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Health Care Economics

by Jennifer L. Nelson

Hospital systems are big-time revenue generators, and not just for the health care industry.

Throughout New Jersey, it’s no secret that the health care industry has long been a driving economic force for the state’s economy. New Jersey is home to five hospitals that are included in the list of the top 100 highest-grossing hospitals across the nation, and two of those institutions are based in South Jersey, according to a Becker’s Hospital Review report. There’s AtlantiCare Regional Medical Center in Atlantic City (No. 56), and Virtua’s new Voorhees hospital (No. 79), which grosses approximately $3 billion. But that revenue doesn’t benefit the hospital alone. A recent study by the New Jersey Hospital Association (NJHA) shows that the state’s hospitals contributed $20.4 billion to the New Jersey economy last year; it was the first time in the six years the report has been published that the overall contribution from hospitals surpassed $20 billion.

Trickle-down revenue
Despite the economic downturn and the sluggish rate of growth of other prominent local industries, the health care field demonstrated increases in areas including goods and services purchased from other businesses—New Jersey hospitals purchased $2.6 billion in goods and services such as contracted labor, pharmaceuticals, utilities, dietary, laundry and housekeeping, and building supplies last year, an increase of $100 million from 2011. The state income taxes paid by employees also improved, with employees at New Jersey hospitals paying approximately $450 million in state income taxes last year, compared with $435 million in 2011.

“New Jersey hospitals remain a strong and reliable source of jobs, salaries and spending, demonstrating that they are bedrocks of our state and local economies,” says Betsy Ryan, NJHA president and CEO.

Perhaps most importantly, in a time when employment opportunities in many industries are still few and far between, last year’s job growth was significant—hospital jobs in New Jersey climbed to 144,000 in 2012, including 120,000 full-time positions. The state’s hospitals paid $8 billion in employee salaries last year.

“These numbers tally only a fraction of the economic impact of hospitals on the state’s economy. As the hospitals spend dollars for operating and capital expenditures, they create jobs and payroll in other businesses in the economy,” adds Sean Hopkins, NJHA’s senior vice president of health economics.

Locally, South Jersey’s hospitals serve as a significant economic engine when it comes to continuing to provide jobs, even in turbulent financial times. According to John DiAngelo, Inspira’s CFO who will assume the role of president and CEO on Jan. 1, the hospital serves as the largest non-governmental employer in Cumberland and Salem counties, and also provides a significant number of full-time positions in Gloucester County.

He attributes the continued job creation to hospitals consistently building new facilities, which creates construction work, in addition to the physicians, nurses, staff and other local residents that they employ on an ongoing basis. “Whether it’s the people we directly employ or the other business that we help bring to the community, the impact of hospitals in South Jersey is very significant,” he adds. In addition to its three medical centers, the hospital has more than 40 locations and 60 access points, from cancer centers to fitness facilities.

The hospital industry is unique in that it must continue to invest in its offerings in order to meet the growing needs of the community, which can also be credited with consistently creating new employment opportunities. “We have to invest in ourselves and do our part to improve our facilities and the services we can offer the community,” says Joseph W. Devine, president and CEO of Kennedy Health System.

“People will always get sick and they will always need hospitals, and we have to ensure that our facilities are the right size and that we continue to grow physician practices and invest in new technologies and safety … and all of that expands employment opportunities and keeps people working right here in our region.”

The hospital employs slightly over 4,100 employees across the system, which includes hospitals in Washington Township, Cherry Hill and Stratford, from physicians and executives to nurses and support staff, with a payroll of more than $185 million—making the hospital one of the largest employers in both Gloucester and Camden counties. “As a not-for-profit hospital, I believe our responsibility is to provide for our community … not only through our health care services, but also in keeping local people employed,” Devine says. For hospitals, a consistent need to invest in new technology can serve as both a positive and a negative impact on their bottom line. “Technology is expensive, but at the same time, everyone wants the newest and the best and will come to hospitals that can provide the latest treatments and advancements in the field,” he adds.

The piggy-back effect
Along with tourism and what is often referred to as “eds and meds”—the educational and pharmaceutical employers across the region—health care remains a strong foundation in many communities in South Jersey. But its overall economic impact isn’t relegated to hospitals alone; in many cases, it’s the urgent care or ambulatory centers, physician offices, for-profit organizations, and other health care-related facilities that may also begin to crop up throughout the region. “In South Jersey, we are fortunate to have very strong health care systems that employ a lot of people and bring economic growth back to the community,” notes Devine. “We consider ourselves a strong economic engine, but we are seeing prolific growth not only in hospital programs but in how access to health care is spreading throughout the community.”

Indeed, outpatient facilities are one of the newest trends in the industry, along with other health care services that may not necessarily require an overnight stay in a hospital. “In the last 10 years, the industry has really evolved to focus on the outpatient side of the business; a decade ago, 70 percent of our hospital’s revenue might be generated by inpatient services, but today it’s split pretty evenly,” says Richard P. Miller, president and CEO of Virtua. The hospital employs approximately 8,500 people, with a seemingly countless number of sites all across the tri-county region, from sleep and surgery centers to family practices, ambulatory and rehabilitation centers, and health and wellness facilities.

According to John P. Sheridan Jr., president and CEO of Cooper University Health Care, the number of patients being admitted to hospitals is coming down statewide, but many of South Jersey’s hospitals are bucking that trend; Cooper was up six percent in admittance last year, while most of the state was down more than three percent. “We attribute that to aggressive growth in many of our programs, along with improving access to health care and hopefully encouraging people to reconsider going across the bridge for services when they clearly don’t have to do so,” he says.

The hospital employs some 5,500 people across its satellite offices, physician practices and hub centers, with the majority in Camden County and about 35 percent outside of Camden.

Contributing in spite of challenges
Still, that doesn’t mean the hospital industry wasn’t adversely affected by the economic recession; like most industries, it continues to face challenges related to the downturn. The greatest hurdle for the region’s health care facilities was an increase in people who lost their jobs—and consequently lost their health insurance—and still required a hospital stay or other health care services. “In our industry, people come to us in their most vulnerable time of need, and we can’t turn anyone away … so we did see a climb in charity care for those who didn’t have insurance,” Devine says. “It did have a financial impact, but our mission is always to focus on the community.” The hospital did not suffer job reductions during that time, he says.

The financial burden hospitals carry for uninsured individuals is significantly high, however, and the region’s health care institutions continue to grapple with a great deal of uncertainty as the Affordable Care Act is rolled out. “There’s a new layer of volatility in our future,” DiAngelo asserts. “Like any business, what we can do and how quickly we can do it can be affected by a recession or new health care legislation, such as the rate at which we can establish new programs. But no matter what, our mission is to take care of people who need us … nothing is going to change that.”

Like most of the region’s hospitals, Cooper remains an economic force not only for its health care services, but through its partnerships with local colleges and universities that help ensure the region’s students find gainful employment upon graduation and continue to serve the community in which they live. The health system has served as the clinical campus for the Robert Wood Johnson Medical School at Camden since 1978, and is now training students in a variety of specialties at its new Cooper Medical School of Rowan University. “Eds and meds are alive and well in Camden; I’d say the county is seeing a renaissance in that while we were fortunate to keep Campbell Soup Company here, a lot of our economic growth can be attributed to Rutgers University, Rowan University, our hospital and medical school, and Our Lady of Lourdes Medical Center … these institutions have served as the driving force for the economy of Camden,” Sheridan says.

Looking ahead, experts speculate that the industry may be hit both locally and nationwide with a shortage of physicians over the next decade, but as the population gets older, the region’s hospitals are prepared to continue to provide services and partner with other institutions to foster growth. “I believe the future is where education and health care come together, and that’s why we’re making an effort to forge such strong partnerships with Rutgers-Camden and Rowan,” Sheridan explains. “It’s very important to make sure that we’re helping to educate the next generation of physicians both at the medical school level as well as through residency programs to help ensure that South Jersey isn’t impacted by a physician shortage.”

Virtua partners with more than 40 academic affiliates, and Miller says the industry is also focusing on meeting the needs of the community before they require a hospital visit by helping them to take better care of themselves at home, whether it’s through educating the public on how to avoid illness or utilizing technology to remain connected to patients when they’re not at a physician’s office or hospital. “Offering telemedicine services can be a really crucial way to provide health care services to our community at a very high level if we do have a shortage of specialties or professionals,” he adds.

The region’s hospitals will also continue to help drive revenue into the local economy through their effect on other industries; for example, though the Route 73 corridor has been dubbed the “medical mile,” the abundance of hospitals and the spread of additional outpatient facilities in the area has supported the growth of a variety of other businesses, from restaurants to banks to hotels. “Hospitals really have had a tremendous economic impact not only for our industry, but in what we can bring to the local economy,” Miller says.

Opening the doors of its new 200,000-square-foot health and wellness center in Moorestown, for example, means that those coming in for services are more inclined to channel additional spending dollars into local businesses.

“People tend to visit other retail outlets after they’ve come in to exercise, have a spa treatment or see a physician, whether they’re picking up a few groceries or having lunch across the street, which creates a big impact for the community’s economy … it’s a really good match of public time and consumer needs,” Miller concludes. “We’ve found that health care and retail are just two examples of industries that mesh well together, so expanding our hospitals and other kinds of health care centers will only continue to foster positive economic growth for South Jersey.”

Published (and copyrighted) in South Jersey Biz, Volume 3, Issue 12 (December, 2013).
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