November 14, 2008

Economic climate requires prudence, patience

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Harry Jacobson, M.D.

Economic climate requires prudence, patience

After the last several months of negative financial and economic news, analysts are beginning to sort out the near term and longer-term future of the U.S. economy.

With nearly 16 percent of that economy in the health sector, these same analysts are starting to focus on the impact this downturn will have on the nation's hospitals.

“Health care is often described as recession proof,” said Rick Wagers, Vanderbilt Medical Center's chief financial officer.

“After all, no matter what the economic condition, people will get sick and people will need care. To a certain extent, that old wisdom is true. But this economic downturn could have some negative consequences.”

Among the potential consequences that Wagers cites is the possibility that patients sensing an uncertain financial future could defer elective procedures like hip replacement or bariatric surgery. Also, as unemployment rises, more people in the region could lose their health care benefits and delay needed hospital and doctor care, or, if they do seek care, could add to Vanderbilt's charity or uncompensated care volumes.

According to Wagers, the Medical Center has not seen any significant softening in hospital discharges, clinic visits and patient volume.

In other areas of the Medical Center's financial statement the impact of the downturn has been felt.

The return on invested cash has been reduced. For the Medical Center, this means poorer than expected returns on medical malpractice and self-insurance pools and on other academic trusts.

“Our investments that all of us hold, are down for the year,” said Wagers.

The changing economic climate has caused the leaders of the Medical Center to re-emphasize the need to be fiscally prudent.

“We are still among the strongest medical centers in the country financially, but we would not be doing our job if we didn't continuously think of how to optimize our operations in anticipation of a downturn,” said Harry Jacobson, M.D., vice chancellor for Health Affairs.

“I've asked our senior leadership to make a special effort to look at ways of controlling expenses and to find less costly ways of working. In a country where everyone is tightening their belts, we also need to look for ways to conserve.”

Philanthropy has become a significant source of capital, both for buildings and for programs. In a sharply declining financial market, Wagers said that expectations for philanthropy's contribution to Vanderbilt's capital budget should be reduced.

“This may mean delaying some of our building projects until the prospects for philanthropy improve and the cost of securing needed debt for these projects stabilizes,” Wagers said.

“We are a knowledge-driven enterprise,” Jacobson said. “Making sure we provide a stable work environment is critical to our being able to attract and retain top notch faculty, nurses and staff. Taking prudent steps now will assure that we can weather this economic downturn without disrupting our teams or our patients. We've shown again and again that the people of this Medical Center know how to manage through challenging times.

“I am confident that we will respond to this changing economic climate as well as we have in the past,” Jacobson said.