Healthcare is often considered recession-proof.
But even the stalwart industry is feeling the effects of what is being called the worst economic downturn since the Great Depression.
Hospitals are tightening their belts by appealing to the increasing number of uninsured patients to use community clinics, reviewing employee hires and spending less on equipment upgrades.
Hoag Memorial Hospital Presbyterian in Newport Beach is seeing a slightly higher number of patients who don’t have health insurance or have inadequate coverage, said Chief Executive Rick Afable.
“We had a relatively small percentage to start with compared to many hospitals around Orange County, around 2%,” Afable said. “A month or two does not make a trend, but the short-term analysis over the last two to three months is that we’ve seen a doubling of that.”
The California Hospital Association released a survey a month ago of chief financial officers who reported a 73% increase in patients having difficulty paying their out-of-pocket health costs and a 33% hike in uninsured patients visiting emergency rooms.
Hoag is working to ease some pressure on itself by urging those patients to receive healthcare from community clinics, rather than from its emergency room.
“Our primary way to deal with the uninsured issue is not to keep people out of Hoag, but rather to transfer them to the place or a place locally that can provide for their needs other than the emergency room,” Afable said.
Hoag is a major sponsor of Share Ourselves, a community health clinic that serves some 30,000 uninsured and underinsured people a year that’s a mile from the hospital in Costa Mesa. Afable said that a clinic provides “a much better type of care than our emergency room ever can” for routine health problems.
Money Concious
At UCI Medical Center, a teaching hospital in Orange, running a tight ship also is the order of the day.
“We’ve always kind of been a lean machine,” said Maureen Zehntner, the hospital’s soon-to-be-retired chief executive (see story, page 27).
UCI Medical Center’s belt-tightening strategy involves an approval and review process for hiring workers other than nurses. As an example, Zehntner said the hospital no longer automatically replaces employees who aren’t a critical part of bedside patient care.
“We’re really, really trying to be conscientious about where we are spending and how we’re spending the money,” she said.
Hospitals have less money to work with this year as fundraising and elective procedures,which are a source of revenue for hospitals,have dropped along with the economy.
Hospitals’ investment income “has pretty much disappeared. Even the hospitals considered well-to-do,not the ones on the edge to begin with,are being challenged by the loss of investment income,” said Mitch Morris, who heads Deloitte Consulting LLP’s Western regional hospital consulting business and is based in the firm’s Costa Mesa office.
In an earlier interview, Darrin Montalvo, chief financial officer of Orange-based St. Joseph Health System, a Catholic hospital operator with three local facilities, said his system’s investment portfolio has taken a hit along with the general market.
The situation is being felt statewide.
The California Hospital Association said that the majority of survey respondents noted their hospitals have already made cutbacks or anticipated they would reduce patient care services in the near future, with cardiology, obstetrics, sub-acute units, psychiatric units and skilled nursing beds among service lines at risk.
Economic slowdowns are already hitting hospitals when it comes to the spending side, particularly when it comes to shelling out cash for expensive medical equipment.
“I would say that every single facility in Orange County, probably California and likely the nation are watching what they buy,” said Barry Arbuckle, chief executive of MemorialCare Medical Centers, a Fountain Valley-based hospital system with facilities in Fountain Valley, Anaheim, Laguna Hills and San Clemente.
Equipment Spending Down
For example, St. Joseph Health System has put equipment projects on hold to be prudent, according to Montalvo.
Not spending money on devices could result in significant savings.
Computed tomography scanners can cost up to $3 million, while a magnetic resonance imaging machine can cost $500,000, according to Montalvo.
Even though St. Joseph Health System tends to use cash generated from operations to buy devices rather than borrowing, tighter credit has caused the hospital operator to adopt a cash-conservation model, Montalvo said.
“Without the ability to go into the market to borrow, that limits your liquidity. So you need to make sure you have enough cash available just to withstand whatever may happen,” he said.
That’s not a normal place to be for the industry.
“When we’ve had recessions in the past, they weren’t coupled with the capital market meltdown, the freezing of debt availability for hospitals and the precipitous drop in the equity market,” Arbuckle said.
A survey from Siemens AG, a German medical device maker that competes with Fullerton-based Beckman Coulter Inc. and Tokyo-based Toshiba Corp.’s Toshiba America Medical Systems Inc. in Tustin, showed that 35% of its customers were operating under capital spending freezes.
Besides the expected hike in uninsured patients and the capital spending freeze, Arbuckle said he believes if the recession continues to drag on, state officials may be forced to revise deadlines for hospitals to meet California’s earthquake safety law for hospitals, which now gives general acute-care hospital buildings until January 2013 to get up to code. Without available financing, many hospitals can’t afford to make the expensive structural repairs.
