Are we headed for a double-dip recession? I put that question to hospital and health system chief financial officers at the HealthLeaders CFO Exchange last week, and the response was less than optimistic.
The inaugural CFO Exchange, held in La Jolla, CA, gathered nearly 30 healthcare financial leaders from varying facilities for an opportunity to exchange ideas on how they’re addressing the many healthcare initiatives and challenges they face today.
“Whether it’s a continuing [recession] or a second dip isn’t certain,” says James Doyle, senior vice president and CFO for Elmhurst Memorial Healthcare, a 315-bed, not-for-profit institution in Elmhurst, IL. “The employment situation is a fundamental in [addressing] this problem, and right now there [are] no certainties that the economic situation will create job growth.”
The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) last year decreed that business activity turned upward in June 2009, officially ending the recession that began in December 2007. The 18-month recession was the longest since World War II, surpassing the two 16-month recessions in 1973-75 and 1981-82, respectively.
Although NBER announced the conclusion of the recession, it did not say that economic conditions had returned to normal capacity, only that a slow recovery had begun. However, the official position on the recession doesn’t necessarily match the opinions of financial leaders.
In early August, CFO magazine surveyed its readers across all industries on the state of the economy. A fifth of respondents felt we were already in another recession and 23% said the economy was headed that direction.
Just 11% of respondents gave a firm “no” to the notion of a W-shaped recession. These responses echo the sentiments of the financial leaders I spoke with at the HealthLeaders CFO Exchange.
“I don’t see where we really ever left the [last] recession, especially in some areas of the country,” says Michael Burke, senior vice president and vice dean, corporate CFO at NYU Langone Medical Center, a 705-bed acute care facility in New York City. “Healthcare was the last bastion of growth for jobs and now they are going to ratchet it down. … Now they’re implementing massive reductions to the Medicaid program and potentially massive reductions in the Medicare program.”
The debt ceiling crisis put Medicare in the political crosshairs, and as financial leaders know all too well, Medicare rates will be on the chopping block in some capacity. Potential reductions in Medicaid and Medicare, however, pale in comparison to the nation’s larger woes, which will influence healthcare. These include a stagnant unemployment rate, failing banks, high rates of housing foreclosures, and the shaky stock market.
As a result, ratings agencies are keeping a wary eye on healthcare. Two days after the Eastern seaboard survived a significant soaking by Hurricane Irene, Moody’s whipped up a storm of its own with its announcement that its ratings outlook for the U.S. not-for-profit healthcare sector was negative.
"Operating pressure[s] in place when the outlook was changed to negative in October 2008 are fully captured in the underlying trends shown in the fiscal year 2010 medians--namely weaker revenue and volume growth trends," said Moody's vice president and senior credit officer Beth Wexler in a statement.
Charlie Hall, executive vice president and CFO at Piedmont Healthcare, a 481-bed not-for-profit hospital in Atlanta, muses that “In years past we always thought of hospitals as being recession-proof, but the fact is this has been going on for almost four years, and this time it’s different.”
“Georgia has not come back, particularly Atlanta. In some parts of the country there is 5% unemployment, but we happen to be at 11% unemployment,” he says. “And there’s going to be a lot more than 11% [unemployment] if things don’t turn around. I think we could easily slip into a second recession. I think we’ve been in a downturn for a long time.”
So will there be a double-dip recession? When I looked at this possibility back in 2009, President Obama remarked that if the nation kept adding to deficit spending through tax cuts or more stimulus spending, a second downturn could be the result. Here we are two years later, and economic fundamentals have not improved. Healthcare financial leaders would be wise to batten down the hatches even more.
Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
