Report: Municipalities Face Hit As Healthcare Job Growth Slows

The growth in healthcare jobs is slowing down – a worrying trend that could potentially put further pressure on state and local government budgets in the years ahead, according to a new report from Moody’s Investors Service.

The latest Department of Labor statistics show that while the healthcare sector added an average of 19,000 jobs a month in the first nine months of 2013, this is down 30% from 2012’s average of 27,000 new jobs a month. In September, the sector added only 7,000 jobs, down 84% from the 44,000 new jobs added in September 2012.

This lower healthcare employment growth puts negative pressure on local governments that are heavily reliant on them, Moody’s says.

The slowdown, however, is credit positive for not-for-profit hospitals, Moody’s said. Moody’s has a negative outlook for the sector, but it says that the slowing employment growth is a credit positive as management seeks to cut labor costs in the face of falling revenue growth. In fiscal 2012, expense growth outpaced revenue growth for the first time since fiscal 2008, according to the ratings agency.

“Hospitals are struggling to maintain operating margins as rate increases from governmental and commercial providers fail to keep pace with hospital inflation and other strains,” Moody’s says. “Reductions in Medicare reimbursement, the single largest payor for most not-for-profit hospitals, are increasingly pressing and expected to grow with the Affordable Care Act taking effect. Meanwhile, inpatient volumes, which bring higher reimbursement, have also been flat or declining.”

Health systems have reduced their workforce through layoffs and eliminating positions while increasing productivity.

There have also been a lot of mergers in the sector as hospitals look to reduce expenses. Moody’s said it expects this consolidation trend to continue in 2014 and to contribute to further job growth pressures.

Bloomberg news reports, for example, that some nonprofit hospitals are giving up their tax-exemption status and merging with a for-profit institutions, rather than try to meet the charitable-care rules of the new health law. The law, popularly known as Obamacare, may encourage mergers because it rewards cost reductions rather than volume of care. Bloomberg explains that many nonprofits serve poor or rural populations with more uninsured patients and that these hospitals have been struggling already as the benefits of tax-exemption don’t always offset the cost of providing the extra charitable care.

The declining pace of job growth is a credit negative for local governments, which count on the healthcare sector to be the foundation of their economic growth, Moody’s says.  During the recession, healthcare employment remained a stabilizing factor that saved many local governments from seeing even more job losses than they actually experienced.

In the United States, healthcare accounts for 9% of the total workforce and in more than 130 Metropolitan Statistical Areas it accounts for about 15%.

And many of the small- and mid-sized regions could be highly susceptible to job reductions, Moody’s warns. Among those are the Texas MSAs that include McAllen, Brownsville, and Tyler, respectively. All have healthcare employment levels between 23%-25%, which has them in the top five for MSAs with highest healthcare workforce concentration.  The Johnstown, Pa., region at 23% is also near the top.

The Rochester, Minn., area is the leader at 41%. Unlike other MSA’s listed, however, it is bolstered by above-average wealth levels and very low unemployment that indicates a strong ability to weather a stagnant employment trend, Moody’s concluded.