Healthcare Is Not Recession Proof

June 25, 2008

          I just read an excellent post by Jeff Goldsmith in The Health Care Blog entitled “Health care is not recession proof.” In it, he debunks the “conventional wisdom” that health care is “recession proof” because “people get sick regardless of economic cycles, and the publicly funded safety net programs insure that people who need care get it.”

          I will not attempt to restate his entire argument (or some of the interesting comments of others), but I can\’t help but notice the coincidence of his central theory with current events here in New Jersey. As he explains it,

          “[t]he reality is that health care has never been recession proof. It is simply that the system is so immense that lag effects in changed health care payment conceal the cyclicality. Recessions shrink tax revenue growth, and since Medicare and Medicaid are the balancing items in state and federal budgets, Medicaid and Medicare constrict payments a predictable 18-24 months after revenue problems surface.”

[Image: Maximum recession of tsunami waters at Kata Noi Beach, Phuket, Thailand, before the third, and strongest tsunami wave, by User: PHG, December 26, 2004 ]
          Goldsmith\’s post appeared shortly before the New Jersey legislature\’s apparent resolution of the State\’s July 1 fiscal year budget, in which New Jersey\’s hospitals collectively will receive about $111 million less in charity care funding to cover their statutorily mandated service to all patients regardless of ability to pay, a mandate that already left hospitals well short of covering their costs at the former funding level. Thus, in New Jersey, hospitals get not only the cyclical effect of lower Medicare and Medicaid payments described by Goldsmith, but a decrease in charity care payments that is similarly driven by the State\’s budgetary shortfalls unrelated to healthcare.

          As Goldsmith says to the healthcare industry in closing, “Welcome to the real world!”  Better yet, for those running this state\’s beleaguered hospitals, “Welcome to New Jersey!”