Medicine Not "Bulletproof" in Recession

While radiology demand, particularly in acute care medicine, remains steady, physicians are taking precautions to protect themselves from the effects of the U.S. economic downturn.

James H. Thrall, M.D. Harvard Medical School

Jonathan Berlin, M.D., M.B.A. Northwestern University

Bibb Allen, M.D. American College of Radiology

"I don't think medicine can be seen as bulletproof to a recession," said Bibb Allen, M.D., chair of the American College of Radiology Commission on Economics. "Like a lot of other businesses, healthcare is not totally a cash operation," he said. "Hospitals and larger businesses have seen their investments suffer because of the falling stock market and falling interest rates. The availability of money for capital purchases, the amount of dividend income that foundations are contributing to their operations, all of those things are bad."

As one of the fastest growing areas of healthcare spending, imaging services previously seemed immune to economic ebb and flow. Between 2000 and 2006, federal payments for imaging doubled, from $7 billion to $14 billion. That annual growth rate of nearly 13 percent was outpaced by growth in advanced imaging procedures, such as MR imaging and CT, which expanded at an annual rate of 17 percent, according to figures from the Congressional Budget Office.

Following the Deficit Reduction Act (DRA) of 2005, the increase in spending on physician imaging services reversed and Medicare expenditures on imaging exams fell to $12.1 billion in 2007, a decline of almost 13 percent from 2006.

With the freefall in the U.S. stock market and the increase in unemployment, it's not just consumer confidence that is in short supply, said radiologists. "I didn't talk to anybody at last year's RSNA meeting who wasn't commenting about cutbacks in capital spending," said James H. Thrall, M.D., a professor of radiology at Harvard Medical School and radiologist-in-chief at Massachusetts General Hospital. "There were many people who said their hospital simply had no capital program for this year.

"With the turmoil in the financial markets, it's much harder for hospitals to raise money through the sale of bonds," Dr. Thrall continued. "Therefore it's going to be harder for them to buy capital equipment. I think that our vendor community is going to be hit pretty hard. We may lose some vendors who are on the margin."

Research Dollars, Compensation Affected

The ripple effects of harder times can already be felt throughout academia and the research community, Dr. Thrall added. "Even the larger companies will be hit and will find it more difficult to continue the same level of research and development activity at least in the short term," he said. "That will be the other shoe that drops here."

As belts tighten, one of the trickle-down effects is changes in physician compensation. At some teaching hospitals, compensation incentives are now taking the place of guaranteed salary structures. Outlining measures his department has implemented, Dr. Thrall noted: "We have put some programs in place proactively. Instead of guaranteeing all of the raises for the radiologists this year, we have a contingency clause in effect where we have to reach certain financial targets. So far we are meeting them.

"The hospital has been conservative in approving new positions," Dr. Thrall continued. "This is mostly cautionary, as opposed to a response to adverse financial performance."

Some medical facilities that were heavily leveraged are seeing layoffs, said Dr. Allen. "We've not had huge layoffs at our hospital, but we are looking at every way to keep things tight and we're not hoarding excess supplies—we're not ordering until we need more, that type of thing," he said. "Everybody is cognizant of the economic downturn."

Dr. Thrall said he believes the reduction in hiring is consistent with patterns seen in previous recessions. "It is my impression that we've seen a softening in the radiology job market over the last 18 months to two years," he said. "There are still jobs available, but there are not nearly as many jobs available as five years ago. The supply and demand equation shifts very dramatically when there's economic uncertainty."

He noted a net positive effect in his department, as the institution has been able to retain highly qualified physicians.

"We see more residents who stay on for fellowships and fellows who may stay on staff for a couple of years while they look for their ideal private practice job," he said. "In our department, we usually have some openings either because of growth or turnover. Right now we do not have a single unfilled position."

Job Losses Lead to Canceled Procedures

As patients themselves are subjected to a tighter job market, radiology feels the effects of layoffs now rampant in the manufacturing, financial and retail sectors. "As people lose their insurance, they have to pay for tests themselves," said Jonathan Berlin, M.D., M.B.A., an associate professor of radiology at NorthShore University HealthSystem – Northwestern University in Evanston, Ill. "People are filling fewer prescriptions and they're going to see their doctors less. That will likely translate into less radiology.

"The volume of non-covered radiologic procedures and radiologic procedures performed on patients with high deductible health insurance policies will likely fall as consumer spending tightens," Dr. Berlin continued. "As unemployment increases, the number of patients losing health insurance increases. Uninsured patients will likely delay care and delay certain elective procedures. The higher number of 'self-pay' patients will also increase a radiology practice's bad debt."

To Survive, Assess Competition and Find Economies of Scale

When evaluating radiology practices and scrutinizing the management of resources, Dr. Berlin advises practice leaders to assess their competition and meet patients' and referring clinicians' needs, as well as create economies of scale. "You should attempt to examine the efficiency of your practice," he said. "If you can scan four patients per hour versus two, you're going to reduce your fixed costs per unit of production.

"Another thing practices can do to preserve volume is to increase their emphasis on service," Dr. Berlin continued. "Meet with your referring clinicians and ask them what they want. Find out what your practice is doing well and what your practice is not doing so well."

Healthcare delivery should remain as patient-centered as possible to retain a competitive advantage, Dr. Berlin emphasized. "In addition to referring physicians, patients themselves are a key client, and finding out what differentiates your practice from the practice down the street is important," he said. "Many patients make their decisions on different factors than their healthcare provider does. For example, patients may make decisions on how nice the office staff was, how clean the facility was, how long they had to wait or whether or not they sensed a caring attitude. Those are attributes your practice can address. The bottom line is you want to put yourself in a position where you're doing well against your local competition."