Lose health insurance // Can’t afford COBRA // End up at a free clinic // Wonder how you got here // Pray that medicine’s safety net can catch you.
Catching a Chill
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C.J. Burton for Proto
Between January and November of 2008, the endowment and investments of Oregon Health & Science University in Portland lost 26% of their value. Instead of gaining $33 million as projected, OHSU posted investment losses of about $39 million—a $72 million shift. Many of those vanished millions were reserved for capital projects, but some were slated to help fund operations, which would have been a boon. Hospital revenues also came in lower than expected: 1% growth versus a projected 5%, for a total $20 million drain on the health system’s budget.
To cover the shortfalls, about 120 university jobs were eliminated and a hiring freeze was instituted; salaries were locked throughout the university and its teaching hospitals; and the school’s top executives took a 20% pay cut and gave up bonuses. More staff reductions are planned, including 140 positions at OHSU Healthcare (the school’s teaching hospitals and medical practices), while the school of medicine is targeted for $8 million in cuts for the current fiscal year.
This is a time of hard choices, even for hospitals and academic medical centers fortunate enough to have endowments, with executives forced to ponder what to cut and how deeply. Operating margins are near the break-even point at many hospitals. Returns on stock and bond portfolios that once could be counted on to help subsidize charity care and pay for expansion and new equipment are no longer available, according to David N. Gans, vice president for practice management resources at the Medical Group Management Association. “Investment income is gone,” says David Koepke, a senior scientist at the Center for Healthcare Improvement at Thomson Reuters in Evanston, Ill.
Source: American Hospital Association
The problem is especially severe for academic medical centers such as OHSU: These institutions may make up just 6% of all acute care hospitals (which provide inpatient care for serious conditions and injuries), but they provide 45% of the nation’s charity care as well as a quarter of inpatient care paid for by Medicaid.
Ironically, perhaps, health care as an investment has always been considered recession-resistant. A sour economy doesn’t keep people from getting sick, Wall Street analysts note, and steady demand typically helps insulate physicians and hospitals from the worst of a downturn.
Sources: U.S. Census Bureau and Ebri Issue Brief, Databank
In part that’s because relatively few patients traditionally pay for care. They get insurance at work or the tab is picked up by Medicaid or Medicare, which covers everyone age 65 and older. So even when the economy tumbles, most people can continue to afford physician and hospital care. And even now, during one of the most severe recessions since the Great Depression, health care as an industry is getting by. In fact, health care jobs grew by 27,000 in February, while the overall unemployment rate rose to 8.1%, representing 12.5 million people.
Still, there’s growing concern that this time health care, too, may share the pain of today’s badly wounded economy. Medicaid rolls are swelling just when state budgets are strained to the breaking point. The government’s $787 billion economic stimulus package may forestall harsh cutbacks for now by channeling an additional $87 billion into state Medicaid programs through the end of 2010. But because states will not be allowed to change their eligibility requirements while receiving the extra federal funding, surging unemployment could still force many states to consider reducing payments to doctors and hospitals. Normally, in the absence of additional government support, every percentage point rise in the jobless rate adds about 1.1 million people to the ranks of the uninsured and forces 1 million more to enroll in Medicaid, according to Kaiser Family Foundation estimates.
