David Vane gave up his job at a local machine shop for what he considered the ultimate in job security: a career in nursing. In December, just three months after starting at North Memorial Medical Center in Robbinsdale, he was laid off. With that, Vane joined the swelling ranks of Minnesotans who are being confronted by a nasty surprise of the current economic slump: Medicine is no longer recession-proof.

For three decades, health care has been Minnesota's economic juggernaut, generating thousands of high-wage jobs, supporting a prestigious academic research community and spinning off a thriving medical technology industry. Today, one of every seven employed Minnesotans works in health care.

But an industry that sailed through the last two recessions is hitting the shoals this time. Local hospitals have shed more than 1,000 workers since last year and postponed big construction projects. The University of Minnesota Medical School is "looking under every stone" for savings. State nursing homes are bracing for millions of dollars in cuts proposed by Gov. Tim Pawlenty.

"In the past, people were delaying vacations or new automobile [purchases]," said Steve Hine, director of labor market information at the Minnesota Department of Employment and Economic Development. "This time around, they're even cutting back on their health care."

For years, the biggest problem for hospitals was how to fill open positions. Over the last decade, the economic sector known as health care and social assistance grew from a 10 percent share of Minnesota's payrolls to 14 percent, and now accounts for 389,000 jobs.

But last year, health care employment grew just 2.9 percent, down from 4.1 percent in 2007, as Minnesotans gave up a trip to the doctor along with other discretionary purchases.

"We're seeing that demand is far more elastic than it was in other years," said David Wessner, chief executive of Park Nicollet Health Services, owner of Methodist Hospital.

To be sure, health care is still growing. It was the only sector of the Minnesota economy other than financial services to actually add jobs in 2008.

Nor is the hurt evenly spread. Rural hospitals are doing better than urban hospitals because they are considered "critical access" hospitals and enjoy more generous government payments.

But the landscape is changing dramatically.

Someone was missing

At a recent job fair at the Minneapolis Convention Center, two recruiters for a hospital in Casper, Wyo., were on the prowl. They'd heard there were nurses laid off in the Twin Cities.

The U.S. Army was there, and so were the Navy and two Twin Cities nursing homes. Yuma Regional Medical Center in Arizona brought a poster of a Chihuahua in a Hawaiian shirt.

The only thing missing? Minnesota's major hospitals and clinics.

In the long term, health care will pick up steam again, analysts predict. Nurses will still be in demand as baby boomers age and nurses retire, said Alice Swan, associate dean of nursing at the College of St. Catherine in St. Paul.

Short term, however, it's "a wild card," Swan said.

Faced with the new reality, many job-seekers are lowering their sights.

Christina Delgado graduated with a master of nursing degree from the University of Minnesota in December. The previous year, every student was hired before graduation. This year just three of 39 students had jobs by that point.

Recently, Delgado gathered with fellow graduates for coffee and bagels to study for nursing board examinations in early February. They must pass the boards before they can work. Assuming there is work.

The conversation soon turned to job-hunt stories. Delgado, 29, enrolled in nursing school with a dream of helping sexual-assault victims and eventually working for an international aid organization.

She's filled out more than 20 applications, targeting everything from Twin Cities hospitals to the Veterans Administration. She even applied to the Hennepin County Juvenile Detention Center.

So far? "Nothing!" she said, adding mock-ruefully, "Not even a correctional facility would have me."

"We all really believed that we would get this education and move into anything we wanted," said Ann Seguin, 35, who has $50,000 in student loans. "Maybe I need to ratchet down my expectations."

So far, only one in the group of seven, Carissa Scanlan, has landed work. The job, with Healthcare for the Homeless in St. Paul, pays less than her previous job as a Spanish-language medical interpreter.

A thousand cuts

Hospital officials blame a perfect storm of events for the industry downturn: cuts in government programs such as Medicare and Medicaid, a squeeze by private insurers and, perhaps most dramatically, the spread of high-deductible insurance plans, which has caused many consumers to hold back on care.

"Conditions around who's financing health care have changed," said Dick Pettingil, chief executive of Allina Hospitals and Clinics. "Consumers will be making a different set of choices, delaying or putting off care. It's been dramatic."

Then came last year's acute financial shocks. Many hospital groups lost money on investments in the stock market free fall. Many were saddled with higher debt payments as the credit markets seized up. They also lost revenue as insurance companies clamped down on certain procedures with fat margins, such as imaging.

Now all of these stresses are coming to a head.

A survey by the Minnesota Hospital Association (MHA) found that in the third quarter of 2008, the metro area's 19 hospitals collectively swung to a net loss of almost $62 million, compared with net income of $49 million in the third quarter of 2007.

Last year, patients left $601 million in unpaid bills at Minnesota hospitals, up from $238 million in 2002. Proposed cuts to state health and human services budgets will only add to the pressure, said Lawrence Massa, MHA president.

At the University of Minnesota Medical School, which is funded partly by clinical practices, the growth in unpaid bills means margins are narrowing to the point where just doing more procedures isn't going to suffice, said Frank Cerra, senior vice president for health sciences. The university has postponed a $200-million building for outpatient care on campus and begun streamlining its management ranks. If things don't improve, it might raise medical school fees. Cerra says he hopes it won't come to that.

Even the Hazelden Foundation, Minnesota's famed addiction treatment center at Center City, is feeling the squeeze.

Hazelden generally has a waiting list for treatment, but last year occupancy fell to about 85 percent. Most patients at Hazelden pay out-of-pocket -- $27,000 for the traditional monthlong stay -- and even those whose insurance covers treatment are holding back. "People are really freaked out about their employment situation," said chief executive Mark Mishek. "They wonder: 'Is my job going to be there when I go back in 28 days?'"

Dr. Jon Hallberg, a family physician at the university, counts himself lucky that his Mill City Clinic didn't get canceled. The clinic opened in November and caters to downtown condo dwellers and Guthrie Theater performers.

But Hallberg had to shelve one idea -- a regular evening at the Guthrie when actors would give readings from medical texts. As the economy went south last year, Hallberg's hopes for $50,000 in donations for the theater project vanished. The final form of what he's dubbed "Hippocrates Cafe," is "TBD" --To be determined.

One optimistic side effect

In some cases, the belt-tightening might be constructive. West of the Twin Cities, the crisis has forced a new kind of partnership between former rivals that may yet prove a model for others.

Last year, a clinic chain in Willmar -- Affiliated Community Medical Centers -- and the city-owned Rice Memorial Hospital forged a joint venture to buy a new digital mammography machine. In the past, the rivals might have bought one each, at $300,000 a pop.

"This used to be a huge competitive thing," said Terry Tone, administrator for the clinic chain. "Now we don't have to beat each other up over who gets to buy [the machine]. Everybody gains from it."

But others worry that the financial squeeze will be bad for the health of Minnesotans and the economy.

Community clinics and safety-net hospitals say the cuts are coming at a time when many more uninsured patients and under-insured patients are walking in the door. Last week, Hennepin County Medical Center said it was forced to eliminate 100 jobs to save money.

"If we have to do too many reductions, I'm concerned we won't be there for our patients," said HCMC chief executive Lynn Abrahamsen.

Last year, David Vane got his nursing degree, got the new job and moved his family to a bigger house in a better school district. In December he was one of 380 employees, or 7 percent of North Memorial's workforce, to be laid off. His last day was Jan. 1. Vane, 40, likes the fast-paced variety of a hospital -- a broken leg one day, a stroke another. But he's coming around to the idea of trying a nursing home, where the work is more routine.

For now, North Memorial still calls when it needs nursing help on short notice. But Vane sounds slightly stunned at his changing fortunes.

"I go to bed every night thinking: 'Am I going to get a call tomorrow?'"

Chen May Yee • 612-673-7434