Economic Impact AnalysisHospitals in Fresno and Madera Counties

February 2013

1625 E. Shaw, Suite 139Fresno, CA 93710www.hospitalcouncil.net

Prepared by:

Dr. Philip G. KingAssociate Professor in EconomicsSan Francisco State University

Key PointsHospitals in Fresno and Madera Counties are significant ‘economic engines’ in the region:

• $5.9 billion in annual spending• 45,235 jobs• Among the largest employers in every community

Hospital construction projects create important economic stimulus:

• Forecasted to reach $700 million between 2012 and 2014 in response to growing needs of our communities

Health care jobs outpace other professions in the Fresno-Madera region:

• The projected growth rate for health care jobs is more than double the rate of all other occupations in the region and is expected to continue that pace as health care reform continues

• The wages and salaries of health care professions are nearly twice the average of other jobs in the respective counties as many of these roles require advanced training and specialty certifications

• Health care employment tends to be more stable and less cyclical and provides opportunities to a wide range of skill levels, from entry-level to highly specialized professionals

Hospital contributions improve and safeguard our communities:

• Increased charity care and unreimbursed services by 85% to $327 million from 2008 to 2010

• Support a wide range of non-profit organizations and deliver community-based services, benefits and programs helping our diverse, underserved communities

• Develop the region’s knowledge-based economy through significant contributions (staff, resources, equipment) to help sustain our community college and four-year university health professional training programs throughout the region

Economic Impact Analysis

Hospitals in Fresno and Madera Counties

February 2013

Prepared by: Dr. Philip G. King

Associate Professor in Economics San Francisco State University

Prepared for: In partnership with:

1625 E. Shaw, Suite 139 Fresno CA 93710

906 N. Street, Suite 120 Fresno CA 93721

www.hospitalcouncil.net www.fresnoedc.com

Fresno and Madera County Hospitals Economic Impact Analysis | February 2013

TABLE OF CONTENTS

EXECUTIVE SUMMARY .................................................................................... 1

Introduction and Overview .................................................................................................. 3

Demographic Data ................................................................................................................. 3

Economic Impact of Hospital and Related Spending ....................................................... 5

HOSPITAL OVERVIEW ..................................................................................... 6

Overview of Hospitals in Fresno and Madera Counties .................................................. 6

Description of Hospitals in Fresno and Madera Counties ............................................... 6

HOSPITAL ECONOMIC IMPACTS .................................................................... 9

Employment ............................................................................................................................ 9

Unreimbursed and Charity Care ....................................................................................... 13

Hospital Spending: Methodology ...................................................................................... 13

Hospital Projected Construction ........................................................................................ 16

Long-Term Care Facilities ................................................................................................... 17

Economic Impact of Hospital and Related Spending ..................................................... 17

CONCLUSION ................................................................................................ 19

TECHNICAL APPENDIX .................................................................................. 21

Input-Output Analysis ........................................................................................................ 21

IMPLAN ................................................................................................................................ 21

REFERENCES .................................................................................................. 23

Fresno and Madera County Hospitals Economic Impact Analysis | February 2013

LIST OF FIGURES

Figure 1: Description of Hospitals in Fresno and Madera Counties ..................................... 6

Figure 2: Economic Impact of Job Creation at Hospitals ...................................................... 12

LIST OF TABLES

Table 1: Demographic Data for Fresno and Madera Counties: 2010 ..................................... 4

Table 2: Economic Impact of Hospital Spending ..................................................................... 5

Table 3: Health Care Wages and Salaries in Fresno County (2012) ..................................... 10

Table 4: Health Care Wages and Salaries in Madera County (2012) ................................... 11

Table 5: Employment Projections for Fresno County ............................................................ 11

Table 6: Employment Projections for Madera County .......................................................... 12

Table 7: Charity/Unreimbursed Care Costs: Fresno and Madera County Hospitals ........ 13

Table 8: Selected Data for Fresno and Madera County Hospitals ....................................... 15

Table 9: Hospital Construction Spending Direct Impacts (2012-2014) ................................ 16

Table 10: Direct Economic Impact of Non-Hospital Long-Term Care Facilities................ 17

Table 11: Direct Economic Impact of Hospital Spending: 2012 ............................................ 17

Table 12: Economic Impact of Hospital Spending: 2012 ....................................................... 18

Table A1: Economic Multipliers Applied to Hospitals .......................................................... 22

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Executive Summary

Hospitals have long been identified as key economic drivers in regions across California and around the country. They are among the largest employers in many communities, including Fresno and Madera Counties.

The purpose of this report, commissioned by the Hospital Council of Northern and Central California in partnership with the Economic Development Corporation serving Fresno County (EDC), is to estimate the economic impact of hospital spending in Fresno and Madera Counties. All data reported are in 2012 dollars. Key findings include:

• Hospitals and hospital-related spending in Fresno and Madera Counties generates $5.9 billion in spending annually and generates 45,235 jobs.

• Hospitals and long-term care facilities in Fresno and Madera Counties provide a wide variety of employment opportunities, from highly-skilled positions to jobs for less-skilled workers. (While this report is focused primarily on the economic impacts of hospitals, some of the data available also reflects long-term care facilities, so that is noted when included.)

• The wages and salaries for these health care professionals are twice the

average in their respective counties.

• The projected growth rate for health care jobs in Fresno and Madera Counties from 2008-2018 is substantially higher than for other occupations. Overall, the State projects a 5 per cent growth in employment for Fresno County and a slightly higher (6.3 per cent) growth for Madera County. However, the respective growth in health care jobs are 10.9 and 15.3 per cent, more than double the growth rate of all jobs in the region.

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• Employment in the health care industry is more stable and less cyclical—during recessions, fewer jobs are lost in health care than in many other sectors. Hospitals and health care organizations support jobs requiring a wide variety of education and experience levels, not just those intended for skilled professionals with advanced training and education.

• In addition to the economic ‘engine’ provided by hospitals in Fresno and Madera Counties, they provided an additional $326.7 million in unreimbursed and charity care to individuals in 2010, up 85% from $146.9 million in 2008 and projected to be even higher in 2012.

• Hospitals in Fresno and Madera Counties will generate a substantial portion of the region’s construction jobs over the next three to five years, generating $700 million in direct economic impacts in that time frame.

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Introduction and Overview

This report was commissioned by the Hospital Council of Northern and Central California in partnership with the EDC in the summer of 2012. The purpose of the report is to estimate the economic impact of hospitals and hospital-related spending in Fresno and Madera Counties. Virtually all of the data used in this report is publicly available and most of the data is vetted through California State audits. In a small number of cases where data was not publicly available, individual hospitals provided specific data. The report uses standard techniques (i.e. input-output analysis and IMPLAN economic assessment software) to estimate these impacts using government-generated data for Fresno and Madera Counties. This report begins with a summary of all the economic impacts of hospitals and related spending followed by a more detailed discussion of how these estimates were derived. All data reported is in 2012 dollars.

Demographic Data

The demographic data and socioeconomic realities of the Central Valley are well documented. Table 1 below presents selected demographic data for Fresno and Madera Counties. For both Fresno and Madera Counties, a substantial percentage of the population (22.5% for Fresno County and 19.3% for Madera County) lives below the poverty line compared to the State of California (13.7%). An even higher percentage of the children in the area, close to one-third, live in poverty. The unemployment rate is also substantially higher (14.5-14.7%) than the California statewide average (10.9% in July 2012). The percentage of people without health insurance is higher than the State average, at close to 20%, as is the percentage of adults without high school diplomas (26.7% and 32.1% vs. the State average of 19.4%). Indeed, the 20th Congressional District, which includes most of Fresno County, is the sixth poorest Congressional District in the U.S.1

1 See http://uselectionatlas.org/FORUM/index.php?topic=110936.0.

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Table 1: Demographic Data for Fresno and Madera Counties: 20102

Item Fresno County

Madera County California

Population 908,830 147,748 37,691,912 Unemployment Rate 14.7% 14.5% 10.9% Percentage of Population in Poverty 22.5% 19.3% 13.7% Percentage of Children in Poverty 32.3% 29.0% 19.0% Percentage Uninsured 19.6% 20.6% 18.9% Percentage of Adults with No High School Diploma 26.7% 32.1% 19.4%

The higher rates of poverty, unemployment and uninsured individuals place

greater strain on the region’s hospitals, which are mandated by law to provide treatment to everyone, regardless of ability to pay. For uninsured individuals, this often takes the form of expensive emergency department care for treatment of acute illnesses or trauma in the absence of any sort of ‘medical home’ or access to primary care physicians.

Over the last decade, these economic pressures have led many hospitals in the area to close, including acute care hospitals in Sanger, Kingsburg, Chowchilla, and Dinuba (located in Tulare County just south of the region included in this report). In these challenging times, more hospitals are at risk for closure across the Valley and the State.

The mix of rural and urban hospitals in the two counties presents a unique health care landscape. The realities of the rural areas of this region present special challenges to hospitals located in those communities. The American Hospital Association has conducted studies on rural populations and health care and found that rural populations in the US are, on average, poorer, older and have a higher frequency of chronic health conditions such as high blood pressure or diabetes which require more health care treatment.3

Though no formal academic studies of hospitals in rural Fresno and Madera Counties have been conducted, there is significant research indicating that the closure of hospitals in rural communities across the country is significantly more detrimental to the community and the local economy than in urban areas. Reif, Des Harnais, and Bernard (1999) found that hospital closures significantly decrease access to health care for residents of rural communities.4 Holmes et. al. (2006) found that rural communities

2 Sources: US Census Bureau and California Employment Development Dept. 3 See American Hospital Association, Trendwatch, April 2011. 4 Reif, S. S., S. Des Harnais, and S. Bernard. 1999 Spring. ‘‘Community Perceptions of the Effects of Rural Hospital Closure on Access to Care.’’ Journal of Rural Health15 (2): 202–9.

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losing their only hospital experience a long-term decrease in per capita income of $703 (1990 dollars).5

Economic Impact of Hospital and Related Spending

Table 2 below summarizes the analysis contained in this report. Overall, hospitals in Fresno and Madera Counties generate $5.9 billion annually in total economic output and generate 45,235 jobs.

Table 2: Economic Impact of Hospital Spending in Fresno and Madera Counties: 2012

The total economic impact can be broken down into three individual components. The direct spending of $3.3 billion represents the amount of dollars that go directly through the hospital to pay salaries and to buy equipment and supplies. Of this amount, $1.7 billion represents labor income—paid to employees or other service providers to the hospital. However, in addition to this direct spending, there are indirect and induced impacts, often referred to as “multiplier effects,” since hospital spending also generates a significant number of other jobs and economic activities in the region. Without the direct hospital spending, other economic sectors of Fresno and Madera Counties would shrink.

5 See Holmes et. al., “Underserved Populations: the Effect of Rural Hospital Closures on Community Economic Health,” Health Services Research 41:2, April 2006, pp. 467-485.

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An Overview of Hospitals in Fresno and Madera Counties

Figure 1: Hospitals and Hospital Campuses in Fresno and Madera Counties

Description of Hospitals in Fresno and Madera Counties

There are 14 acute care and specialty hospitals in Fresno and Madera Counties, ranging from small rural facilities to a large urban medical center, a state-of-the-art Veteran’s Administration hospital and specialty facilities serving children, rehabilitation patients and psychiatric patients. This section provides a brief description those hospitals in Fresno and Madera Counties.

• Adventist Medical Center – Reedley (formerly Sierra Kings District Hospital) is a 49-bed facility with services that include emergency care, birthing center, and inpatient and outpatient surgery. It is part of the Adventist Health-Central Valley Network.

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• Adventist Medical Center – Selma (formerly Selma Community Hospital) is a 57-bed facility that provides services similar to those offered by the Reedley campus and is also part of the Adventist Health system.

• Children’s Hospital Central California is a not-for-profit, state-of-the-art pediatric hospital located in Madera. With 348 beds, it is also one of the largest children’s hospitals in the nation. The hospital performs more than 11,000 pediatric surgeries annually and its pediatric and neonatal intensive care units have some of the lowest mortality rates in the country while treating some of the sickest children. The hospital’s Cancer Center is a member of the nationally-recognized Children’s Oncology Group.

• Coalinga Regional Medical Center is a 123-bed (24 acute/99 skilled nursing) rural hospital in Fresno County. Located 90 minutes from Fresno, the hospital provides essential medical services to the County’s west-side residents as well as to motorists along I-5 in need of emergency medical care. In addition, the hospital offers diagnostic testing, laboratory services, respiratory therapy, digital radiology, mammography and a 64-slice CT as well as operates a rural health clinic.

• Clovis Community Medical Center, part of the Community Medical Centers (CMC) system, offers a full-range inpatient and outpatient services, including a highly-rated bariatric surgery program accredited by the American College of Surgeons and the most advanced (Level 3) fertility center between Los Angeles and Sacramento.

• Community Regional Medical Center, a member of the Community Medical Centers system, provides Central California residents with the highest level of care available in the region. Its affiliation with University of California, San Francisco Medical School, one of the top medical schools in the nation, gives patients access to leading medical specialists in the country. The center has the only comprehensive burn center and Level 1 trauma center between Sacramento and Los Angeles.

• Community Behavioral Health Center, operating under the license of Community Regional Medical Center, is the only inpatient psychiatric facility in Fresno and Madera Counties, operating 61 beds.

• Fresno Heart & Surgical Hospital, a fourth member of the CMC network, is a small specialty hospital known for excellence in its cardiac, vascular and bariatric surgery services.

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• Kaiser Permanente is a nonprofit health care organization. Its unique, integrated care delivery model provides quality, affordable care. The Fresno Medical Center is a 169-bed hospital and medical office building with satellite medical offices in Fresno, Clovis, Selma, and Oakhurst. Kaiser Permanente Fresno has approximately 200 physicians and 2,000 support staff who provide care to Health Plan members in portions of Madera, Fresno, Kings, and Tulare Counties.

• Madera Community Hospital (MCH) is a not-for-profit community health resource, dedicated to actively promoting and maintaining the health and well-being of residents throughout the Central Valley. They are committed to serving Madera and the surrounding community’s health care needs with compassion, concern, quality service, care and safety for the individual. MCH is a 106-bed accredited hospital that offers a wide range of sophisticated diagnostic and treatment services and is the only adult acute care hospital in Madera County.

• Saint Agnes Medical Center, the only California hospital that is part of Trinity Health, provides a wide range of services, from emergency, diagnostic and rehabilitative services to cardiac, cancer, neurological and orthopedic care.

• San Joaquin Valley Rehabilitation Hospital (SJVR) is a 62-bed licensed acute care rehabilitation facility serving patients in need of intensive physical rehabilitation, with oversight by a Physical Medicine and Rehabilitation (PMR) doctor. Typical diagnoses of patients in need of acute rehabilitation include patients with stroke, brain injury, orthopedic conditions, spinal cord injuries and the medically complex patient. SJVR provides a full continuum of in-patient and out-patient rehabilitative services with a total of six out-patient sites in the Fresno/Clovis/Oakhurst and Selma area.

• Veterans Affairs Central California Health Care System (VACCHCS) is based in Fresno and proudly serves more than 40,000 enrolled veterans in six counties in the San Joaquin Valley. The health care system is a 57-bed acute care, general medical and surgical center, with state-of-the-art primary, secondary and tertiary care in major diagnostic and treatment specializations, including a significant mental health services center. A 54-bed Community Living Center (CLC) is also located on campus and provides skilled nursing and rehabilitation care. Additionally, VACCHCS is an active participant in research and development programs.

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Hospital Economic Impacts Employment

There are a wide variety of health care jobs in Fresno and Madera Counties. Tables 3 and 4 present wage and salary data for Fresno and Madera Counties (respectively) from the California Employment Development Department (EDD). Health care practitioners and technical professionals earn, on average, $39.89 an hour or $82,970 per year in salary in Fresno County and slightly more ($40.92 or $85,101) in Madera County. This is almost double the respective wages ($20.12 in Fresno County and $21.13 in Madera County) and salaries ($41,852 in Fresno County and $43,956 in Madera County) for all occupations as reported by EDD. Note that these wages and benefits for all health care jobs are slightly different than those for hospitals jobs alone reported in Figure 2.

As shown in Tables 5 and 6, the projected growth rate for health care jobs in Fresno and Madera Counties from 2008-2018 will be substantially higher than all other occupations. Overall, the State projects a 5 per cent growth in employment for Fresno County and a slightly higher (6.3 per cent) growth for Madera County. However, the respective growth in health care jobs is projected to be 10.9 and 15.3 per cent, more than double the growth rate of all other jobs for each county.

Moreover, employment in the health care industry tends to be more stable and less cyclical—during recessions fewer jobs are lost in health care than in many other sectors. Health care supports jobs requiring a wide variety of education and experience levels, not just those for highly skilled and educated professionals.

While not part of the scope of this study or measured here in actual dollar value, it is important to note the hospitals’ contributions to a wide range of educational institutions throughout the region. Whether the hospital contributions are in the form of dollars to fund programs or hire faculty, ‘loaning’ clinical staff to serve in faculty roles, or serving on the advisory panels for academic institutions, hospitals contribute significantly to the education infrastructure in this region.

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Table 3: Health Care Wages and Salaries in Fresno County (2012) (Source: CA Employment Development Department)

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Table 4: Health Care Wages and Salaries in Madera County (2012) (Source: CA Employment Development Department)

Table 5: Employment Projections for Fresno County (Source: CA Employment Development Department)

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Table 6: Employment Projections for Madera County (Source: CA Employment Development Department)

Figure 2: Economic Impact of Job Creation at Hospitals

Another way to examine the economic impact of hospitals in the area is to look at jobs. As indicated in Figure 2 above, the average hospital job in Fresno/Madera Counties generates $67,741 in wages and benefits (compared with average salaries and benefits of $41,852 in Fresno County and $43,956 in Madera County—see Tables 3 and 4 above).6 These jobs in turn generate $133,047 in total direct benefits to the area and when the indirect and induced impacts are added in, each job generates $237,789 in total economic benefits.

6 Note that the average wages in hospitals are different from overall health care jobs.

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Unreimbursed and Charity Care

Hospitals in Fresno and Madera Counties also provide significant amounts of unreimbursed and charity care in their respective communities. The majority of the unreimbursed care comes from significant under-funding of government-sponsored programs, including Medi-Cal and Medicare. ‘Charity care’ is commonly used to describe services provided to individuals unable to pay for their care. Table 7 below summarizes these costs.

Table 7: Charity/Unreimbursed Care Costs: Fresno and Madera County Hospitals (Source: State of California Office of Statewide Health and Planning Development, 2010)

In total, hospitals in Fresno and Madera Counties provided $326.7 million in charity and unreimbursed care in 2010. Moreover, charity and unreimbursed care costs have grown has grown by 85% in just under four years (from $146.9 million in 2006) and are likely to continue to increase significantly over time, placing more pressure on hospitals, especially in rural areas.

Hospital Spending: Methodology

This section contains a more detailed breakdown of the economic impact numbers presented at the beginning of the report. To estimate the economic impact of hospitals in Fresno and Madera Counties, this study used official audited information reported to the State of California’s Office of Statewide Health and Planning Development (OSHPD). We used 2010 audited financial disclosure reports since these were the latest available. However, the data was updated for inflation using the Bureau of Labor Statistics’

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estimate for inflation in the hospital sector between 2010 and 2012.7 A few hospitals in this study are either not required to provide audited reports (e.g. VA hospitals) or the reports were not fully completed and unavailable for this study. In those cases, we estimated revenues based on the number of hospital beds, census patient days, and other key indicators.

To estimate the economic impact of each hospital, this report used each hospital’s “net benefits” including expenditures for salaries, wages and employee benefits; purchased goods, services and supplies; as well as expenditures on research and education. The accounting statements also include depreciation under net patient revenues. We subtracted this item since it is not related to direct economic impacts (i.e., spending).

It is important to note that the data only includes services provided by the hospital, not all medical services. For example, if a patient goes to any hospital in the region, the expenditures by the hospital are included in this economic impact. However, physicians also bill separately for services provided both inside and outside of the hospital, and these fees are not included. Table 8 below summarizes the basic data used to estimate economic impact and other pertinent data. Note that Kingsburg District Hospital closed in 2010. This report did not include its 35 hospital beds in the analysis, but did include the spending, assuming that it would shift to other hospitals.

7 See http://www.bls.gov/cpi/#publications.

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Table 8: Selected Data for Fresno and Madera County Hospitals (Source: CA Office of Statewide Health Planning and Development and Bureau of Labor Statistics for Inflation Adjustment)8

8 Note that the Community Behavioral Health Center (CBHC)’s financial statements are included in Community Regional Medical Center. Also note that Fresno County PHF (Psychiatric Hospital) is not an acute care hospital.

Hospital County Available Beds

Total Census Patient Days

Outpatient Visits

Hospital Net Benefits

Adventist Medical Center - Reedley Fresno 44 4,564 93,132 $26,966,989

Adventist Medical Center - Selma Fresno 142 14,729 300,562 $87,029,827

Children's Hospital Central California Madera 343 84,321 270,901 $462,482,193

Clovis Community Medical Center Fresno 109 29,630 69,553 $162,963,955

Coalinga Regional Medical Center Fresno 123 31,244 24,149 $19,112,867

Community Regional Medical Center Fresno 782 229,336 521,705 $817,669,610

Fresno County PHF Fresno 16 2,334 - $769,016

Fresno Heart & Surgical Hospital Fresno 57 10,278 19,109 $73,475,240

Fresno Surgical Hospital Fresno 31 4,339 12,967 $50,035,229

Kaiser Foundation Hospital - Fresno Fresno 169 28,459 16,773 $206,907,203

Kingsburg District Hospital Fresno Closed 2010 5,322 7,025 $1,707,043

Madera Community Hospital Madera 106 23,185 161,071 $92,421,451

Saint Agnes Medical Center Fresno 436 105,799 310,887 $382,231,314

San Joaquin Valley Rehabilitation Hospital Fresno 62 10,278 19,109 $73,552,568

VA Medical Center - Fresno Fresno 114 - - $331,869,130

Total 2,534 583,818 1,826,943 $2,789,193,635

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In Table 8, the sum of all the hospital net benefits (defined above) is $2.8 billion and represents the direct spending by Fresno and Madera Counties’ hospitals.

Construction Projected Over a 3-4 Year Horizon

Several hospitals in Fresno and Madera Counties will be in a building mode over the next few years due to hospital expansions to meet increasing community health care needs and/or refurbishing of existing facilities, some of which is driven by California’s seismic safety requirements.

As part of this study, we contacted all the hospitals in the two counties. It is clear that hospitals will be a significant driver in the construction industry, generating a large number of jobs. Since construction tends to be “lumpy”—it occurs in fits and starts – estimating average yearly construction costs is more difficult. This study collected data from each hospital with significant construction plans in the next two to four years. As shown in Table 9 below, by far the most significant project is Clovis Community Medical Center, which will cost an estimated $450 million. The total estimated construction spending from hospitals that responded to our survey was $634.5 million. In addition, we conservatively estimate that routine maintenance and other smaller construction projects in the region from hospitals that did not respond to our survey will bring the total up to $700 million. The average time period for this spending was 2.5 years, so our economic impact analysis assumes an average of $280 million per year in construction spending.

Table 9: Hospital Construction Spending Direct Impacts (2012-2014) (Source: Each Respective Hospital)

Hospital Amount

Adventist Health $101,000,000

Children's Hospital Central California $7,200,000

Clovis Community Medical Center $450,000,000

Community Regional Medical Center $10,568,000

Fresno Heart and Surgical Hospital $2,000,000

Madera Community Hospital $75,000

Saint Agnes Medical Center $63,660,000

Total $634,503,000

Adjusted for non-reporting Hospitals $700,000,000

Average per Year $280,000,000

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Long-Term Care Facilities

While this report was intended to focus on acute care hospitals (some of which provide long-term care) and their contribution to the region’s economy, it is important to note that there are a variety of other health care providers in the two counties, including long-term care and various health clinics.

The data for the long-term care facilities is also reported to the Office of Statewide Health and Planning Development (OSHPD).9 Table 10 estimates the economic impact of the more than 30 long-term care facilities (other than the hospitals reported above) in Fresno and Madera Counties. The direct impact (net benefits) is $253.8 million.

Table 10: Direct Economic Impact of Non-Hospital Long-Term Care Facilities

Economic Impact of Hospital and Related Spending

Table 11 below summarizes the analysis contained in this report. Table 11 combines the estimates on annual direct hospital spending, annual hospital construction spending, and annual long-term care spending, generating $3.3 billion in annual spending. Table 11: Direct Economic Impact of Hospital Spending in Fresno and Madera Counties: 2012

9 Reports are available at: http://www.oshpd.ca.gov/afpdfs/default.aspx.

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In addition, there are indirect and induced impacts, also referred to as “multiplier effects.” The indirect impact is a product of spending by the local, regional or state companies from which the hospital purchases goods and services. The induced impact represents the impact of routine household spending by hospital employees – for rent, food, clothing, transportation, etc. – and by the employees of its suppliers. Intuitively, if any of these hospitals were to significantly reduce their services or close completely, Fresno and Madera Counties would not only experience an economic contraction from the loss of wages and services directly paid for by these hospitals, but also would lose spending by hospital employees and other members of the workforce who provide services to these hospitals as well as the spending on other industries who provide inputs to these hospitals.

To estimate the interaction of Fresno and Madera Counties’ hospitals with the rest of the area’s economy, economists use input/output analysis, which estimates the interactions of different industries as well as additional consumer spending. These interactions vary from industry to industry and region to region. To analyze these impacts, this report uses IMPLAN software10, which is based on the Bureau of Economic Analysis’ Input-Output models. (See the technical Appendix for more details.) The specific data used in this analysis is based on actual data collected by the U.S. Government applicable to the Fresno and Madera Counties. This data was run through an input/output model generated in IMPLAN.

Table 12 looks at the indirect and induced effects of this spending as well as overall job creation. When one adds in these impacts, hospital and related spending in Fresno and Madera Counties generate $5.9 billion annually in total economic output and 45,235 jobs.

Table 12: Economic Impact of Hospital Spending in Fresno and Madera Counties: 2012

10 See www.implan.com.

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The total economic impact can be broken down into individual components.

• The direct spending of $3.3 billion represents the amount of dollars that go directly through the hospital to pay salaries, buy supplies etc.

• Of this amount, $1.7 billion represents labor income—paid to employees or other service providers to the hospital.

• In addition to this direct spending, there are indirect and induced impacts, often referred to as “multiplier effects” – since hospitals spending also generates other jobs and economic activities in the region, and without this spending, other economic sectors of Fresno and Madera Counties would shrink.

Conclusion Each region in California has unique economic strengths, leading industries, long-

standing employers and ‘anchor institutions.’ The San Joaquin Valley, and Fresno and Madera Counties in particular, is well known for its strong agricultural base. This study was commissioned to demonstrate the contributions of the region’s hospitals to the economic ‘health’ of this region. Clearly, hospitals in the two counties are strong drivers in the local economies, in addition to their role in delivering quality health care, providing ‘safety net’ services to many residents, and a key element in the region’s public safety response plans.

This study has estimated the economic impact of acute care hospital and hospital-related expenditures in the Fresno and Madera Counties. Overall, hospitals and hospital-related spending generate $5.9 billion in spending annually and 45,235 jobs. Moreover, hospitals and other medical establishments in Fresno and Madera Counties provide a wide variety of employment opportunities. The wages and salaries for these health care professionals are roughly twice as big as the average in their respective counties. Hospital and health care spending also generates jobs for entry-level workers across a variety of industries/goods and service providers.

The projected growth rate for health care jobs in Fresno and Madera Counties from 2008-2018 is also substantially higher in health care than other occupations. Overall, the State projects a 5 per cent growth in employment for Fresno County and a slightly higher (6.3 per cent) growth for Madera County. However the respective growth in health care jobs are 10.9 and 15.3 per cent, more than double the growth rate of all jobs.

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Employment in the health industry also tends to be more stable and less cyclical—during recessions fewer jobs are lost in health care than in many other sectors. Health care supports jobs requiring a wide variety of education and experience levels, not just those intended for white-collar professionals.

Hospitals in Fresno and Madera Counties also provide $326.7 million in charity and unreimbursed care. Hospitals will generate a substantial amount of construction over the next 3-4 years, generating $700 million in direct economic impacts over that time period.

It is clear from this analysis that hospitals in Fresno and Madera Counties are a key to the ‘economic engine’ of the region, in addition to their roles as safety net, acute and emergency care, and specialty care providers.

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Technical Appendix

Input-Output Analysis

Input-output (I/O) was designed to analyze the transactions among the industries in an economy. These models are largely based on the work of Wassily Leontief. Detailed I/O analysis captures the indirect and induced interrelated circular behavior of the economy. For example, an increase in the demand for health services requires more equipment, more labor, and more supplies, which, in turn, requires more labor to produce the supplies, etc. By simultaneously accounting for structural interaction between sectors and industries, I/O analysis gives expression to the general economic equilibrium system. The analysis utilizes assumptions based on linear and fixed coefficients and limited substitutions among inputs and outputs. The analysis also assumes that average and marginal I/O coefficients are equal.

IMPLAN

IMPLAN is a computer program developed by the United States Forest Service to construct I/O accounts and models. Typically, the complexity of I/O modeling has hindered practitioners from constructing models specific to a community requesting an analysis. Five different sets of multipliers are estimated by IMPLAN, corresponding to five measures of regional economic activity. These are: total industry output, personal income, total income, value added, and employment. Two types of multipliers are generated. Type I multipliers measure the impact in terms of direct and indirect effects. Direct impacts are the changes in the activities of the focus industry or firm, such as the closing of a hospital. The focus business changes its purchases of inputs as a result of the direct impacts. This produces indirect impacts in other business sectors. However, the total impact of a change in the economy consists of direct, indirect, and induced changes. Both the direct and indirect impacts change the flow of dollars to the state, region, or county’s households. Subsequently, households alter their consumption accordingly. The effect of the changes in household consumption on businesses in a community is referred to as an induced effect. To measure the total impact, a Type II multiplier is used. The Type II multiplier compares direct, indirect, and induced effects.

Like other input-output models, IMPLAN calculates the flow of payments for goods and services across different industry sectors, and between households and industries. It can be envisioned simply as a table with hundreds of rows and columns, with all industries (plus households) listed down the side as producers; and the same industries (and households) listed across the top as consumers. Spending by any

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consumer industry is allocated across all of the producing industries and the household sector. Each of these producer industries in turn purchases its own distinct set of inputs from other industries and households in order to produce the output it sells.

Table A1: Economic Multipliers Applied to Hospitals

However, in addition to this direct spending, there are indirect and induced impacts, often referred to as “multiplier effects.” The indirect impact is a product of spending by the local, regional or State companies from which the hospital purchases goods and services. The induced impact represents the impact of routine household spending by hospital employees – for rent, food, clothing, transportation, etc. – and by the employees of its suppliers. Table A1 above provides an illustration of these multipliers.

Intuitively, if these hospitals close, the region would not only experience a decline in access to health care but also a significant economic contraction due to the loss of wages and services directly paid for by these hospitals. Fresno and Madera Counties would also lose the spending by hospital employees and other members of the workforce who provide services to hospitals as well as the spending on other industries who provide inputs to these hospitals.

To estimate the interactions of Fresno and Madera Counties’ hospitals with the rest of the region’s economy, economists use input/output analysis, which estimates the interactions of different industries as well as additional consumer spending. These

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interactions vary from industry to industry and region to region. To analyze these impacts, we use IMPLAN software11, which is based on the Bureau of Economic Analysis’ Input Output models. The specific data used in this analysis is based on actual data collected by the U.S. Government applicable to Fresno and Madera Counties. This data is run through an input/output model generated in IMPLAN software and presented in the tables in this report.

11 See www.implan.com.

References American Hospital Association, Trendwatch, April 2011. Holmes et. al., “Underserved Populations: the Effect of Rural Hospital Closures on Community Economic Health,” Health Services Research 41:2, April 2006, pp. 467-485. IMPLAN, Software and data set for Fresno and Madera Counties, www.implan.com. Reif, S. S., S. Des Harnais, and S. Bernard. 1999 Spring. ‘‘Community Perceptions of the Effects of Rural Hospital Closure on Access to Care.’’ Journal of Rural Health15 (2): 202–9. State of California Employment Development Department, 2012, various data on employment by industry sector, http://www.edd.ca.gov/. State of California Office of Statewide Health and Planning Development, 2010, Annual Financial Data, http://oshpd.ca.gov/HID/Products/Palm Drive Hospital/AnnFinanData/. U. S. Bureau of Labor Statistics, 2012, Consumer Price Index Publications, http://www.bls.gov/cpi/#publications. U.S. Census Bureau, various sources 2010-2012.

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