chief economist at Standard and Poor's.

Wyss also says that employment has a significant impact on the business of healthcare. "If people don't have jobs, they don't have health insurance. The problem for hospitals is patients still get sick and will show up at the hospital, and the only question is who pays the bill afterward."

To that point, unemployment rates have nearly doubled over the past year. The Bureau of Labor Statistics says that in June the national unemployment rate was 9.5% compared to just 5.6% for the same period in 2008. The outlook doesn't look good through the end of the year either, points out Wyss. "Employment is going to continue to drop for the next six months or so nationally." However, he notes, the pace of decline will slow down. But that doesn't necessarily signal good news. "The problem is not as many people are getting laid off, but nobody is finding jobs, so the number of unemployed is continuing to rise."

So how do healthcare leaders translate employment data into meaningful information they can use?

"What counts for hospitals is the local unemployment rate," says Wyss. In general, he says every point on the national unemployment rate adds another half percentage point to the number of the uninsured. However, he says, the federal stimulus package may reduce that estimate.

Unemployment impact
At NorthShore University HealthSystem in Evanston, IL, Mark Neaman, president and CEO, is paying close attention to unemployment rates, which affects bad debt and charity care. Neaman says NorthShore's bad debt and charity care went up 22% between 2008 and 2009. At the same time, the state's unemployment rate climbed to 9.4% in April, up from 6.2% for the same period the year before. The four-hospital system had $1.5 billion in revenue last year and a $35 million increase in bad debt and charity care in 2009. "That is a pretty big number," says Neaman. "It is a reflection of how things are going in the marketplace that is an impact of unemployment."

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