Greg Ip

Articles by The Economist’s U.S. Economics Editor

Health-care jobs: The drugs wear off

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Public and private austerity takes its toll on health-care workers

RUNAWAY health-care spending has one silver lining: it generates millions of jobs for doctors, nurses and medical orderlies. Employment at doctors’ offices, nursing homes and hospitals grew steadily throughout the recession even as it cratered everywhere else (see chart 1).

But a few years ago health spending began to slow and now, with a lag, so have the jobs. Health-care employment grew only 1.8% in the past 12 months, including a bump up in May. Pay has also suffered: hourly health-care wages rose just 1.2% in the year through May, barely half as fast as total private-sector wages (see chart 2). Last year health care was the second leading source of layoff announcements, after finance. The Cleveland Clinic cut hundreds of unfilled jobs and offered early retirement to 700 workers.20140614_USC140

Ten years ago SSM Health Care, which operates 18 hospitals in the Midwest, predicted steadily rising demand thanks to an ageing population and insurance reimbursement rates rising 2% to 3% per year. Instead, the recession left many patients with skimpy insurance or none, causing admissions to level off. Charity cases and bad debts nearly doubled. States put the brakes on reimbursement growth for Medicaid, which provides health care for the poor, and Obamacare did the same for Medicare, which serves the elderly. SSM barely broke even in 2012 and 2013; it hopes for a meagre 2% operating margin this year. Last year it cut 586 of its 30,000 jobs.

Health-care spending depends on the volume of treatment and its price. The growth of both has slowed sharply since 2009. Patients with private insurance have had to pay more out of their own pockets and have therefore sought less care. Medicaid enrolment has grown rapidly, but– cash-strapped states have resisted hikes in the fees they pay to doctors and hospitals for treating Medicaid patients. In states that opted out of Obamacare’s Medicaid expansion, many poor folk are showing up at emergency rooms as charity cases, says Ilir Hysa of Moody’s Analytics, a consultancy.

Obamacare and the sequester have curbed the growth of Medicare fees, which will save the federal government hundreds of billions of dollars, by one estimate. Bill Thompson, SSM’s boss, reckons those changes will cost the firm $500m over five years. The chain has yet to see an influx of newly insured patients to cushion the blow, in part because three of the four states where SSM operates (Oklahoma, Missouri and Wisconsin) did not go along with Obamacare’s Medicaid expansion.

Obamacare also encouraged doctors and hospitals to create “accountable care organisations” which are rewarded for keeping costs down, and instituted penalties for readmitting patients soon after they were discharged, or failing to use electronic health records. All these have made providers’ traditional fee-for-service business much less lucrative.

Many of Obamacare’s changes to Medicare assume that providers can improve care and lower costs by raising productivity. Some of that is happening: hospitals are conducting surgeries such as gall bladder removal without requiring an overnight stay, handing tasks once done by richly paid doctors to nurses and physician assistants, and consolidating back-office functions, as SSM has done.

20140614_USC141But American hospitals are not as absurdly inefficient as critics claim. In a study, Amitabh Chandra of Harvard University and three co-authors found less variation in productivity among hospitals in the treatment of heart attacks than among manufacturers of ready-mix concrete; they also found that more productive hospitals had a higher market share. This suggests there are only limited gains to be made by prodding productivity laggards to shape up. Since health care is labour-intensive, cost control often means squeezing wages.

Ani Turner of Altarum Institute, a health-research group, says that demand for health care is bound to pick up as the baby-boomers age and Obamacare swells the ranks of the insured. Indeed, health-care spending revived in the past six months. But that may not prove financially rewarding while reimbursement rates remain under pressure, she says. Health-care prices were up just 0.9% in March from a year earlier, the slowest growth in 50 years—though normal in many other industries. Jobs, she reckons, will continue to migrate from hospitals to doctors’ offices and other outpatient centres. Mr Thompson agrees: “I don’t think we’ll be growing head count overall any time soon.”

The original article is linked here.

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Written by gregip

June 12, 2014 at 12:47 am

Posted in Uncategorized

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