Healthcare Stuck in Economic Limbo

Elyas Bakhtiari, August 9, 2010

Last  week, the Commonfund Institute released a report on the status of investments by nonprofit healthcare organizations, and the findings mirror in a way what’s going on in the overall healthcare economy.

There is definitely good news. The average return on investment was 18.8% for Fiscal Year 2009, which was the best year in nearly a decade. After average losses of 21.2% the previous year, that’s an impressive turnaround.

But there’s also plenty of reason to remain unenthusiastic about even record-setting improvement. That 18.8% growth came from already-diminished funds; it takes more than 20% growth to offset 20% losses. Even after the turnaround, the three-year average for nonprofit investment returns was -0.2%, and the five-year average was only 3.5%. When you consider inflation and the rising cost of healthcare, those numbers are less impressive.

The big problem is FY 2010. If the trend holds and investments continue their double-digit growth, then those multi-year averages will start to look a little better. But at this point it’s tough to predict what comes next. Some are warning about a double-dip recession. Others foresee a recovery that will take years.

For leaders, that uncertainty can be debilitating. “I think many healthcare organizations are staying the course with their investment portfolios but have become somewhat conservative and are trying to be defensive to avoid a second round of losses if possible,” says Craig Goodrich, CFO at Virginia Mason Medical Center in Seattle.

In some ways, there’s more uncertainty now than in the middle of the recession. At least then it was clear that the economy was in free fall and drastic action was needed. It is now more difficult to read economic signals because the overall economy is stuck in limbo between recession and recovery.

Other economic indicators also have that same basic mixed bag of good news, bad news, and uncertainty. Take employment: Hospitals have reported 15,200 payroll additions in the first seven months of 2010, which is more than double the growth of the same period in 2009. And analysts have been predicting solid job growth in healthcare all year.

But hospitals shed 2,300 jobs in July, and some, like St. Francis Hospital and Medical Center in Connecticut, are planning to lay off hundreds of workers.

Elyas Bakhtiari Elyas Bakhtiari is a freelance editor for HealthLeaders Media.
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