The Economic Impact of the Health Sector on the Fairfax Community Hospital Medical Service Area

Transcription

1 The Economic Impact of the Health Sector on the Fairfax Community Hospital Medical Service Area Oklahoma Office of Rural Health OSU Center for Rural Health Oklahoma Cooperative Extension Service Oklahoma State University July 2012

2

3 The Economic Impact of the Health Sector on the Fairfax Community Hospital Medical Service Area AE Community Health Engagement Process documents available online at: Ashley Jackson, Assistant State Extension Specialist, OSU, Stillwater Phone: ; Fax: ; Brian Whitacre, Associate Professor and Extension Economist, OSU, Stillwater Corie Kaiser, Director, Oklahoma Center for Rural Health, Oklahoma City Oklahoma Office of Rural Health OSU Center for Rural Health Oklahoma Cooperative Extension Service Oklahoma State University July 2012

4

5 The Economic Impact of the Health Sector on the Fairfax Community Hospital Medical Service Area Medical facilities have a tremendous medical and economic impact on the community in which they are located. This is especially true with health care facilities, such as hospitals and nursing homes. These facilities not only employ a large number of people and have a significant payroll, but they also draw a large number of people from rural areas that need medical services into the community. The overall objective of this study is to measure the economic impact of the health sector on the Fairfax Community Hospital medical service area. The specific objectives of this report are to: 1. Review economic trends of the health sector for the U.S. and Osage County; 2. Identify the population for the medical service area of Fairfax Community Hospital; 3. Summarize the direct economic activities of the health sector; 4. Review concepts of community economics and multipliers; and 5. Estimate the secondary and total impacts of the health sector on the Fairfax Community Hospital medical service area. No recommendations will be made in this report. Health Services and Rural Development The nexus between health care services and rural development is often overlooked. At least three primary areas of commonality exist. A strong health care system can help attract and maintain business and industry growth, and attract and retain retirees. A strong health care system can also create jobs in the local area. The following section looks at how the health care sector impacts these areas. 1

6 Services that Impact Rural Development Type of Growth Industrial and Business Retirees Services Important to Attract Growth Health and Education Health and Safety Business and Industry Growth Studies have found that quality-of-life (QOL) factors are playing a dramatic role in business and industry location decisions. Among the most significant of the QOL variables are health care services, which are important for at least three reasons. First, as noted by a member of the Board of Directors of a community economic development corporation, the presence of good health and education services is imperative to industrial and business leaders as they select a community for location. Employees and participating management may offer strong resistance if they are asked to move into a community with substandard or inconveniently located health services. Secondly, when a business or industry makes a location decision, it wants to ensure that the local labor force will be productive, and a key factor in productivity is good health. Thus, investments in health care services can be expected to yield dividends in the form of increased labor productivity. The cost of health care services is the third factor that is considered by business and industry in development decisions. Research shows that corporations take a serious look at health care costs in determining site locations. Sites that provide health care services at a lower cost are given higher consideration for new industry than sites with much higher health care costs. 2

7 Health Services and Attracting Retirees A strong and convenient health care system is important to retirees, a special group of residents whose spending and purchasing can be a significant source of income for the local economy. Many rural areas have environments (e.g., moderate climate and outdoor activities) that enable them to be in a good position to attract and retain retirees. The amount of spending embodied in this population, including the purchasing power associated with Social Security, Medicare, and other transfer payments, is substantial. Additionally, middle and upper income retirees often have significant net worth. Although the data are limited, several studies suggest health services may be a critical variable that influences the location decision of retirees. For example, one study found that four items were the best predictors of retirement locations: safety, recreational facilities, dwelling units, and health care. Another study found that nearly 60 percent of potential retirees said health services were in the must have category when considering a retirement community. Only protective services were mentioned more often than health services as a must have service. Health Services and Job Growth A factor important to the success of rural economic development is job creation. The health care sector is an extremely fast growing sector, and based on the current demographics, there is every reason to expect this trend to continue. Data in Table 1 provide selected health expenditures and employment data for the United States. Several highlights from the national data are: In 1970, health care services as a share of the national gross domestic product (GDP) were 7.2 percent. This increased to 17.9 percent in 2010; Per capita health expenditures increased from $356 in 1970 to $8,402 in 2010; 3

8 Employment in the health sector increased almost percent from 1970 to 2009; and Annual increases in employment from 2001 to 2009 ranged from 1.3 percent to 3.8 percent, even during the recession when many other sectors lost jobs. In addition, the Bureau of Labor Statistics projects substantial increases in health care expenditures from 2010 through In fact, the U. S. Department of Health and Human Services, Centers for Medicare and Medicaid Services predict that health care expenditures will account for 18.1 percent of GDP by 2014 and increase to 19.8 percent of GDP in Per capita health care expenditures are projected to increase to $10,035 in 2014 and to $13,709 in Total health expenditures are projected to increase to $4.6 trillion in

9 Table 1 United States Health Expenditures and Employment Data ; Projected for 2012, 2014, 2016, 2018 & 2020 Total Per Capita Health Health Avg. Annual Year Health Health as % Sector Increase in Expenditures Expenditures of GDP Employment Employment ($Billions) ($) (%) (000) (%) 1970 $74.9 $ % 3, , % 5, , % 7, , , % 14, , , % 14, , , % 14, , , % 15,472 a a a b b b b % 4.8% 8.1% 3.0% 2.5% 3.8% , , % 15, % , , % 16,025 b 1.3% , , % 16,451 b 2.6% , , % 16,798 b 2.1% , , % 17,217 b 2.5% , , % 17,531 b 1.8% , , % NA -- Projections , , % , , % , , % , , % , , % b SOURCES: Bureau of Labor Statistics ( [July 2012]); U.S. Department of Health & Human Services, Centers for Medicare & Medicaid Services, National Health Expenditures and National Health Expenditure Projections ( [July 2012]). N/A - Not Available. a Based on Standard Industrial Classification (SIC) codes for health sector employment. b Based on North American Industrial Classification System (NAICS) for health sector employment. 5

10 Figure 1 illustrates that health services accounted for 17.9% of all national expenditures (as reported by the gross domestic product) in This figure also breaks the amount spent on health services into various categories. The health service area accounting for the largest portion of total health expenditures was hospital care, at 31.4 percent. Physician services also accounted for a considerable portion of health expenditures, representing 26.5 percent of the total. Community health centers, home health services, and other medical services are placed in the other category, which accounts for 26.6 percent of health expenditures. 6

11 Osage County Economic Trends Data relative to the health sector for Osage County are provided in Table 2. Data in Table 2 are from the U. S. Census Bureau County Business Patterns, based on the North American Industry Classification System (NAICS). The table shows employment and payroll for both health services and total county services for Osage County. Further, it indicates the percentage of total employment and payroll that health services account for at both the county and state level. This table displays how health services have changed over time. Health services employment in Osage County increased 25.4 percent from 626 employees in 2003 to 785 employees in 2010 (Table 2). During the same time period, the total county employment increased 66.8 percent, suggesting that all employment in the county flourished during the time period. County health services employment as a percent of total county employment decreased from 18.3 percent in 2003 to 13.8 percent in 2010, while the state health services employment as a percent of total state employment increased from 15.2 percent in 2003 to 16.9 percent in Clearly, health services are an important contributor to jobs at the state level and county levels. The county health services payroll experienced a more dramatic trend compared to employment. Osage County s health services payroll increased 77.3 percent from about $9.8 million in 2003 to about $17.4 million in For the same time period, total county payroll increased by percent (Table 2). State health services payroll as a percent of state payroll increased 1.7 percent from 2003 to 2010, from 15.2 to 16.9 percent of total payroll. County health services payroll as a percent of total county payroll decreased from 15.1 percent in 2003 to 10.6 percent in

12 Table 2 Employment and Payroll County Business Patterns* Osage County and the State of Oklahoma Employment Health Total Health Services as a Health Services as a Based on Services County Percent of Total Percent of Total NAICS 1 Employment Employment County Employment State Employment , % 15.2% , % 15.4% , % 15.4% , % 15.1% , % 15.3% , % 15.3% , % 16.0% , % 16.9% % Change '03 - ' % 66.8% Payroll Health Total Health Services as a Health Services as a Based on Services Payroll County Payroll Percent of Total Percent of Total NAICS 1 ($1000s) ($1000s) County Payroll State Payroll 2003 $9,816 $64, % 15.2% 2004 $10,327 $66, % 15.7% 2005 $9,845 $79, % 15.5% 2006 $11,328 $97, % 15.1% 2007 $11,423 $131, % 15.3% 2008 $14,299 $144, % 15.2% 2009 $16,566 $170, % 16.8% 2010 $17,402 $163, % 16.9% % Change '03 - ' % 152.0% Source: U.S. Census Bureau, County Business Patterns; data ( [July 2012]). 1 The Health Care and Social Assistance NAICS sector comprises establishments providing health care and social assistance for individuals. The sector includes both health care and social assistance because it is sometimes difficult to distinguish between the boundaries of these two activities. Industries in this sector are arranged on a continuum starting with those establishments providing medical care exclusively, continuing with those providing health care and social assistance, and finally finishing with those providing only social assistance. The services provided by establishments in this sector are delivered by trained professionals. All industries in the sector shared this commonality of process, namely, labor inputs of health practitioners or social workers with the requisite expertise. Many of the industries in the sector are defined based on the educational degree held by the practitioners included in the industry. * Data from County Business Patterns exclude self-employed persons, employees of private households, railroad employees, agricultural production workers, and for most government employees (except for those working in wholesale liquor establishments, retail liquor stores, Federally-chartered savings institutions, Federally-charted credit unions, and hospitals). Basic economic indicators of the Osage County economy are illustrated in Table 3. Based on Bureau of Economic Analysis data, the 2010 per capita income for Osage County of $32,894 is lower than the per capita income for the state of Oklahoma and the United States. 8

13 Table 3 Economic Indicators for Osage County, the State of Oklahoma and the Nation Indicator Osage County Oklahoma United States Total Personal Income (2010) ($000s) $1,559,586 $133,069,709 $12,373,500,000 Per Capita Income (2010) $32,894 $35,389 $36,090 Employment (2011) 18,802 1,661, ,869,000 Unemployment (2011) 1, ,983 13,747,000 Unemployment Rate (2011) 7.4% 6.2% 8.9% Employment (May 2012)* 19,289 1,705, ,727,000 Unemployment (May 2012)* 1,134 86,532 12,271,000 Unemployment Rate (May 2012)* 5.6% 4.8% 7.9% Percentage of People in Poverty (2010) 16.5% 16.8% 15.3% Percentage of Under 18 in Poverty (2010) 22.7% 24.4% 21.6% Transfer Dollars (2010) ($000s) $307,875 $27,513,189 $2,281,200,000 Transfer Dollars as Percentage of Total Personal Income (2010) 19.7% 20.7% 18.4% SOURCE: BLS; 2010 BEA; 2010 U.S. Census Bureau (July 2012). *County and State estimates are considered preliminary According to the Bureau of Labor Statistics, the unemployment rate for Osage County was 7.4 percent in 2011, which was in-between than the state and national rates of 6.2 and 8.9 percent, respectively. Moreover, preliminary estimates for May 2012 indicate the unemployment rate for Osage County had decreased to 5.6 percent, which was again in-between than the state and the national rates of 4.8 and 7.9 percent, respectively. Also, the number of people employed in Osage County increased 2.6 percent from 2011 to May This is a common trend across the state and the nation. The number of people unemployed in Osage County decreased 24.7 percent during that same time period. 9

14 From the U. S. Census Bureau, the percent of people in poverty in Osage County was 16.5 percent in 2010, as compared to 16.8 percent for the state and 15.3 percent nationally. The percentage of people under age 18 in poverty in 2010 followed similar trends, with Osage County being between than the state and the nation. Another economic indicator is the percent of personal income that is from transfer payments. Transfer payments represent that portion of total personal income whose source is state and federal funds. These typically include social security, Medicare, and retirement / disability payments. Based on Bureau of Economic Analysis data, Osage County had 19.7 percent of total personal income from transfer payments, which is between the state and the national percentages. Figures 2 and 3 highlight the unemployment rates across the state of Oklahoma. Figure 2 displays unemployment rate categories across the state for Unemployment rates were much lower in the western half of the state for Roger Mills County was the only county falling into the lowest category, with an unemployment rate between percent. Latimer County had the highest unemployment rate in the state for 2011, falling into the unemployment rate category of 10 percent or greater. Osage County was on the higher end of the scale for 2011, with an unemployment rate between percent. 10

15 Figure 3 provides a visual representation of the unemployment rates for May Improvement can be noticed across the state when compared to the 2011 rates. Once again, the western portion of Oklahoma typically had much lower unemployment rates than the eastern half of the state. For May 2012, ten counties fell into the lowest unemployment rate category of percent. Those counties included Beaver, Harper, Woods, Ellis, Woodward, Major, Dewey, 11

16 Roger Mills, Beckham and Murray. The highest category reported for May 2012 was percent unemployment. Sequoyah, Latimer, and Le Flore were all included in this category. Similar to most counties in Oklahoma, Osage County noticed an improvement in their unemployment rate from 2011 to May 2012, dropping to the percent category for the later time period. Demographic Trends for the Fairfax Community Hospital Medical Service Area and Osage County The Fairfax Community Hospital medical service area is delineated in Figure 4, which also shows the location of nearby hospitals. The primary medical service area is the immediate area surrounding Fairfax including the zip code areas of Fairfax (74637) and Ralston (74650). According to the U.S. Census Bureau, the 2000 census population of this primary medical service area was 1,910 (Table 4a). The population of this area decreased to 1,710 by 2010 according to the 2010 Census. Fairfax Community Hospital also serves a secondary medical service area, which consists of the zip code areas of Morrison (73061), Hominy (74035), Pawhuska (74056), Pawnee (74058), Wynona (74084), Burbank (74633), Kaw city (74641), Marland (74644), Red Rock (74651), Shidler (74652), Foraker (74652), and Webb City (74652). According to the U.S. Census Bureau, the 2000 census population of this secondary medical service area was 11,348 (Table 4a). The secondary medical service area experienced an increase in population from the 2000 Census to the 2010 Census. The 2010 census reflects a population of 12,061 for this area. 12

17 City County Hospital No. of Beds Fairfax Osage Fairfax Community Hospital 21 Pawhuska Osage Pawhuska Hospital 15 Blackwell Kay INTEGRIS Blackwell Regional Hospital 34 Ponca City Kay Ponca City Medical Center 98 Perry Noble Perry Memorial Hospital 26 Cleveland Pawnee Cleveland Area Hospital 14 Pawnee Pawnee Pawnee Municipal Hospital 40 Bartlesville Washington Continuous Care Centers of Bartlesville 16 Bartlesville Washington Jane Phillips Medical Center 238 Since the U. S. Census Bureau only has zip code population for Census years with no population projections at the zip code level made during other years, another source for more current populations by zip code was researched. ESRI, a company specializing in geographic information systems software, has illustrated zip code populations for 2009 and projected zip code populations for The zip code populations do not match exactly due to a variance in 13

18 zip code boundaries and based on the methodology for determining population by zip code. However, when comparing the 2010 census and the 2009 ESRI data, total populations for the medical service area do not vary considerably. The ESRI projection of the primary medical service area shows a decrease in population of 2.2 percent from 2009 to 2014 (Table 4a). Table 4a Population of Fairfax Community Hospital Medical Service Area Population by Zip Code Zip Code City 2000 Census 2010 Census 2009 ESRI 2014 ESRI Primary Medical Service Area Fairfax 1,555 1,380 2,017 1, Ralston Totals 1,910 1,710 2,677 2,618 % Change -10.5% -2.2% Secondary Medical Service Area Morrison ,447 1, Hominy 2,584 3,565 3,322 3, Pawhuska 3,629 3,584 5,994 6, Pawnee 2,230 2,196 4,240 4, Wynona ,156 2, Burbank Kaw City Marland Red Rock Shidler, Foraker ,001 and Webb City Totals 11,348 12,061 20,522 20,500 % Change 6.3% -0.1% SOURCE: Population data from the U.S. Bureau of Census, 1990, 2000, 2010; ESRI Demographic and Income Profile, Business Analyst Desktop, 2010 (July 2012). Table 4b shows population trends for the state of Oklahoma, Osage County, and the cities located in Osage County for the years 1990, 2000, and The city level estimates are place estimates rather than zip code estimates that were discussed in the previous table. From 1990 to 2000, Osage County had a population increase of 6.9 percent, which is less than the 14

19 state s rate of 9.6 percent. During the same time period Avant, Barnsdall, Hominy, Osage, Prue, Shidler, and Wynona experienced increases in population. Burbank, Fairfax, Foraker, Grainola, Pawhuska, and Webb City experienced decreases in population from 1990 to From 2000 to 2010, Osage County saw another population increase of 6.8 percent, again lower than the state s growth rate (8.7 percent). Prue was the only town in Osage county to experience growth during the time period. Table 4b Population Trends for Osage County and the State of Oklahoma Census Population by City % Change % Change State of Oklahoma 3,147,105 3,450,654 3,751, % 8.7% Osage County 41,571 44,437 47, % 6.8% Cities in Osage County Avant % -14.0% Barnsdall 1,318 1,325 1, % -6.2% Burbank % -9.0% Fairfax 1,767 1,555 1, % -11.3% Foraker % -17.4% Grainola % 0.0% Hominy 3,295 3,584 3, % -0.5% Osage % -17.0% Pawhuska 3,928 3,629 3, % -1.2% Prue % 7.4% Shidler % -15.2% Webb City % -34.7% Wynona % -17.7% Remainder of Osage County 29,021 31,996 35, % 11.4% Totals 41,571 44,437 47, % 6.8% SOURCE: Population data from the U.S. Bureau of Census, 1990, 2000, 2010; ESRI Demographic and Income Profile, Business Analyst Desktop, 2010 (July 2012). 15

20 Tables 5 and 6 provide further details about the demographic trends of Osage County. Table 5 presents the breakdown by age group for Osage County and the State of Oklahoma from the census years 1990 and 2000 and The lowest age group, age 0-14, experienced a proportional decrease of total county population from and The age group of 45-64, however, has seen a dramatic increase over time. In Osage County, those aged made up 20.7 percent of the total population in This figure increased to 30.0 percent in Table 5 Population and Percent of Total Population by Age Group for Osage County and the State of Oklahoma Osage County State of Oklahoma Age Groups Number Percent Number Percent 1990 Census , % 702, % , % 233, % , % 222, % , % 961, % , % 601, % 65+ 5, % 425, % Totals 41, % 3,147, % 2000 Census , % 732, % , % 269, % , % 247, % , % 975, % , % 770, % 65+ 5, % 455, % Totals 44, % 3,450, % 2010 Census , % 777, % , % 264, % , % 269, % , % 967, % , % 966, % 65+ 7, % 506, % Totals 47, % 3,751, % 16

21 2010. The same trends hold true for the age groups at the state level. The rising proportional increase in this age group is important for the provision of health services, because older populations typically generate more office and hospital visits. Table 6 shows the race and ethnic group percentages for Osage County and the state of Oklahoma for the census years 1990, 2000 and The state has experienced a significant Table 6 Population and Percent of Total Population by Race and Ethnicity for Osage County and the State of Oklahoma Osage County State of Oklahoma Race/Ethnic Groups Number Percent Number Percent 1990 Census White 31, % 2,617, % Black 4, % 236, % Native American 1 6, % 258, % Other % 34, % Two or more Races 3 NA -- NA -- Hispanic Origin % 86, % 2000 Census White 29, % 2,556, % Black 4, % 257, % Native American 1 6, % 266, % Other % 50, % Two or more Races 3 3, % 140, % Hispanic Origin % 179, % 2010 Census White 31, % 2,575, % Black 5, % 272, % Native American 1 6, % 308, % Other % 71, % Two or more Races 3 3, % 192, % Hispanic Origin 4 1, % 332, % SOURCE: U.S. Census Bureau, Census data for 1990, 2000, and 2010 ( [July 2012]). 1 Native American includes American Indians and Alaska Natives. 2 Other is defined as Asian Americans, Native Hawaiians, Pacific Islanders and all others. 3 Two or more races indicate a person is included in more than one race group. 4 Hispanic population is not a race group but rather a description of ethnic origin; Hispanics are included in the five race groups. NA - Not available; 1990 census did not report this category. 17

22 increase in people of Hispanic origin, increasing from 2.8 percent in 1990 to 8.9 percent in Osage County has experienced the same increasing trend. In 1990, those of Hispanic origin made up 1.6 percent of the Osage County population. In 2000, this number increased to 2.1 percent, and again increased to 2.9 percent in the 2010 Census. The Direct Economic Activities The health sector creates employment and payroll impacts, which are important direct economic activities for the Fairfax Community Hospital service area. The health sector is divided into the following five components: Hospital Physicians, Dentists, and Other Medical Professionals Nursing and Protective Care Home Health Pharmacies The health sector in Fairfax medical service area employs 262 full-time and part-time employees and has an estimated payroll of $11,533,264 (Table 7). The health sector in the Fairfax area is fairly typical of cities of its size, with one hospital, one physician office, one dental office, one optometric office, one nursing home, two home health services, one hospice, one medical equipment provider and one pharmacy. The Hospital component provides 48 full and part-time jobs with an estimated annual payroll of $2,020,456 (including benefits 1 ). The Physicians, Dentists, and Other Medical Professionals sector employs 63 total full and part-time employees with an estimated payroll of $3,224,240. The Nursing and Protective Care component employs 62 total full-time and parttime employees with an estimated annual payroll of $2,170,808. The Other Medical and Health Services & Home Health component employs 82 total full-time and part-time employees and has 1 The ratios for benefits are derived from the 2002 Economic Census Data-Oklahoma Health Care and Social Assistance by industry, U.S. Census Bureau. 18

23 an estimated annual payroll of $3,784,440. The Pharmacy component employs 7 full and parttime employees with an annual payroll of $333,320. The health sector is vitally important as both a community employer and a source of income to the community's economy. As demonstrated in Table 7, the health sector employs a large number of residents. Table 7 Direct Economic Activities of the Health Sector in the Fairfax Community Hospital Medical Service Area Component Full-Time & Part- Time Employment Total Payroll with Benefits Hospital 48 $2,020,456 Physicians, Dentists, & Other Medical Professionals 63 $3,224,240 Nursing and Protective Care 62 $2,170,808 Other Medical & Health Services & Home Health 82 $3,784,440 Pharmacies 7 $333,320 Total 262 $11,533,264 SOURCE: Local survey and estimates from research (July 2012). These residents, along with businesses in the health sector, purchase a large amount of goods and services from businesses in the Fairfax Community Hospital medical service area. These impacts are referred to as secondary impacts or benefits to the economy. Before the secondary impacts of the health sector are discussed, the basic concepts of community economics will be reviewed. 19

24 Basic Concepts of Community Economics and Income and Employment Multipliers Figure 5 illustrates the major flows of goods, services, and dollars of any economy. The foundations of a community's economy are those businesses that sell some or all of their goods and services to buyers outside of the community. Such a business is referred to as a basic industry. The two arrows in the upper right portion of Figure 5 represent the Inputs $ flow of products out of, and dollars into, a community. To produce these goods $ Basic Industry Products and services for "export" outside the community, the basic industry purchases Labor $ $ Inputs inputs from outside of the community (upper left portion of Figure 5), labor from the residents or "households" of the community (left side of Figure 5), and inputs from service industries located within the community (right side of Households Goods & Services $ Services $ Figure 5 $ Community Economic System Figure 5). Households using their earnings to purchase goods and services from the community s service industries complete the flow of labor, goods, and services in the community (bottom of Figure 5). It is evident from the relationships illustrated in Figure 5 that a change in any one segment of a community's economy will cause reverberations throughout the entire economic system of the community. Consider, for instance, the closing of a hospital. The services section will no longer pay employees and the dollars flowing into households from these jobs will stop. Likewise, the 20

25 hospital will not purchase goods from other businesses, and the dollar flow to other businesses will stop. This decreases income in the "households" segment of the economy. Since earnings would decrease, households decrease their purchases of goods and services from businesses within the "services" segment of the economy. This, in turn, decreases the amount of labor and input that these businesses' purchase. Thus, the change in the economic base works its way throughout the entire local economy. The total impact of a change in the economy consists of direct, indirect, and induced impacts. Direct impacts are the changes in the activities of the impacting industry, such as the closing of a hospital. The impacting business, such as the hospital, changes its purchase of inputs as a result of the direct impact. This produces an indirect impact in the business sectors. Both the direct and indirect impacts change the flow of dollars to the community's households. The households alter their consumption accordingly. The effect of this change in household consumption upon businesses in a community is referred to as an induced impact. A measure is needed that yields the effects created by an increase or decrease in economic activity. In economics, this measure is called the multiplier effect. The multipliers used in this report are defined as: the ratio between direct employment (or income), or that employment (or income) used by the industry initially experiencing a change in final demand and the direct, indirect, and induced employment (or income). An employment multiplier of 3.0 indicates that if one job is created by a new industry, 2.0 jobs are created in other sectors due to business (indirect) and household (induced) spending. 21

26 Secondary Impacts of the Health Sector on the Economy of Fairfax Community Hospital Medical Service Area Employment and income multipliers for the area have been calculated by use of the IMPLAN model. This model was developed by the U.S. Forest Service 2 and allows for the development of multipliers for various sectors of an economy. The multipliers generated by the model are county-specific and are determined by historical spending patterns in the county. The employment multipliers for the components of the Fairfax Community Hospital health sector are shown in Table 8, column 3. The employment multiplier for the Hospital component is This indicates that for each job in that component, an additional 0.23 jobs are created throughout the area due to business (indirect) and household (induced) spending. The employment multipliers for the other health sector components are also shown in Table 8, column 3. Applying the employment multipliers to the employment for each component yields an estimate of the impact on the economy (Table 8, columns 2, 3, and 4). For example, the hospital has a direct employment of 48 full-time and part-time employees; applying the employment multiplier of 1.23 to the employment number of 48 brings the total employment impact of the hospital to 59 employees. The Physicians, Dentists, and Other Professionals component employs 63 people; however, the total impact is 76 employees once the multiplier of 1.20 is applied. The Nursing and Protective Care component has a total employment of 68 after the multiplier of 1.10 is applied to the direct employment of 62. The Other Medical and Health Services & Home Health component has 82 full-time and part-time employees and an employment multiplier of 1.15, for a total employment impact of 94. The Pharmacies component has a total impact of 7 employees after applying the multiplier of 1.06 to 7. The total employment impact of the health 2 For complete details of model, see [1], [2], and [3]. 22

27 sector in Fairfax Community Hospital medical service area is estimated to be 304 employees (Table 8, total of column 4). Applying the income multipliers to the income (payroll including benefits) for each of the health sector components yields an estimate of each component s income impact on the Fairfax Community Hospital medical service area (Table 8, columns 5, 6, and 7). The income multiplier for the Hospital component is 1.11 (Table 8, column 6). This indicates that for each dollar in that component, an additional 0.11 dollars are created throughout the area due to business (indirect) and household (induced) spending. The Hospital component has a total payroll of $2,020,456; applying the income multiplier of 1.11 brings the total Hospital component income impact to $2,247,612. The income multipliers for the other health sector components are also shown in Table 8, column 6. The Physicians, Dentists, and Other Medical Professionals component has a total income impact of $3,568,015, based on the application of the income multiplier of 1.11 to the $3,224,240 payroll. The Nursing and Protective Care component has a multiplier of 1.10 which yields a total income impact of $2,386,662. The Other Medical and Health Services & Home Health component has a total payroll of $3,784,440 and an income multiplier of 1.08 leading to a total income impact of $4,084,909. The Pharmacies component as a total income impact of $356,803 after the multiplier of 1.07 is applied to the direct income of $333,320. The total income impact of the health sector on the economy of Fairfax Community Hospital medical service area is projected to be $12,664,002 (Table 8, total of column 7). 23

28 Table 8 Fairfax Community Hospital Medical Service Area Health Sector Impact on Employment and Income, and Retail Sales and Sales Tax (1) (2) (3) (4) (5) (6) (7) (8) (9) Employment Income Retail 1 Cent Sales Health Sectors Employed Multiplier Impact Income Multiplier Impact Sales* Tax Hospitals $2,020, $2,247,612 $105,638 $1,056 Physicians, Dentists, & Other Medical Professionals $3,224, $3,568,015 $167,697 $1,677 Nursing and Protective Care $2,170, $2,386,662 $112,173 $1,122 Other Medical & Health Services & Home Health $3,784, $4,084,909 $191,991 $1,920 Pharmacies $333, $356,803 $16,770 $168 Totals $11,533,264 $12,644,002 $594,268 $5,943 SOURCE: 2010 IMPLAN database, Minnesota IMPLAN Group, Inc.; Multipliers derived from local data for employment, employee compensation and proprietor's income; income estimated based on state average incomes if local data not available (July 2012). * Based on the ratio between Osage County retail sales and income (4.7%) from 2009 County Sales Tax and Personal Income Estimates. 24

29 Income also has an impact on retail sales, and the health sector has its own distinct effect on these retail sales [4]. The local retail sales capture ratio is used to estimate the effect of the health sector on retail sales. This ratio indicates the percentage of personal income spent locally on items that generate local sales tax. If the county ratio between retail sales and income continues as is currently (around 4.7 percent), then direct and secondary retail sales generated by the health sector equals $594,268 (Table 8, total of column 8). Each of the components income impacts is utilized to determine the retail sales and the effect of a one-cent sales tax collection for each component. A one-cent sales tax collection is estimated to generate $5,943 in the Fairfax Community Hospital medical service area economy as a result of the health sector income impact (Table 8, total of column 9). This estimate is probably low, as many health care employees tend to spend a larger portion of their income in local establishments that collect sales tax. The bottom line is that the health sector in the Fairfax Community Hospital medical service area not only contributes greatly to the medical health of the community, but also to the economic health of the community. Summary The economic impact of the health sector on the economy of Fairfax Community Hospital medical service area is tremendous. The health sector employs a large number of residents, similar to a large industrial firm. The secondary impact occurring in the community is extremely large and is a testament to the importance of the health sector. If the health sector increases or decreases in size, the medical health of the community, as well as the economic health of the community, is greatly affected. For the attraction of industrial firms, businesses, and retirees, it is crucial that the area have a quality health sector. The fact that a prosperous health sector also contributes to the economic health of the community is often overlooked. 25

30 References [1] IMPLAN Professional Version 2.0 Social Accounting & Impact Analysis Software USER S GUIDE, ANALYSIS GUIDE, DATA GUIDE, MIG, Minnesota IMPLAN Group, 2 nd Edition, June [2] Palmer, Charles and Eric Siverts, IMPLAN ANALYSIS GUIDE. U.S. Department of Agriculture, Forest Service Land Management Planning Systems Section, Rocky Mountain Forest and Range Experiment Station, Fort Collins, Colorado, [3] Siverts, Eric, Charles Palmer, Ken Walters, and Greg Alward, IMPLAN USER'S GUIDE, U.S. Department of Agriculture, Forest Service, Systems Application Unit, Land Management Planning, Fort Collins, Colorado, [4] Brooks, L. and Whitacre, B. E., Critical Access Hospitals and Retail Activity: An Empirical Analysis in Oklahoma. The Journal of Rural Health, no. doi: /j x 26

31