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Economic Impact of World Class Health Care Services

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By David Robinson
April 28, 2015

The economic future is bright for health care. According to the Bureau of Labor Statistics, health care occupations are expected to grow by 29 percent through 2010 – 2020. This is the largest growth planned for any American occupation. According to the American Hospital Association, the health care industry, even during recent economic struggles, added an average of 28,000 jobs per month.

Health care is an important part of successful regional service economies.  Many hospitals are major regional employers impacting local economic development. Collectively, they employ nearly 5.5 million people, constituting the nation’s second largest source of private sector jobs. They spend over $702 billion on goods and services from other businesses. Hospitals support 15 million direct and indirect jobs, or 1 of 9 jobs in America, according to an American Hospital Association study.

From an economic development standpoint, hospitals serve many rural and urban centers as the largest regional employer. Hospitals are a major exporter of regional services and provide an important impact to struggling economies as they bring in state and federal funding. Access to high-quality health care institutions also impacts other regional employers.

Wages paid to health care workers are traditionally higher than wages paid to non-health care workers. Hospitals also provide employment for a full range of workers based upon their educational background, employing highly educated doctors and less educated operational staff. They offer less educated workers an opportunity to move up the economic ladder.

However, health care is bigger than just the jobs they create. Research and development in the health care industry creates companies in biotechnology, medical devices and related areas. A recent Johns Hopkins University economic impact study indicates this major research institution lead the nation with nearly $2 billion in medical, science and engineering based research and development. The Cleveland Clinic, Vanderbilt University and others are chasing Johns Hopkins in the development of health care research and development.

As life expectancy has expanded, workers have been more productive for longer periods. According to a study from Harvard’s School of Public Health, healthy workers are more productive. Health care provides an essential community infrastructure by providing access to quality health care to regional workers and residents.

Many states have launched health care quality programs. According to Forbes, the top five states for health care quality are Wisconsin, Minnesota, Massachusetts, Iowa and Maine. Cost is a major factor that companies look at when considering a region’s health care services. A recent Wall Street Journal story compared major state health care costs, per employee, across several states including:

  • Georgia at $5,467.
  • Texas at $5,924.
  • Michigan at $6,618.
  • Indiana at $6,666.
  • Illinois at $6,756.
  • Ohio at $7,076.
  • Wisconsin at $7,233.
  • Minnesota at $7,409.
  • Pennsylvania at $7,730. 

Ohio’s Shifting Economy

The shift of Ohio’s economy from manufacturing to health care is an example of the new role health care plays in regional and state economies. Globalism, technology and demographics have created a major transformation in the state’s economy. Ohio is still a national leader in manufacturing. However, the number of manufacturing jobs has plummeted. In fact, no Ohio manufacturer cracks the current list of 10 largest employers.

Although the decline of the Ohio manufacturing base is significant, the enormous growth of the state’s health care sector is of greater interest. Five of Ohio’s top 10 largest employers are hospitals. The Cleveland Clinic alone has a $10.5 billion economic impact and constitutes 8 percent of the region’s economy according to a recent economic impact study. Many Ohio hospitals recognize the need for public-private partnerships to redevelop their neighborhoods as well. For example, Mercy St. Vincent’s in Toledo, Ohio is leading the redevelopment of the Cherry Street Corridor.

Tax Policy & Health Care in Ohio

The health care industry benefits from local tax policies. These policies provide economic development incentives and allow major hospitals to act as tax exempt, not-for-profit institutions. Ohio offers an example of how hospitals gain from state and local tax policy.

Both Ohio State University (OSU) and Nationwide Children’s hospital launched major construction programs. OSU developed a new Wexner Medical Center at the cost of $1.1 billion. They also agreed to retain 12,000 jobs and create 6,000 new jobs with a $33.94/hr average salary. In return, the city of Columbus, Ohio offered a $35 million Columbus Job Creation Tax Credit. OSU agreed to provide a $10 million investment in the OSU East Neighborhood to redevelop this struggling urban center.

Another example of Ohio public-private partnerships working to redevelop neighborhoods is Nationwide Children’s Hospital. Nationwide Children’s agreed to undertake an $842 million hospital expansion, retaining 5,585 jobs and creating 2,400 jobs. To keep the hospital in Columbus, Ohio rather than relocate to the suburbs, Nationwide Children’s received a $15 million Columbus Job Creation Tax Credit, priority for federal stimulus and other infrastructure funding. Nationwide Children’s further agreed to create a community development initiative known as Healthy Neighborhoods, Healthy Families to redevelop housing, improve education and health care and address crime in the struggling urban area surrounding the hospital.

These examples illustrate the new role hospitals play in successful regional service economies.

Author: David J. Robinson is principal of The Montrose Group, LLC.

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