Sluggish Hospital Job Growth Linked to Sequestration

Preliminary data from the Bureau of Labor Statistics marks July as the third month this year in which the hospital sector lost jobs. But one analyst is not ready to call it a trend.

With 2013 more than halfway completed, new federal data shows that hospital job growth has slowed considerably.

Caroline Steinberg, vice president, Health Trends Analysis at the American Hospital Association says the 2% cuts to Medicare mandated under the federal budget cuts known as sequestration are to blame.

"Medicare represents more than 40% of the care provided by hospitals and when you just lop off 2% of that, it's a big impact on hospitals," she says. "They have to provide the same amount of care they were providing before, but now instead of getting paid 92 cents on the dollar it's closer to 89 cents on the dollar. They were already losing money on Medicare and this makes it worse."

Bureau of Labor Statistics preliminary data marks July as the third month this year in which the hospital sector lost jobs, with 4,400 fewer jobs in July than in June. Since January, hospitals have created 1,700 new jobs. In the first seven months of 2012, hospitals created 38,600 jobs.

The larger healthcare sector, which includes hospitals, nursing homes, ambulatory surgery centers, clinics, and physicians offices, created a mere 2,500 jobs in July, well below the monthly average of 15,700 new jobs in the first seven months of 2013. The 2013 monthly average is well below the 24,300 new jobs that healthcare averaged in the first seven months of 2012. BLS figures for June and July are preliminary and can be subject to considerable revision.

Steinberg says most hospitals are trying to soften the blow of sequestration by first shedding administrative jobs to protect caregivers and patient services. "But when the rubber hits the road they start to cut programs and those programs that lose the most money are the first to go, things like psychiatric care, post-acute care, home health programs," she says. "You really do begin to see access suffering."

The across-the-board cleaver cuts mandated by the sequestration will lop $1.2 trillion off the federal budget over the next nine years, averaging more than $109 billion each year. This includes $11 billion in Medicare funding in 2013 in the form of the 2% reimbursement cuts.

Nicole Smith, a senior economist at the Georgetown University Center on Education and the Workforce, agreed that sequestration is playing a role in the slower job growth for healthcare, but she says it's too early to call it a trend.

"Because healthcare job growth as a whole has been strong for so long I am just really reluctant to look at two to three months in a year and call this a pattern of decline," she says. "Healthcare is one of the few sectors that even in the height of the recession continued to add jobs. Maybe we are observing a little correcting of the market. I don't think three or four months is enough of a trend to discredit the other six or seven years of growth."

The loss of hospital jobs in July was offset by the 6,600 jobs created in the ambulatory care sector. But even that job growth is down somewhat when compared with 2012. Ambulatory services created 100,700 jobs so far in 2013, an average of 14,300 per month. In 2013 ambulatory services created 108,300 jobs, an average of 15,400 per month.

Steinberg says the AHA will continue to press Congress and the Obama administration to find an alternative to the sequestration cuts. Until then, she says, hospitals will likely continue to cut services and staff, and cities and towns across the nation will feel the adverse effect for both access to care and local economies.

"Healthcare has always been an economic engine. The jobs tend to be high-quality jobs with good benefits. They tend to be, relative to the service sector, a little higher-paying. It's bad for the economy when hospitals cannot continue their contributions," she says.

Even with the slower job growth, Smith remains bullish on the job growth prospects healthcare sector. "Despite all of these short-term adjustments we have to make to the industry our forecasts still show healthcare as being a robust and buoyant sector over the next couple of years," she says. "Not only will it continue to grow. It continues to upscale. The newer entrants will certainly look different in terms of the credentials they hold compared to the existing workers who are there now."

More than 14.5 million people worked in the healthcare sector in July, with more than 4.8 million of those jobs at hospitals and more than 6.5 million jobs in ambulatory services.

In the larger economy, nonfarm payroll employment rose by 162,000 in July, with most of the new jobs coming in retail sales, food service, financial activities, and wholesale trade. The unemployment rate fell slightly to 7.4%, BLS reports.

Even with the modest gains, BLS said 11.5 million people were unemployed in July, a slight improvement from June. The number of long-term unemployed, defined as those who have been jobless for 27 weeks or longer, fell slightly to 4.2 million people in July who represented 37% of the unemployed.