How a recession could benefit healthcare industry

Although concerns about a recession this year have declined, the Federal Reserve Bank of New York projected a 71% chance of a recession occurring by May 2024.

Currently, many healthcare organizations, including hospitals and health systems, are facing significant financial challenges, including rising price and historically high labor costs. Ongoing staffing shortages have also pushed providers to increase wages and bonuses and to seek talent outside of the industry to fill labor gaps.

According to some economists and industry experts, a recession could be beneficial for the healthcare industry, allowing it to slow exorbitant wage growth and access a larger pool of talent than before.

David Cutler, an applied economics professor at Harvard University, said that as the hotel, hospitality, and restaurant industries decline, more entry-level workers in food server or housekeeping could turn to the healthcare industry to look for work.

Separately, Doug Staiger, a healthcare economist at Dartmouth College, said that higher national unemployment rates are often associated with more nurses joining the workforce. He also noted that travel nurses, who saw significant pay increases in 2021 and 2022, may now want more stable, permanent positions.

In addition, Matt Wolf, a senior healthcare analyst at RSM, said it would be beneficial for healthcare organizations to invest in training programs to upskill their workers, a decision that can build company loyalty.

"My sense is that healthcare would do pretty well in a recession, simply because the people who they want to hire would be more available," Cutler said.

The downsides of a recession for healthcare

Although a recession could benefit some parts of the healthcare industry, it could have more negative impacts on others.

According to Hudson, dozens of healthcare organizations have laid off workers over the past year as they restructure their operations, find ways to cut costs, and adapt to new care delivery models. Some organizations are also planning layoffs in the near future.

For example, Allina Health plans to lay off fewer than 350 employees, mainly in leadership and non-direct caregiving positions, due to "unprecedented financial challenges." Prisma Health also plans to lay off almost 700 workers in August.

According to Wolf, increased efforts to automate back-office functions is unlikely to fully eliminate the need for those positions, but will greatly impact the potential demand for those types of workers.

In addition, Linda Aiken, a nursing and sociology professor at the University of Pennsylvania, said clinical, patient-facing staff are also unlikely to be completely safe in a recession. Layoffs of clinical staff could lead to additional issues with performance and patient outcomes.

"All the hospitals are screaming, 'We don't have enough staff,' but they are laying them off already, so I think we already see what hospitals are going to do," Aiken said. "They are going to reduce their staff, and they're especially going to choose their high-skilled staff and try to reduce them." (Hudson, Modern Healthcare, 7/24)

Factors like labor, supply costs, and rising costs of capital are making it harder than ever for leaders to develop and implement growth strategies and are showing no signs of letting up anytime soon. Radio Advisory's Rachel Woods sat down with healthcare strategy experts  Colin Gelbaugh  and  Vidal Seegobin to discuss how health systems' growth strategies have shifted and what leaders can do to improve their organizations' trajectories, even if you're only in survival mode right now. Read a lightly edited excerpt from the interview and download the episode for the full conversation.