The Lag at the End of the Tunnel

We are reading reports that the great recession–which started in December 2007–might be over sometime in the third quarter of 2009. Some economists say it's already over.

But, before your C-suite pops the champagne corks and unrolls those dusty blueprints for the atrium expansion, remember that these recovery claims should be read only within the narrow economic measurement of the gross domestic product, which is expected to grow 2.4% in the third quarter. Skepticism and caution are justifiable when some economists suggest that a good indicator for the recovery is a slowdown in job losses.

The healthcare sector is one of the few areas in the economy that has seen job growth through the recession, but that growth has essentially been halved this year.

And, while the healthcare sector was one of the last areas of the economy to be adversely affected by the recession, some analysts warn it may also be one of the last sectors to enjoy the recovery.

"Economic cycles have different impacts on different sectors of the economy," says Steve Jenkins, vice president of Chicago-based Sg2. "Healthcare tends to be a lagging sector because it takes time for the downturn to result in lost jobs and the lost jobs to result to lost health benefits, and the COBRA option extends that further. So, it softens the blow early on but it tends to prolong the impact of the recession on healthcare providers for a longer time."

Last week, Kaiser Permanente, the massive integrated health system and one of California's largest employers, announced that it will eliminate 1,800 positions over the next few months. The positions, which represent about 2% of KP's 56,000-strong workforce, will affect mostly temporary and on-call positions.

Also last week, Arlington-based Texas Health Resources announced that it had laid-off 33 employees from its 19,000 workforce.

In California and Texas, like everywhere else, the reductions were blamed on the usual suspects, including: uncertainty over healthcare reform; dwindling Medicare reimbursements; growth in unreimbursed and charity care; tanking investment portfolios; and reduced inpatient volume.

Jenkins says there already are signs that hospitals may be on the rebound. "In the last two or three months, patient volumes on an aggregate basis have started to grown, but there are still a lot of caveats. We still have to be cautious," Jenkins says.

Regardless of the pace of the recovery, Jenkins says he believes hospital leaders will emerge from the recession with a different mindset. The healthcare reform debate is still looming, and nobody knows yet what – if anything – the final product will look like. The advent of electronic medical records is creating as many problems as it is attempting to solve. Medicare is projected to be insolvent by 2017 and while Congress likely won't allow that to happen, across-the-board reimbursement cuts are anticipated.

"Most hospitals recognize that the next five years are likely to be leaner economically and they are preparing for that," he says. "We have been in this situation before and we know that leaner times come. That was true in the late '90s with the Balanced Budget Act. Some of this is a lagging response to economic growth and also reflects hospitals getting more efficient and anticipating leaner times."

There is no telling when working Americans will begin to enjoy the fruits of recovery. For most of us, it can't happen fast enough. But we should probably get used to the idea that we won't see tangible impacts on job growth in the months ahead. And, if Jenkins' predictions hold true, it will be a long time–if ever–before we see the rapid expansion of the hospital sector workforce that we saw in the months leading up to the recession. While it may not yet be time to swap your flak helmet for a party hat, be patient. It looks like better days are coming.