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Hospital Layoffs, Though Worst in a Decade, Are Nowhere Near Peaking

Hospitals are expected to have their worst economy-related layoffs in a decade this year. While that's unfortunate for those who have lost their positions, job losses in healthcare remain minimal compared to the number employed in the industry. And the sad truth is that the healthcare workforce will have to shrink far more before health cost growth falls in line with inflation.

Yet healthcare reform leaders have not even begun the discussion about that inevitable transition. Instead, we're hearing about the need for hospitals and practices to add more people to improve care coordination and care management.

These moves make sense. The patient-centered medical home and the accountable care organization are both good concepts, and we will clearly have to switch gears from fee for service, volume-based reimbursement to limited-budget population health management if we're ever going to get a handle on health spending. Yet at the same time, healthcare organizations must use all of the organizational and productivity-enhancing tools at their command to "right-size" the healthcare work force, just as other industries have done. Instead of slashing payrolls to bolster profits and corporate executives, however, the labor cuts in healthcare should serve the public and those who pay for care by reducing its cost.

From January through August, U.S. hospitals laid off 8,233 employees, according to Bureau of Labor Statistics (BLS) figures cited in a story in American Medical News. If the layoffs continue at the same pace through December, 12,349 hospital employees will lose their jobs this year in the second-highest number of "mass layoffs" (to use AM News' term) at hospitals since 2000. BLS recorded the biggest number in 2005, when the majority of the discharged employees lost their jobs in New Orleans in the wake of Hurricane Katrina.

Hospitals blame the current staff reductions on increasing demand for charity care, falling demand for elective procedures, and cuts in government programs. For example, Boston Medical Center is discharging 119 workers, primarily because of state Medicaid cuts.

But the layoff numbers pale in comparison with the size of hospital employment. Roughly 4.5 million people worked for U.S. hospitals in 2008, and indications are that that the current number is at least as large. According to the Bureau of Labor Statistics, 28,200 healthcare workers were hired in August, compared to 27,900 in January 2008, just after the recession officially began. Overall employment in education and healthcare has risen by one million during that period.

So what will happen when the economy starts growing again? Will hospitals hold the line on hiring, or will they add people to staff new beds, operate new equipment, and run new outpatient surgery centers?

And what will happen as hospitals adopt new information technology? Will the technology be used to increase productivity, resulting in layoffs of those who are no longer needed to shuffle paper, or will those people be shunted to new revenue-producing activities?

Much depends, once again, on how healthcare reform changes the incentives of healthcare providers. If externally imposed budgets limit their revenues and force them to consider new ways of doing business, they will use some of the same techniques that companies in other industries have used to adapt to a changing environment. Among these will be a new emphasis on productivity and "lean" workflow. Some healthcare organizations are already doing this, and more will follow.

But that still leaves the government with a big problem: what to do with people who are no longer needed in the healthcare industry. Until policy makers solve that one, it's hard to see how real "mass layoffs" in healthcare will be politically acceptable. Perhaps they can be avoided if hospitals reengineer themselves and retrain some of their employees to take on new roles. If they do that, they can care for the impending tsunami of newly insured people without hiring more workers.

Image supplied courtesy of Wikimedia Commons.