Bad News = Good News = Bad News

Today’s Managing Health Care Costs Indicator is 200

That’s how many job cuts three hospital systems in Massachusetts have announced in the last few weeks. A fourth, Cambridge Health Alliance, has shed 450 jobs, almost 15% of its employees,  in the last 18 months.  The headline on page one of  Sunday's Boston Globe was  “ Health care, job engine for state, is pulling back. Sector sees layoffs, cuts”   Big Massachusetts health care employers including Partners (50,000 employees) are saying they will do no new net hiring this year.

Moody’s just announced a “ negative outlook” for the nonprofit hospital sector, predicting ”weaker financial performance ahead due to a sluggish economic recovery, growing levels of uncompensated care, and flat volume trend.”  Moody’s analyst notes that  “hospitals that can execute deeper levels of expense management through fundamental changes in their operations will be positioned better to navigate the next couple of years. 

Moody’s earlier noted that Medicare cuts would cost the nonprofit hospital industry  $440 million in the next year.  

This is certainly contrary to Christine Roemer’s statement 6 months ago that “health care will remain a large source of job growth in the labor market.” At the time, I worried that increased health care employment meant that we would not get a grip on health care inflation.

Bad news:  Many hospital workers are unemployed, at a time when the job outlook is dim. Further, for every job lost, there are multiple jobs that are not created.

Good news: This means we’re finally going to see a lower rate of medical inflation

Bad news:  Health care is an engine of economic growth, representing 12% of all employment in the country (15% in Massachusetts).   Getting health care costs under control will help increase our international competitiveness, and will free company resources to invest in innovation and growth.   However, much of the innovation and growth in the US has been in health care.  

Cutting the rate of health care cost increases is critical to our economic future, and health care costs increasing at a rate 2-4% higher than overall economic growth is not sustainable.  Cutting this cost growth is not going to be painless, though.