A job engine sputters as hospitals cut staff

Paul Davidson and Barbara Hansen | USA TODAY

Hospitals, a reliable source of employment growth in the recession and its aftermath, are starting to cut thousands of jobs amid falling insurance payments and inpatient visits.

The payroll cuts are surprising because the Affordable Care Act (ACA), whose implementation took a big step forward this month, is eventually expected to provide health coverage to as many as 30 million additional Americans.

"While the rest of the U.S. economy is stabilizing or improving, health care is entering into a recession," says John Howser, assistant vice chancellor of Vanderbilt University Medical Center.

Health care providers announced more layoffs than any other industry last month — 8,128 — largely because of reductions by hospitals, according to outplacement firm Challenger Gray and Christmas. So far this year, the health care sector has announced 41,085 layoffs, the third-most behind financial and industrial companies.

Total private hospital employment is still up by 36,000 in the past 12 months, but it's down by 8,000 since April, and more staff reductions are expected into next year.

This month, Indiana University Health laid off about 900 workers as part of a move to trim its budget by $1 billion over five years. Vanderbilt plans to eliminate 1,000 jobs by the end of the year to help shave operating costs 8% a year. The Cleveland Clinic is offering buyouts to 3,000 employees as it shaves its annual operating costs by $330 million.

"This is a challenging time for the health care industry," says Jim Terwilliger, president of two of Indiana health's hospitals. "The pace of change is far greater than any time in recent history."

There are myriad reasons for the cuts, which are affecting administrative staff as well as nurses and doctors:

• Medicare, Medicaid and private insurance companies are all reducing reimbursement to hospitals. The federal budget cuts known as sequestration have cut Medicare reimbursement by 2%, the American Hospital Association says.

• The health care law has further reduced the Medicare payments to hospitals that provide lower-quality service or have high readmission rates.

• The National Institutes of Health reduced funding to hospitals by 5% as part of sequestration, forcing hospitals to trim research staff.

• The number of inpatient hospital days fell 4% from 2007 to 2011, in part because of the economic downturn, the hospital association says.

• As more Baby Boomers turn 65, their services will be reimbursed at Medicare rates that are lower than those of private payers, putting further pressure on hospital revenue.

The new health care law was supposed to ease the burden on hospitals by expanding Medicaid coverage to more low-income Americans, who often use hospital services in emergencies, then don't pay their bills. But 26 states, including Tennessee, rejected the ACA's offer of federal funding to expand Medicaid. That decision led to about a third of the job cuts by Nashville-based Vanderbilt, Howser says.

Still, J.P. Fingado, CEO of API Healthcare, a consulting firm for hospitals, says the layoffs are shortsighted because the providers likely will have to add staff as soon as next year to handle increased patient volumes resulting from the health care law.

"The cuts are a particularly short-term reaction," he says.