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Health care, job engine for state, is pulling back

Sector sees layoffs, cuts

By Robert Gavin
Globe Staff / August 29, 2010

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Through good times, bad times, and everything in between, the one industry that Massachusetts could count on to keep adding jobs was health care. Not anymore.

The stalwart of the state economy is struggling these days as expenses rise, patient visits decline, reimbursements shrink, and pressure to control health care costs intensifies. Over the past six months, according to state statistics, the health care sector has had no employment growth, a stunning development for an industry that has steadily added jobs through even the worst recessions.

A slowing health care industry would have broad implications for the Massachusetts economy. Health care is the state’s biggest employment sector, accounting for about one in six jobs, and has provided stability through downturns and support for recoveries.

Just in the past few weeks, hospitals in Beverly, Leominster, and Pittsfield have said they will cut more than 200 jobs combined. Financially struggling Cambridge Health Alliance, which operates so-called safety net hospitals in Cambridge, Somerville, and Everett, has cut nearly 450 full-time jobs over the past 18 months, and is seeking a buyer or affiliation with another health care provider.

Atrius Health, the state’s larg est independent doctors group, said it is holding employment flat after adding more that 200 jobs last year. Partners HealthCare System Inc., one of the state’s largest private employers and parent of Harvard-affiliated hospitals Massachusetts General and Brigham and Women’s, said it’s not adding jobs, either.

“We typically add staff as we add patient volume, and the patient volume hasn’t been there,’’ said Dennis Colling, vice president for human resources for Partners, which employs about 50,000. “We are trying to be cautious in this environment.’’

Many industry executives and analysts don’t expect the pressures squeezing health care to ease any time soon. Ellen Lutch Bender, president of Bender Strategies LLC, a Boston health care consultancy, said the industry faces a multiyear shakeout that could mean consolidation, and layoffs, “hardship and pain.’’

“It isn’t just slow growth, there’s the real fear of contraction,’’ she said. “The current health care system is unsustainable and the economic indications are we are in for a very rough and rigorous three to five years.’’

In the two previous recessions — the early ’90s and the tech bust that began in 2001 — health care was one of the few sectors to keep growing, adding tens of thousands of jobs as overall employment plunged by the hundreds of thousands, according to state statistics.

If health care continues to sputter now, the state economy would lose an important engine of growth as it tries to sustain a still nascent recovery, said Elliot Winer, chief economist for the Northeast Economic Analysis Group LLC, a Sudbury consulting firm. In addition, said Winer, the state is more vulnerable to economic, regulatory, and policy changes buffeting the industry since Massachusetts has a larger health care sector than the nation as a whole.

Health care accounts for more than 15 percent of employment in Massachusetts, compared with more than 12 percent nationally.

“If that industry is slowing down, it hurts us disproportionately,’’ said Winer. “It’s going to slow down our recovery because of its magnitude and importance.’’

State employment statistics report net jobs in a sector, meaning some firms might be adding jobs and others cutting them. The statistics also are adjusted to smooth out seasonal variations in hiring, which allows analysts to make statistically valid comparisons and identify trends.

Over the long term, analysts say, the demand for health services and workers is almost certain to grow as aging baby boomers leave the workforce and need more care. For example, Baystate Health of Springfield, which employs more than 10,000 across its Western Massachusetts system, estimates it will need to hire about 15,000 people over the next 10 years to replace retiring workers and meet increased demand, said Jean Jackson, Baystate’s vice president of workforce planning.

In the shorter term, however, industry executives and analysts expect health care hiring to slow, in large part because of the persistently weak economy and stubbornly high unemployment. Insurers have boosted copayments and deductibles to hold down premium increases at the same time incomes are under pressure and the employment outlook uncertain. As a result, patients are putting off care, particularly on services such as elective surgeries that are key revenue generators for hospitals.

Meanwhile, health care providers are getting less for the patients they do see as both government and private insurers squeeze reimbursements. State and federal payments to Massachusetts hospitals could fall by more than $100 million in fiscal 2011 while private insurers, which recently agreed to lower premium increases under pressure from the Patrick administration, are also seeking to cut payments, according to the trade group Massachusetts Hospital Association.

The federal health care overhaul, which will be phased in over the next few years, will add more pressure to control costs, analysts said. And in an industry where labor accounts for 70 percent of expenses, controlling costs means slower employment growth.

At HealthAlliance Hospital in Leominster, which recently said it would cut about 50 jobs, patient volumes began to drop noticeably about six months ago, falling from 4 to 12 percent across a variety of services from emergency medicine to surgery to physical therapy, said chief executive Patrick Muldoon. Cuts in Medicare rates are expected to cost the hospital about $24 million over the next 10 years, while private insurers are “banging on our door’’ to lower reimbursements, Muldoon said.

HealthAlliance employs about 1,600 in Leominster and a satellite campus in Fitchburg.

Ultimately, said Muldoon, the health care industry probably faces at least a couple years of slower growth as it adjusts to changing economic landscape that will require new services, greater efficiencies, and lower costs.

“It won’t be the worst sector,’’ he said. “But I don’t think it will be the same safe bet that health care always has been.’’

Robert Gavin can be reached at rgavin@globe.com.