Hospitals Pitch Their Economic Impact

I was waiting to get my flu shot a few weeks ago. I happened to pick up a copy of a glossy brochure prepared by our local medical center, Fletcher Allen. While scanning through it and learning about all the great health care services they provide, I was a bit surprised to also see a "pitch" for the economic benefits Fletcher Allen brings to the area (see sidebar on the right).

In browsing online the other day, I quickly understood that Fletcher Allen was far from alone in highlighting these kinds of economic benefits. In fact, hospital after hospital, in all parts of the country, are touting the considerable impacts they have on the local economy.

Just two quick examples I ran across. The first, Brookhaven Memorial Hospital Medical Center in East Patchogue, New York. Take a look at the Economic Impact Statement they've prepared -- which I'll quote briefly from:

"In 2004, the facility had an estimated total annual economic impact of $396,116,000. The hospital supported 2,970 jobs, which paid $16,138,000 in state and local personal income and sales taxes. Brookhaven Memorial Hospital employs 1,546 FTE’s, with a total payroll of $111,859,000

... Hospital payroll expenditures serve as an important economic stimulus, creating and supporting jobs throughout local and state economies ... Dollars earned by the Medical Center employees and spent on groceries, clothing, mortgage payments, rent, etc., generate approximately $238,540,000 in economic activity for the local economy ... The Medical Center spends about $66,990,000 per year on the goods and services it needs to provide health care -- for example, medical supplies, electricity for its buildings, and food for patients ... Brookhaven generate approximately $142,855,000 for the local economy."

And notice the concluding line of their report: "We urge our legislators, members of Congress, and community leaders to recognize that our hospital is instrumental to supporting our state and local economy and that vital steps need to be taken to continue to invest in New York States’ health care system."

Another example, in this case from Davidson County, North Carolina:

The report continues: "... The medical centers total impact includes $54.8 million in direct economic impact through goods and services purchased locally and wages and benefits paid to employees.

Total indirect impact to the county economy is $14.2 million and includes the impact on businesses that directly derive revenue from the hospital as well as businesses that exist in part because a hospital is present in the community such as physician offices, pharmacies, nursing homes, equipment suppliers, restaurants, motels and florists."

Virtually verbatim arguments -- albeit on a much large scale -- can be found in support of big city hospital projects. Take a look, for example, at the economic benefits arguments made in support of a new children's hospital planned for Chicago.

Not surprisingly, the American Hospital Association has also been pointing out the economic impacts that hospitals have. See, for example, their report, Beyond Health Care: The Economic Contribution of Hospitals, available on their web site (the chart on the left is from this report).

And note what Rick Pollack, their Executive Vice President, had to say in a Press Release about this report: "'Hospitals are more than a place where you go to get well. ... Hospitals are employers, providing good wages and stimulating other areas of business throughout the community. ... Hospitals truly are the cornerstone of the community."

During my travels this past Summer, in a number of the communities I visited, planners also pointed to the economic importance of having a strong regional medical center. Two factors that were regularly mentioned: (1) the high paying jobs and skilled workers that medical centers bring (along with the associated doctors offices and clinics), and (2) the spin-off benefits in terms of making the community more attractive to other businesses. On the later point, several planners stressed that having high quality health care was especially important in attracting (or retaining) people who were looking ahead to their retirement years.

Photo of Newman Regional Health Center in Emporia, Kansas. During my visit to Emporia, City Engineer Keith Beatty told me about the vital economic role the hospital has in Lyon County, population 36,000.

While there's been a veritable gold rush in hospital construction projects across the country, not everyone is convinced of their benefits.

Health care policy analyst Jeanne Keller, with the Burlington, Vermont, firm of Keller & Fuller, points out that: "The 'cost impact' studies the hospitals are doing do NOT take into account the 'lost opportunity cost' of employers paying more and more and more for health insurance (which provides the reimbursements revenue streams) that the hospitals are using to do this building and expanding. ... In other words, would the dollars be more productive if left in the hands of local businesses, for example, in wage increases to their employees instead of increased premiums? Would the dollars be more productive spent by employees in local stores, instead of in the hospitals because of their higher deductible plans? ... Which expenditure has a better return on investment for economic development?" [email correspondence on Jan. 30, 2008] 

To Keller, the bottom line is that the way we've been investing in hospital construction is "not good for local economies."

More on hospital construction trends in my related post, Hospital Boom(ers).