Key Findings. THE ECONOMIC IMPACT OF PeaceHealth IN L ANE COUNT Y

Transcription

1 THE ECONOMIC IMPACT OF PeaceHealth IN L ANE COUNT Y Key Findings PeaceHealth operations leave a significant impact on Lane County s economy, supporting $1.4 billion in overall economic output. The economic activity supported by PeaceHealth supported household earnings of $496 million to $520 million in FY2010. It is estimated that PeaceHealth directly and indirectly accounts for 12,171 to 12,264 jobs in Lane County, or 8.5 percent of regional employment. This activity is not limited to recirculating dollars within the community. By attracting patients from outside the county and retaining patients who would seek treatment elsewhere in the absence of a large medical center, PeaceHealth supports at least 2,700 jobs.

2 Timothy A. Duy Adjunct Assistant Professor and Director, Oregon Economic Forum, Department of Economics, University of Oregon Professor Duy received his B.A. in Economics in 1991 from the University of Puget Sound, and his M.S. and Ph.D. in Economics in 1998 from the University of Oregon. Following graduate school, Tim worked in Washington, D.C. for the United States Department of Treasury as an economist in the International Affairs division and later with the G7 Group, a political and economic consultancy for clients in the financial industry. In the latter position, he was responsible for monitoring the activities of the Federal Reserve and currency markets. Tim returned to the University of Oregon in He is the Director of the Oregon Economic Forum and the author of the University of Oregon Index of Economic Indicators, the Central Oregon Business Index, the Lane County Business Index, and the Porland Metro Business Index. Tim has published in the Journal of Economics and Business and is currently a member of the Oregon Governor s Council of Economic Advisors.

3 Introduction This report analyzes the economic impact of PeaceHealth in Lane County, Oregon. As in most communities, the health care industry both provides a critical service and can serve as a key element of the local economy, providing stable jobs and serving as a source of demand for local firms. Moreover, the presence of high quality medical care can be an attractor for new residents and businesses. As a consequence of these factors, medical services leave a large economic footprint on a community. But how big is that footprint? Using data on patient revenues, employee earnings, and number of employees, we can create estimates of the total economic impact of PeaceHealth on the community. Moreover, by identifying outside and retained revenues those emanating from either nonresidents or residents who would otherwise have sought services outside of Lane County we can estimate the net additional economic activity created as a result of having a very large, regional medical provider in the county. It is this ability to export services outside the county that is the primary contributor to local economic development.

4 Results: OVERALL ECONOMIC FOOTPRINT Table 1 presents results for the economic impact of patient spending in the PeaceHealth Oregon Region. The spending is broken into three components, hospitals (RiverBend, University District and Cottage Grove), clinics, and other revenue. The latter category includes revenues from auxiliary enterprises such as building leases, food services, gifts shops, donations, etc. Notice that these services have smaller multipliers than those of the hospitals and clinics. Combined revenue was $655 million in The overall impact of this spending on the Lane County economy was $1.2 billion. Households earnings tied to this spending were $440 million. Moreover, this spending supported 10,399 jobs in Lane County. Sacred Heart Medical Center at RiverBend Sacred Heart Medical Center, University District Cottage Grove Community Hospital Alternative estimates of earnings and spending can be derived from the actual earnings of Peace- Health employees. Combined, the 5,408 employees in the PeaceHealth Oregon Region earned $267 million in These jobs and pay support a total of $410 million of household earnings and 10,296 jobs in Lane County. Table 1: Economic Impact of PeaceHealth Oregon Region Direct Spending on Health Care PATIENT M U L T I P L I E R S T O T A L I M P A C T S REVENUE OUTPUT a EARNINGS b JOBS c OUTPUT EARNINGS JOBS Hospitals $553,181, $999,432,674 $364,325,211 8,666 Clinics $94,153, $169,965,260 $72,356,693 1,583 Services and other d $7,755, $12,221,865 $3,351, TOTAL $655,090,268 $1,181,619,799 $440,032,932 10,399 a. Each entry in this column represents the total dollar change in output that occurs in all industries for each additional dollar of output delivered to final demand by the industry corresponding to the entry. b. Each entry in this column represents the total dollar change in earnings of households employed by all industries for each additional dollar of output delivered to final demand by the industry corresponding to the entry. c. Each entry in this column 3 represents the total change in number of jobs that occurs in all industries for each additional 1 million dollars of output delivered to final demand by the industry corresponding to the entry. Because the original RIMS employment multipliers are based on 2007 data, these multipliers are converted to 2010 dollars to match the timing of this study. d. The multipliers for Service and other are an average of the multipliers for Real Estate, Retail Trade and Food Service and Drinking Places. Table 2: Economic Impact of PeaceHealth Oregon Region Direct Effect on Earnings and Jobs M U L T I P L I E R S T O T A L I M P A C T S EARNINGS a JOBS EARNINGS b JOBS c EARNINGS JOBS Hospitals Payroll $201,087, $313,535,146 Hospitals Employment 4, ,018 Clinics Payroll $66,157, $96,855,218 Clinics Employment ,279 TOTAL $267,245,125 5,408 $410,390,363 10,296 a. Wages and salaries plus employer cost of healthcare benefits minus employee contributions for social insurance. b. Each entry in this column represents the total dollar change in earnings employed by all households for each additional dollar of earnings paid directly to households employed by the selected industry. c. Each entry in this column represents the total change in the number of jobs in within the region for each additional job in the selected industry.

5 Notice that these estimates are very close to those derived using patient revenues a consistency that lends support for the results. Similar estimates can be derived for the PeaceHealth Siuslaw Region, consisting of Peace Harbor Hospital, clinics, and services and other categories. Results are reported in Table 3. The net revenue of these entities totaled $55 million in Table 3: Economic Impact of PeaceHealth Siuslaw Region Direct Spending on Health Care PATIENT M U L T I P L I E R S T O T A L I M P A C T S REVENUE OUTPUT a EARNINGS b JOBS c OUTPUT EARNINGS JOBS Hospitals $44,291, $80,020,783 $29,170, Clinics $10,464, $18,890,776 $8,042, Services and other d $344, $527,720 $144,692 6 TOTAL $55,090,656 $99,439,279 $37,356, a, b, c, d - See table 1 Table 4: Economic Impact of PeaceHealth Siuslaw Region Direct Effect on Earnings and Jobs M U L T I P L I E R S T O T A L I M P A C T S EARNINGS a JOBS EARNINGS b JOBS c EARNINGS JOBS Hospitals Payroll $19,162, $29,877,626 Hospitals Employment Clinics Payroll $11,247, $16,467,022 Clinics Employment TOTAL $30,410, $46,344, a,b,c - See table , yielding a total economic impact of $99 million in Lane County, including $37 million of household earnings and 876 jobs. Using the direct earnings and jobs approach (Table 4) yields a somewhat higher estimate of $46 million of household earnings and 993 jobs. Note, however, the difference is opposite compared to the impact estimates for PeaceHealth Oregon Region, which means in aggregate they will balance out. Finally, I also estimated the impact of PeaceHealth Labs (Tables 5 and 6). The $59 million in lab revenue supported $108 million of overall output in Lane County, with associated household earnings of $43 million and 989 jobs. Applying the earnings and jobs approach yields similar results. The $25 million of earnings for 452 employees multiplies to a total impact of $39 million and 883 jobs in Lane County. Table 7 aggregates the estimated economic impact of all three PeaceHealth divisions in Lane County. The services provided by PeaceHealth support an estimated $1.4 billion of economic activity in Lane County, supporting $496 million to $520 million of household earnings and 12,171 to 12,264 jobs. Note that in 2010, there were 140,000 employees on nonfarm payrolls in Lane County. Thus the jobs directly and indirectly supported by PeaceHealth equal 8.5 percent of Lane County employment. 1. PeaceHealth staff provided the revenue data incorporated in this report. Note that these figures are net patient revenues, not gross revenues. The net revenues represent funds available to generate economic activity in Lane County.

6 Peace Harbor Hospital in Florence Table 5: Economic Impact of PeaceHealth Labs Direct Spending on Health Care PATIENT M U L T I P L I E R S T O T A L I M P A C T S REVENUE OUTPUT a EARNINGS b JOBS c OUTPUT EARNINGS JOBS Hospitals $58,628, $108,111,128 $42,622, Services and other d $167, $263,534 $72,257 3 TOTAL $58,795,829 $108,374,662 $42,695, a, b, c, d - See table 1 Table 6: Economic Impact of PeaceHealth Labs Direct Effect on Earnings and Jobs M U L T I P L I E R S T O T A L I M P A C T S EARNINGS a JOBS EARNINGS b JOBS c EARNINGS JOBS Labs Payroll $24,797, $38,835,530 Labs Employment TOTAL $24,797, $38,835, a,b,c - See table 2. Table 7: Summary Table with Range of Estimates M U L T I P L I E R S OUTPUT SPENDING BASED PAYROLLS BASED SPENDING BASED ESTIMATE ESTIMATE ESTIMATE J O B S PAYROLLS BASED ESTIMATE PeaceHealth OR $1,181,619,799 $440,032,932 $410,390,363 10,399 10,296 PeaceHealth Siuslaw $99,439,279 $37,356,909 $46,344, PeaceHealth Labs $108,374,662 $42,695,245 $38,835, TOTAL $1,389,433,740 $520,085,085 $495,570,542 12,264 12,171

7 Results: OUTSIDE AND RETAINED ECONOMIC ACTIVITY It is important to recognize, as noted earlier, that much of the activities of PeaceHealth largely recirculate income within Lane County 2. However, some of the revenue generated by PeaceHealth comes from outside the region, and thus represents new economic activity. Likewise, some patients are retained by PeaceHealth who would otherwise travel to facilities in other parts of the state. Why does PeaceHealth generate these additional economic benefits? The size of PeaceHealth s operation allows it to perform a wide variety of procedures that would not otherwise be provided locally. Similarly, that larger size is attractive to specialists who are able to provide unique services. As a consequence, the residents and nonresidents are able to receive services that might not otherwise be offered in Lane County. To estimate outside and retained revenue, I used data on net patient revenues attributable to Lane County residents and nonresidents. This data is derived from a different source as the aggregate data used above, resulting in a lower estimates of patient revenue compared to those used in estimating the aggregate impact above. As a consequence, these estimates of outside and retained revenue should be considered conservative they likely somewhat underestimate the actual impact. Also, in this section I examine just hospital revenue, not clinics. Clinic revenue is largely attributable to Lane County residents. Identifying outside revenues is relatively simple, as that revenue come from nonresidents. This represents a net flow of resources into Lane County. Identifying retained revenues is more challenging, as we lack information as to the patient s decision making process. In some cases, such as neurosciences, PeaceHealth provides unique services not otherwise available in the region. Other examples include portions of the cardiology and obstetrics units. But in many cases, we lack the ability to separate out retained revenue. To overcome this challenge, this analysis takes a conservative approach to estimating retained revenues. I assume that 80 percent of the resident revenue for 2. This is not meant to dismiss the importance of the services offered by PeaceHealth. High quality health care providers are important to sustaining a region s livability and thus, by extension, the economy. That said, like many services sector firms such as insurance agents, retail sales, real estate, financial activities, and waste disposal, they primarily serve the local population and thus recirculate funds internal to the region. Services provided by such firms to outside residents, however, clearly represent a net flow of income to a region, and thus create additional economic activity above that relating to serving the resident population alone.

8 neuroscience is retained; in other words, the vast majority of neuroscience patients would seek treatment outside Lane County in the absence of a sufficiently large medical facility. For the remainder of resident revenues, I assume just 10 percent can be counted as retained earnings. Results are reported in Table 8. Outside revenue for the PeaceHealth Lane County hospitals was $107 million, supporting $71 million in household earnings and 1,681 jobs 3. These earnings and jobs represent a net economic benefit to Lane County as they are the result of the export of services to neighboring communities. For perspective, 1,681 jobs is 1.2 percent of total Lane County nonfarm employees. Table 8: Economic Impact of PeaceHealth Hospitals Direct Spending on Health Care PATIENT M U L T I P L I E R S T O T A L I M P A C T S REVENUE OUTPUT a EARNINGS b JOBS c OUTPUT EARNINGS JOBS Sacred Heart/Cottage Grove Outside Revenues Peace Harbor Outside Revenues Sacred Heart/Cottage Grove Retained Revenues Peace Harbor Retained Revenues $102,907, $185,922,778 $67,774,806 1,612 $4,390, $7,931,866 $2,891, $60,607, $109,499,441 $39,916, $4,492, $8,116,429 $2,958, TOTAL $172,397,473 $311,470,514 $113,540,976 2,701 a, b, c - See table 1 Retained earnings were estimated to be $65 million, yielding $43 million in household earnings in the county and 1,019 jobs. Another way to view this number is that if, lacking a sufficiently sized medical center, just a small fraction of patients had to seek treatment outside of Lane County, the region would lose over 1,000 jobs and $43 million in regional earnings. It is evident by these numbers that PeaceHealth not only performs a necessary service in the community, but also provides significant support to the local economy. 3. Again, note that these are net patient revenues. Also, PeaceHealth staff derived the data from a different source than the aggregate net revenues provided earlier in the report. The discrepancy underestimates net patient revenue by 17%. However, the detail is not sufficient to identify if the discrepancy favors residents or non-residents. Still, these numbers likely somewhat underestimate PeaceHealth s economic impact, and should be considered conservative.

9 Other Considerations CONSTRUCTION The preceding analysis focused on the economic impact from PeaceHealth ongoing medical service-related activities in Lane County. Another impact is through the construction of new facilities. At times, construction spending has been quite large, such as the roughly $300 million to construct Sacred Heart at River- Bend. Construction spending dropped off significantly in FY2010, to $5.8 million. Table 9 contains estimates of the impact of this spending. PeaceHealth s spending on construction supported an addition $3.5 million in earnings and 96 jobs in Lane County in FY2010. COMMUNIT Y SERVICE PeaceHealth also provides a number of programs in the community that provide economic benefit but are not included in this report as they are difficult to quantify. That said, they deserve mention. During FY2010, PeaceHealth delivered $92 million of uncompensated care, of which $52.5 million was charity care and the remainder bad debt. Bridge Assistance is the PeaceHealth charity care program which provides medically necessary and preventive services for our patients at PeaceHealth facilities at a reduced cost or without charge when payment cannot be obtained through all other available financial resources. Paula Dean was facing bankruptcy on top of a life-threatening illness. Bridge Assistance covered a bill that eventually approached half a million dollars.

10 Methodology This report uses a standard economic framework widely employed in economic impact analysis. Primarily, I rely on the use of the multiplier concept to derive estimates of the aggregate impact of PeaceHealth on final demand, household earnings, and jobs in Lane County. 4 Briefly, demand for a product or service is magnified through the local economy via what economists call the multiplier effect. This effect arises because one firm s spending is another firm s income. For example, an increase in the demand for health care services provided by PeaceHealth evolves into an increase in spending on employees and supplies. In some cases, the first round of spending, such as on salaries, remains largely in Lane County. In other cases, spending leaks out of the region to, for example, out-of-area suppliers of medical equipment. What remains in the local economy, however, becomes fuel for additional economic spending, and thus creates demand for additional labor and goods. This results in a magnification of the economic impact beyond that of the initial expenditure on health care. Measurement of the aggregate economic activity attributable to PeaceHealth requires estimates of the appropriate multipliers. These estimates are available from a number of sources; this report uses the RIMS II estimates created by the U.S. Bureau of Economic Analysis. These data include estimate of the impact of final demand for health care services on aggregate activity within Lane County, as well as household earnings and jobs. Multipliers are available using both final demand (in this case, net patient revenues) and actual payroll and employment as inputs. This report uses both approaches to develop a range of estimates of the overall economic impact. Using the aggregate figures on net patient revenues and employee payrolls provides an estimate of PeaceHealth s overall economic footprint in Lane County. While an important part of the local economy, and aside from the important and necessary services offered, a considerable amount of this footprint, however, represents money recirculating within the community 5. The dollars spent by a Lane County resident on care at a PeaceHealth affiliate may have been spent at another health provider or, if the resident did not require health care services, at another firm in a completely different sector. That said, a large, regional medical center provides additional benefits in two dimensions. The first is as an attractor of outside income. Money flows into Lane County from surrounding communities that, in the absence of a sufficiently large medical center, would have flowed to other regions of the state, such as the Portland metro area. In this manner, PeaceHealth is exporting services beyond Lane County, thus making a net positive economic contribution to area residents. Second, the presence of a regional medical sector retains some spending within the local community that would otherwise have leaked out of the area. Residents may have found it otherwise necessary to travel to Portland for services in the absence of the wide variety of procedures available at PeaceHealth. This report provides estimates of outside income via patient revenues from non- Lane County residents, available via data provided by PeaceHealth. Estimates of saved or retained spending are somewhat more challenging to identify, with the

11 exception of a group of procedures that are largely provided in Lane County only at PeaceHealth. Still, I am able to provide a range of estimates of potentially saved income. This report utilizes data broken into three separate constructs or entities. The first is Peace Health Oregon, roughly comprising the activities in the Willamette Valley. PeaceHealth Oregon is itself broken into three separate enterprises hospitals (RiverBend, University District and Cottage Grove), clinics (Peace- Health Medical Group), and other services (food services, real estate leasing, for example). The second entity is PeaceHealth Siuslaw, which in turn is split into hospitals (Peace Harbor) and clinics. The third entity is PeaceHealth Laboratories. I provide estimates of the economic impacts attributable to each entity, as well as an aggregate estimate. These estimates are provided using both net patient revenues and employee payrolls. When identifying outside and retained income, I focus on hospital revenue. Also, it is not possible to separate out payroll costs associated with just outside residents. For example, the salary of a nurse is not broken down by resident versus non-resident. Consequently, estimates of the impact of outside and retained revenue are limited to those based on net patient revenues. The time span of the analysis is FY2010 (July 1, 2009, to June 30, 2010). 4. For example, see The Economic Impact of Memorial Health System, 5. The focus on inside versus outside and retained revenues is a standard practice. It may be the case that some of the revenue for Lane County residents is derived from out-of-region insurance companies or government providers. At the same time, however, Lane County residents and firms are paying premiums and taxes to finance those out-of-region insurers. The underlying assumption in this report is that the two flows would be offsetting.

12 Conclusion The medical community in a region provides a critical service to a community and is also intertwined in the local economy. The extent of this footprint can be significant. PeaceHealth s activities in Lane County directly and indirectly support $1.4 billion of economic output, generating household earnings of roughly $500 million and supporting 8.5 percent of regional employment. Finally, it is important to recognize that a significant portion of this output is not simply recirculating money within the community, but contributes positively to Lane County s economy by exporting services to residents in surrounding economies.