A plummeting stock market, the credit crisis, and fewer people going to hospitals have sparked job layoffs and spending freezes at healthcare institutions across the United States.

Some clinical engineering departments in hospitals have decided to postpone the purchase of new device technology, while others have cut spending on outsourced services.

Many hospitals have seen fewer patients choosing to have elective surgery or using outpatient services.

Since the economy took a nosedive this fall, “it is very evident the volume of people coming in for procedures throughout the industry has decreased in the well care and follow-up elective situations,” says Alan Moretti, the director of clinical engineering for Chicago-based Loyola University Medical Center. “There has been a dramatic drop in well care doctor visits throughout the industry, which is a feeder into other echelons in healthcare.” Some people can’t afford doctor visit co-pays, Moretti says, while others have lost their insurance due to job layoffs.

Hospitals haven’t been immune to the recent credit crisis or downturn in the stock market either.

Provena Health Systems, which includes a six-hospital system in Illinois, depended on investments in the stock market for capital spending.

“A lot of our operating capital was coming from investments that Provena had,” says Steven Vanderzee, director of clinical engineering for two of Provena’s hospitals. “Because of the significant downturn in the market there is significant loss in capital. What was budgeted and expected to be available to issue bonds on and as collateral for improvements is just gone.

“It’s like the perfect storm. Our capital dollars have been hit by the financial situation . . . and we are not bringing in the revenue we expected because people are staying away from hospitals unless they absolutely need to go.”

Beaumont Hospitals, which has three hospitals in the Detroit, MI, metropolitan area, also invests in the stock market.

“We call those our safety net investments, like our rainy day fund,” says Colette Stimmell, Beaumont’s director of public relations. “The value of those funds has diminished.”

Beaumont also hasn’t been able to issue bonds to finance construction projects due to a freeze in the credit markets.

“We have some construction projects we were hoping to get under way, and the credit crunch is affecting our ability to sell bonds so that we can borrow money for our capital expenses,” Stimmell says. “We haven’t been able to go to the bond market to restore our cash so we have to take steps to try to preserve our cash.”

Freeze on Spending

To ride out the financial storm, some hospitals have put freezes on capital spending and postponed projects such as new construction.

Beaumont recently announced it would eliminate 500 of its 18,000 jobs. More than 200 of the positions were already eliminated through a hiring freeze instituted in September. Other steps for Beaumont include cutting pay for executives and salaried physicians.

Many clinical engineering departments must grapple with spending freezes as well. “We are still maintaining equipment that was slated to be replaced,” Vanderzee says. “You have old equipment not interfacing to your picture archiving and communications system (PACS), but physicians want new equipment that can do procedures that require the newer technologies.”

Moretti says his department is cutting back on service contracts, and doing more work in-house.

“We want to take more aggressive approaches and levels of services that we can provide internally, versus going to the outside resources, which would increase our own overhead,” he says.

There is a silver lining to the downturn, Moretti adds. “I think these are exciting times for clinical engineering groups opportunistic to answer the call of what their self worth is, and really to position themselves strongly with an organization as a mission-critical service component.”

No Effects Yet

Other institutions haven’t felt the effects of the economic storm yet, but have taken steps to prepare for it.

Boston-based “Massachusetts General Hospital saw some signs of what might be coming last spring before the big downturn,” says Jeffrey B. Cooper, PhD, director of Biomedical Engineering for the MGH and Partners HealthCare and Professor of Anaesthesia at Harvard Medical School. As a result, the hospital cut back capital spending substantially.

“It made major cutbacks to requested spending for 2009, including a reduction of budgeted positions and even a few layoffs—very few, in fact, and almost all those affected got other jobs in the hospital,” he says. “We have not yet really adjusted in a systematic way, for example, we are not saying ‘no’ to things that were already on our plate.”

Some manufacturers are also readjusting their investments and funding in the wake of the economic downturn, but plan to continue new product launches.

“What has been most challenging with this economic downturn (versus earlier cycles) has been the relative uncertainty of the depth of the slowdown, and the timeframe for the anticipated recovery,” says Roderick Jones, president of Fluke Biomedical.

Fluke Biomedical continues to invest in critical new product launches, but has deferred discretionary investments in infrastructure and longer-term research and development projects, Jones says. The company will continue to fund certain high-priority projects such as customer support programs and strategic growth initiatives.

“However, lower-priority projects have either been deferred or targeted for cancellation,” Jones says.

Fluke Biomedical expects the market to remain soft through 2009, and reflected that in its capital spending plans.

“However, we have defined contingency plans that will allow us to react quickly to the changing environment, for better or worse,” Jones says.

SOURCE: AAMI News: January 2009, Vol. 44, No. 1