How hard has the current financial crisis and economic recession hit the health care industry?  Compared to other major industries across the country the answer at this point is - not much.  But if trends continue we might see a different picture arise in the industry with certain types of physical rehabilitation organization more vulnerably exposed to the continued economic downturn than others.

The current economic environment can be depicted by the sour numbers of unemployment rates that we're seen among all industries.  According to the Bureau of Labor Statistics, total nonfarm payroll employment dropped by 651,000 in February.  Since the recession began in December 2007, about 4.4 million jobs have been lost, with more than half (2.6 million) of the decrease occurring in the last 4 months.  With the exception of health care services, a more specific industry outlook shows us the downward spiral of unemployment statistics in the current recession:  Professional and business services down by 180,000 jobs in February; manufacturing down 168,000 in February; construction minus 104,000 jobs for the month with employment down by 1.1 million since its 2007 peak; truck transportation shed 33,000 jobs in February with 138,000 lost jobs since the start of the recession; financial activities continued to dramatically shed more jobs in February to 44,000 and the number of jobs in this industry has dropped by an abysmal 448,000 since its employment peak in December 2006; retail trade employment fell by 40,000 over the month and has declined by 608,000 since the beginning of the recession; and leisure and hospitality continued to trend down to over 33,000 in February.  Health care - we continued to add jobs in February, with a gain of 27,000.  Job growth occurred in ambulatory health care (16,000) and in hospitals (7,000). ¹But the question remains - will the industry continue to hold despite the deteriorating environment?  And more specifically, how will the rehabilitation industry hold over the downturn?

Despite the gloomy consumer confident statistics of today's economy, therapy professionals are a lot more confident when it comes to predicting the current and future economic environment of the profession.  According to an online poll on ADVANCE's Website, 41 percent of therapists say the economy has affected how many patients they have and 15 percent are concerned about being laid off.  Almost half of respondents are untouched - their patient count has remained the same or has grown².  When compared overall consumer sentiment, this is a much brighter picture.  The consumer confidence index for Feb fell to 25 - down from 37 and according to the Consumer Confidence Survey, those claiming business conditions are "bad" rose to 51.1 percent in February from 47.9 percent in January.  In addition, those saying business conditions are "good" edged up to 6.8 percent from 6.5 percent last month and the percentage of consumers expecting fewer jobs in the months ahead increased to 47.3 percent in February from 36.9 percent the prior month³.

Consumer sentiment is an important trend to analyze because it may present some important implications when it comes to forecasting the health of the industry and in particular rehabilitation services.  For example, some early signs of a growth slowdown in the sector are evident.  Twenty percent of respondents of Consumer Reports recent national survey said they're unable to afford medical bills or drugs, while 15 percent said they lost health coverage or had their benefits cut because of the recession⁴.  The consumer health care benefit cuts may carry some repercussions particularly for those businesses that are dependent on deductibles and co - payments for revenue - i.e. out patient rehabilitation centers.  More and more outpatient rehab owners and clinicians are resorting to unconventional means of treatment plans to account for patients financial limitations.  As patients struggle to pay for co-payments that can mount to over $50 in certain situations, clinicians are forced to be more flexible with their treatment options.  Patients who five years ago could afford to go to therapy three times a week for four to six weeks are being forced to scale back to one visit per week with more emphasizes on a home exercise programs and education than before.  Business owners and clinicians in this type of environment must be very aware of low consumer level sentiments and be flexible enough to adjust their treatment plans in order to retain key referrals and overall market share.  For example, a patient that would conventionally have gone to therapy three times a week for 8 weeks following an anterior cruciate ligament repair, because of financial limitations might be more compliant to go to therapy 3 times a week for the first 2 weeks to immediately restore range of motion and joint mobility and then scale back to 1 - 2 times per week during weeks 3 - 8 as the clinicians progresses the patient into the strengthening and stability phase with a strong home exercise program component and weekly adjustment of the patient's therapeutic exercise regime.  Out patient clinics might also have to increase their flexibility in their accounting and financial departments and offer patients payment plans when it comes to paying off deductibles and co-payments of long treatment bouts.  Those clinics that are better equipped and able to be more flexible during this economic times will regain a comparative advantage over its competitors and retain more of their referral base.  Out patient hospital systems must also adapt to these circumstances in order to better compete with their private practice counterparts.  This becomes paramount especially in today's environment in where specialty physicians that work in hospitals retain independent status and many times opt to refer their patients to out patient clinics rather than to the hospital out patient system.

Those business that rely more on Medicare reimbursement will perhaps be less endangered by the current economic downturn as the consumer sentiment effect on this type of organization is less evident.  Home health agencies are in a great position to sustain the downturn as almost all of these enterprises rely on a lump sum Medicare Part A reimbursement model and consumer demand for these services is increasing particularly with the aging baby boomer population.  Skilled nursing home facilities (SNF) and in-patient rehab hospitals with a strong Med A and B population will also be less vulnerable as this type of enterprise barely relies on consumer co-payments and deductibles for reimbursements.  For example SNF's that have good management systems in place will be able to capitalize on the current prospective payment system (PPS) plan that is based on Resource Utilization Groups (RUG's) and do not depend on direct consumer payment.  But it is important to note state budgets are shrinking and those entities that rely heavily on Medicaid revenue will be deeply affected.  In some states, Medicaid receivables have been reported to be four to six month behind and those entities that don't have the cash flow to sustain these back payments will be in severe financial constraints.  In Illinois for example, we currently see a very high movement of acquisitions and mergers of facilities that are being forced to sell or merge as a result of poor cash flows.  Furthermore, it is important to note that the current credit crunch is making it very difficult for rehabilitation corporations to borrow money for credit lines, working capital and expansions and those entities with less than optimal balance sheets will have a harder time riding this current economic downturn. 

The health care industry has remained resilient and robust during this downturn.  It is very hard to say whether we are at the peak of the recession or we will still see further deterioration.  But from what we've seen thus far in the rehabilitation sector, we are not likely to be loose our jobs.  Perhaps those rehab entities that are not so dependent on consumer confident and direct consumer payments will be better positioned to weather the recession.  But this is hard to predict given Medicare and state payment delay and proposed cuts in government health care spending.  All in all however, it is safe to predict that most of the places that we work in have no "toxic assets" or labor unions to deal with and that consumer demand will more than likely keep us working for the needed betterment of our patients.

Until next time,

Luis A. Montes, DPT, MBA

References

1.  Bls.gov. (2009).  Economic News Release - Employment Situation Summary.  Retrieved from the World Wide Web, http://www.bls.gov/news.release/empsit.nr0.htm.

2.  Weathering the Storm - How is the Economy Affecting PTs? ADVANCE Feb 2009 Vol. 20 No. 3 P. 11 - 13

3.  Conference-Board.org (2009) - The Conference Board Consumer Confidence Index Plummets Further.  Retrieved from the World Wide Web, http://www.conference-board.org/economics/ConsumerConfidence.cfm

4.  ConsumerReports.org (2008). Survey:56 Percent of Americans Think U.S. Nees to Help Citizens More in Tough Economy.  Retrieved from the World Wide Web, pressroom. Consumerreports.org/pressroom/2008.