Fernando De Obeso Lancaster Jones
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Expert Contributor

What Impact Would a Recession Have on Healthcare?

By Fernando de Obeso | Wed, 06/15/2022 - 09:00

For months now, the topic of a potential recession has been all over the news, not only in developed countries but also in struggling developing economies that have just started to recover from the economic impact of COVID. Like many other industries, healthcare is not immune to these economic cycles.

In this article, I will discuss possible outcomes of a recession and the opportunities for people in the healthcare industry to diminish its impact, as many healthcare providers are not always clear as to how an economic slowdown would impact them directly or what opportunities arise from it.

Let’s start by defining what exactly a recession is. The dictionary defines it as a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. This is the typical textbook definition but for us everyday professionals, it means there is less money to spend because people either are earning less or, in the worst case, have lost their job. This translates into trying to be more cautious about how and when to spend your money.

The most recent sharp economic downturn of 2008-2009 as well as the 2020 COVID recession provide some examples of what specific impacts we can expect in the field of healthcare. Even though the list is not exhaustive, it does provide a general guideline for what to expect during a recession (note that not all of these key outcomes are bad, we just have to adapt).

1. Fewer shortages of healthcare staff

One relatively “positive” outcome is that for many healthcare and medical specialties, the shortage of qualified staff may be reduced.

Industry experts predict severe shortages of healthcare practitioners and support staff in the coming years. The use of temporary providers has been one solution to this problem. However, during an economic downturn, the use of temporary healthcare professionals will likely not be in as high demand. This is because demand for some medical treatments would drop. This is especially true of elective surgeries, such as plastic surgery.

Currently, there is a shortage of nurses, addiction treatment professionals, psychologists, and primary care clinicians. Similar workforce shortages exist in the direct care industry. There simply are not enough trained professionals to go around and meet the demand for their services.

During the last recession, nurse shortages were reduced and, in some cases, there were even more nurses available to work in healthcare settings. Part of this was because some retired nurses rejoined the workforce, other nurses delayed retirement and some part-time nurses sought full-time work. All these factors would work to alleviate the nursing shortage.

2. Less demand for non-urgent or elective procedures

During economic periods when financial margins are constrained, some consumers will defer healthcare to save money as patients are forced to prioritize spending on other necessities and reduce spending on healthcare services.

People will still need to seek treatment for more serious diseases, but they will attempt to skip treatments for minor, non-life-threatening conditions. A similar trend is visible when examining data on hospital admissions related to elective surgeries.

People will delay elective surgical procedures. In turn, these actions create substantial financial problems for surgical centers, hospitals, and health systems.

Some surveys in the US show that from 2009 to 2011, the average 300-bed hospital in the US lost about US$3.7 million due to a decline in privately insured patients because of greater unemployment or underemployment. A similar situation can be expected in Mexico and other developing countries in Latin America.

However, this situation also created opportunities, as healthcare spending decreased and there was an increase in the movement to expand outpatient care options. Most outpatient settings are usually more consumer-friendly and affordable. Some of the trends and new opportunities are:

  • Increase in patients with major stress symptoms. Creation of purpose-built mental health treatment centers.
  • Concerns over the ability to pay for their healthcare needs. New financial products created specifically for healthcare.
  • Increase in appointment cancellations by patients. Online platforms to better manage appointments.
  • New health problems developed as patients were skipping preventive healthcare measures. New personal health monitoring devices.

3. Financial stress for doctors, clinics, and hospitals: What can be done?

In open market economies, the interactions between employment, health coverage, medical costs and access to quality care can be complex. A variety of details, both seen and unseen, can change the outcomes and costs of healthcare.

Factors such as the demand or access to healthcare may coincide or conflict with a healthcare organization or medical practitioner’s financial incentives. When a recession occurs, the private healthcare industry can experience reduced demand for non-urgent or elective care, which decreases overall revenue. On the other hand, government-owned systems like IMSS in Mexico experience an increase of demand for their services, putting more strain on an already overstretched infrastructure.

Private healthcare providers experience additional problems, including a greater number of patients who are unable to pay their medical expenses. Private and public hospitals and health systems may also suffer from reductions in charitable giving and less funding from the local, state and federal governments.

All these factors can greatly increase the write-offs and delinquent accounts, forcing hospitals and practitioners to adapt to severely reduced cash flows.

But not all is grim, there are solutions to this problem. Many physicians and other healthcare professionals are establishing new financial arrangements to help stabilize their income. One example is to use the equipment they already own as a source of cash flow. This financial product is called “sale and lease back.” The way it works is that they “sell” the medical equipment to a financial leasing company that in turn “rents” that equipment back to the institution. It is similar to using your home equity as a source of liquidity. The hospital gets the cash from the sale without having to actually sell the equipment. At Salud Facil, we specialize in such financial products that can bring financial relief to institutions.

4. Delays in the acquisition of new, large-ticket medical equipment

Another consequence is that we may see delays in the decision to acquire large-ticket medical equipment as hospitals and clinics struggle to obtain the cash flow needed for their operation. This may also increase the demand for used and secondary market equipment as some clinics can’t delay replacing or buying equipment that is essential for their operation, such as imageology.

Whether a recession occurs soon or not, it is unlikely to change the present trends in healthcare for Latin America: an aging population, outpatient clinics, telemedicine and other new trends that were born during the pandemic will continue to grow as technology influences the speed at which these trends occur.

Is your practice/clinic ready for these new industry trends? We can help you get ready with our medical equipment financing options. Contact me at: fdeobeso@saludfacil.org