Recession Starts to Take Toll on Medical Field Too

Recession Now Hits Jobs in Health Care

By AVERY JOHNSON and KELLY EVANS

Employment in health care, the only major industry outside the federal government still adding jobs, is succumbing to the recession.



In the latest sign, the president of New York City Health & Hospitals Corp. wrote Friday to community organizations as well as employees and unions at its 11 hospitals and four nursing homes, saying the agency will lay off more workers even after slashing 400 jobs last month.
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"We now project that HHC's deficits will worsen, even if we are spared further state cuts," Alan Aviles wrote to the staff of 39,000. "The challenges will deepen." He blamed the job losses on state cuts in Medicaid payments to the public-health system.

Across the country, hospitals are taking financial hits. They are seeing losses in the portfolios that they rely on for investment income. The number of uninsured patients is rising. Elective procedures -- which reap big profits -- are down at a third of hospitals nationwide. Nursing homes are trimming payrolls. And with state governments continuing to cut budgets and talk of health-care reform from Washington, industry executives are preparing for even leaner times.

More than 16 million people -- one in eight workers on U.S. payrolls -- work in health care today, up from just 1% of the work force 50 years ago. Employment in health care and social assistance -- which includes hospitals, doctors offices, nursing homes and social services such as day care -- has grown by half a million jobs since the recession began in December 2007, while the rest of the economy has shed 5.1 million jobs.

But the pace of job growth in health services has slowed sharply this year. The sector added an average of 17,000 jobs per month in the first three months of the year, less than half last year's pace. Health care usually weathers downturns better than many other industries because consumers tend to cut spending on cars or clothes before they forgo trips to the emergency room or pharmacy. But this recession is the deepest in a generation.

"To the extent that health care might have been recession-proof, it is no longer," said Paul Levy, chief executive of Beth Israel Deaconess Medical Center in Boston, a teaching hospital for Harvard University. The hospital last month announced 140 job cuts, salary freezes, and reductions in vacation allowances and retirement-fund contributions to make up a $20 million budget shortfall.

Mr. Levy began to get worried in October, when Massachusetts cut Medicaid payments to his hospital by $7 million. In November, he noticed researchers weren't applying for grants as actively as usual, anticipating less government funding; that cost another $7 million in revenue for the hospital, which gets some of the grant money to cover overhead. Then in January, patient volume slowed. During the first three months of this year, hospital discharges -- a standard measure of patients treated -- dropped to 112 a day from a targeted 122, which translates into $20 million less in yearly revenue.

Big hospitals such as the University of Pittsburgh Medical Center and Akron General Health System in Ohio have announced layoffs recently. In February, the number of mass layoffs for hospitals was double what it was a year ago, according to government data.

In Tarboro, N.C., Kim King, a 49-year-old contract worker in the hospital laboratory at Heritage Hospital, received a letter from her manager last Monday cutting her contract short by three weeks and asking staff to voluntarily reduce hours. The letter cited the economic pressures facing the hospital. Ms. King isn't sure what she is going to do when her job analyzing blood and other fluids in the hospital lab ends in June. She is looking for work and considering going on unemployment.

She and her ex-husband, a corrections officer, "used to joke that we had the most secure jobs out there, because people always need health care and prisons. It's not true anymore," she says. "I've never seen it so bad. It's the one thing you would think wouldn't be affected by the recession."

Wick Baker, president of Heritage Hospital, says the hospital is being financially responsible by looking at all of its costs, including replacing contract employees with less expensive full-time staff.

The squeeze isn't limited to hospitals. Pharmaceutical firms and health insurers also are shedding jobs. On Thursday, health-care conglomerate Johnson & Johnson said it would lay off 900 workers.

Since the Labor Department began tracking monthly unemployment figures in 1958, there have been nine recessions, but employment in health services has declined only a handful of times. The only significant losses to date occurred in mid-1984, as the industry shed 41,000 jobs, based on slightly different historical data, following the double-dip recession of the early 1980s. Since then, no month has seen a drop of more than 4,000 jobs in health care, and there have been no back-to-back declines.

As manufacturing employment has declined, many cities have come to see health care as the employer of last resort. Rochester, Minn., home to the Mayo Clinic, is one illustration of the industry's power to turn around regional fortunes and revitalize downtowns. Forty years ago, Mayo employed 4,000 workers; today, the international destination for top-tier health care employs some 35,000, more than a third of the city's total work force.

But Mayo, like the rest of the industry, is now struggling to meet it its capital and payroll obligations. Last month, the ratings agency Standard & Poor's downgraded Mayo's debt, citing the hospital system's large unfunded pension liability and break-even operating margins.

Mayo is freezing salaries for doctors and senior administrators, reducing travel and overtime expenses, and cutting capital spending this year by $150 million, says Chief Financial Officer Jeff Bolton. There have been no layoffs, though temporary staff are being pared back and only essential positions are being filled. Mayo is delaying occupying one floor of a new outpatient exam building on the Rochester campus, since finishing the interior of each floor costs $12 million.

The decline, while unusual, is still likely to be a temporary break in the industry pattern. Growth in health-care spending, and thus employment in the sector, is likely to rebound when the recession ends, a function of the enormous advances in medical technology and Americans' strong appetite for health care. President Barack Obama has also named the sector one of his three pillars of the future U.S. economy, alongside energy and education. Health expenditures as a share of gross domestic product have more than tripled in the past 50 years to about 16% today, and the government's Centers for Medicare and Medicaid Services say that figure is likely to hit 20% within a decade.

"It's a long-term shift reflecting changes in technology and what consumers want," says Robert Fogel, a Nobel laureate and professor at the University of Chicago's Booth School of Business. "Health care is the growth industry of the 21st century."

Write to Avery Johnson at avery.johnson@WSJ.com and Kelly Evans at kelly.evans@wsj.com