Hospitals and the Louisiana Economy, 2016 · 2018-04-01 · Hospitals and the Louisiana Economy,...

Hospitals and the Louisiana Economy, 2016

Prepared for the Louisiana Hospital Association by James A. Richardson*, Alumni Professor of Economics, Louisiana State University, May 2016

*Dr. Richardson is solely responsible for the facts, findings and conclusions presented in this report.

Hospitals and the Louisiana Economy, 2016 Executive Summary Hospitals, while providing vital and necessary medical services in the communities they serve, are also major economic engines within the state, generating more than $31.1 billion annually in economic activity and directly employing more than 103,400 people. Hospitals make up approximately 35 percent of total healthcare employment and close to half of the annual payroll of the healthcare sector. They contribute to the economic stability and viability of the community and regional economies based on their employment and their connection to other businesses within the community. Jobs associated with hospitals require a wide spectrum of skills, and the average wage for hospital personnel is significantly higher than other service sector jobs. Healthcare and Hospitals Compared to Other Industries in the State Louisiana hospitals in 2015 employed approximately 103,400 people with a payroll of $5.5 billion. Healthcare (including hospitals) is by far the largest business sector in the state with over 294,900 employees and the largest annual wages and salaries of almost $12.6 billion. The healthcare sector represents 58 such establishments or approximately 25 percent of all business establishments with 500 or more employees.

Healthcare and Hospitals in Louisiana by Region A snapshot of the economic influence of healthcare and hospitals in the nine Department of Health and Hospital (DHH) regions within the state is presented below. The regions of Alexandria, Baton Rouge, Monroe, New Orleans and Shreveport have a larger proportion of healthcare and hospital workers than their overall proportion of the state’s population. The regions of Houma/Thibodaux, Lafayette, Lake Charles and the Northshore have proportionately fewer workers in healthcare and hospitals than the size of their population. The table below shows the prevalence of healthcare employment in any part of the state compared to overall population and employment distribution.

Hospitals and Sources of Revenue Hospitals receive revenue from private insurance companies, federal insurance programs such as Medicare, federal and state insurance programs such as Medicaid, and self-payment by individuals. In 2014, approximately 47 percent of hospital revenue came from Medicare, 29 percent from private insurers, 16 percent from Medicaid and 8 percent from self-pay.

Economic Impact of Louisiana Hospitals The economic benefits of the hospital industry extend far beyond the doors of the hospitals and the people employed directly by those facilities. The table below reflects the impacts of business sales, personal earnings, jobs supported and state/local tax collections in the respective regions.

Construction Activity and Economic Impacts In addition to spending driven by hospital operations and employees, construction activity also creates economic ripples. By their nature, construction projects involve substantial material purchases, as well as spending on human resources, all resulting in positive effects on the economy. The table below provides a regional breakdown of the economic impacts of these construction-related expenditures.

Caring for the Uninsured and Medicaid Expansion The state has an obligation to fund care for uninsured patients whether or not it accepts expansion, so the comparison is between the costs of caring for these patients with and without Medicaid expansion. It is estimated that Louisiana will lose between $810 million to $864 million annually in federal support by not accepting Medicaid expansion. These federal payments to Louisiana would support the following:

An estimated 16,800 additional jobs in the Louisiana economy; An estimated payroll of $680 million; and State and local tax collections of approximately $89 million per year.

Impact of Medicaid Cuts In our current system, out of every dollar of Medicaid spending in Louisiana, the state contributes 38 cents, and the federal government contributes 62 cents. The state can leverage its dollars. For example, a $150 million commitment by the state to the Medicaid program, assuming a 62 percent match by the federal government, will lead to a federal commitment of approximately $245 million in Louisiana’s Medicaid program. Louisiana receives approximately $1.65 for every dollar the state contributes. Medicaid contributions are leveraged and have exacerbated effects because of the federal matching program. If the state reduces its direct expenditures for Medicaid by $150 million, the state will lose an additional $245 million of federal dollars for an overall reduction of $395 million. This would lead to statewide reductions in jobs, personal earnings and overall business transactions. Summary and Conclusion Hospital expenditures have a major economic impact on the state in terms of business activity, personal earnings, and overall jobs created and supported. Similarly, hospital expenditures have a substantial impact on all regions of the state, because hospitals are widely dispersed geographically throughout the state. A major reduction in hospital expenditures in any part of the state will create economic ripples that will be difficult to offset immediately by other economic measures.


Prepared for the Louisiana Hospital Association

Prepared by Dr. James A. Richardson*

Alumni Professor of Economics and Public Administration Louisiana State University

May 2016

*Dr. Richardson is solely responsible for the analysis and findings in this report.


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Introduction

The ultimate purpose of the healthcare sector is to provide appropriate and necessary medical services to enhance the quality of life of the residents of Louisiana. In the process of providing these vital services, the healthcare sector becomes a significant economic engine within the state and local communities. Hospitals make up about 3 percent of total healthcare establishments, more than 35 percent of total healthcare employment, and about 45 percent of the annual payroll of the healthcare sector. This report highlights the economic significance of hospitals in Louisiana and within local communities of the state, including the nine regions created by the Department of Health and Hospitals (DHH). Hospitals are intrinsically linked to other sectors of the economy through the hiring practices and business transactions required to provide hospital services. This report focuses on the magnitude of these economic linkages, particularly on hospitals as an integral part of communities across the state. The report also quantifies the special connection between Medicaid and the Louisiana economy related to the federal matching program.

Healthcare and Hospitals Compared to Other Industries in the State

In the most recent annual data available from the Louisiana Workforce Commission (3Q, 2015), 294,931 individuals were employed in the healthcare and social assistance sector in Louisiana with an annual payroll of almost $12.6 billion or an annual wage of approximately $42,000 per person per year. Employment in the Louisiana healthcare sector has grown from 57,544 in 1977 to 294,931 in 2015, a fivefold increase, while the state’s population has grown by only 16 percent. Healthcare employment as a share of the total workforce has grown from 4.3 percent in 1977 to 15.4 percent in 2014. Louisiana hospitals in 2015 employed approximately 103,400 people with a payroll of $5.5 billion. Hospitals provide approximately 5.4 percent of total private employment in Louisiana and just over 4 percent nationally. Hospital employment represents just over 35 percent of healthcare and social assistance employment in Louisiana; however, it represents almost 45 percent of wages and salaries associated with the healthcare industry.

The number of employees in the healthcare industry as compared to other sectors of the Louisiana economy is illustrated on the following page in Figure 1. Healthcare and social assistance (including hospitals) is by far the largest business sector in the state with over 294,900 employees and the largest annual wages and salaries of almost $12.6 billion. Outside of this sector, the next two largest employers of Louisiana workers are leisure and hospitality, and retail trade.


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Employment, establishments and annual payroll are illustrated on the next page in Table 1 with healthcare having the most employees and the largest annual payroll, but the third largest number of establishments. Retail trade has the largest number of establishments, the third largest number of employees, but the fourth largest annual payroll. Manufacturing has the second largest payroll, the sixth largest number of employees, and the twelfth largest number of establishments. These activities merely illustrate the differences among major industries in Louisiana. Healthcare is a major member of the business community in terms of establishments, a major employer given the number of employees, and a provider of wages and salaries to the Louisiana community. In addition, hospitals are a major part of the healthcare sector, especially in terms of employment and annual payroll.


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Employment is further divided into the nine DHH regions. Employment in each of these regions is illustrated below in Table 2.


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A map of the various nine regions is presented below. Healthcare workers are dispersed throughout the state, with more than 56,000 in the New Orleans/Jefferson region, and more than 47,000 in the capital region. Central and Northeastern Louisiana each have more than 20,000 healthcare employees. Northwestern Louisiana has more than 42,000 healthcare employees. The Acadiana region has more than 37,000 healthcare employees, and Houma-Thibodaux and the Southwestern regions each have approximately 17,000 employees.

As shown in Table 2 on the previous page, the Lafayette region has approximately 13 percent of the state’s population, 13 percent of total employment and 13 percent of healthcare employment. The Baton Rouge region contains almost 15 percent of the population, more than 18 percent of total employment and more than 16 percent of healthcare employment. The Alexandria region has more than 5 percent of the total employment and more than 7.5 percent of the state’s healthcare employment. This regional comparison allows us to document the prevalence of healthcare employment in any part of the state compared to overall population and employment distribution. Of all the private business establishments in Louisiana, only 277 have 500 or more employees, and the healthcare sector represents 58 such establishments or approximately 25 percent of all business establishments with 500 or more employees. Hospitals comprise the overwhelming majority of establishments with more than 500 employees. In Louisiana and across the nation, the healthcare sector has grown more rapidly than the population and the overall economy for a variety of reasons ranging from changing demographics and improvements in medical technology. It has fulfilled the overall demand for healthcare by the population, while providing an economic hub for many communities.


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Healthcare employment (not including social assistance) by subsector is illustrated in Figure 2 based on information from the Louisiana Workforce Commission and the Bureau of Labor Statistics.

Ambulatory care, which includes physician offices and other facilities not defined as hospitals, amounts to 37 percent of healthcare employment nationally and more than 33 percent in Louisiana. Hospitals make up 26.5 percent of healthcare employment nationally and more than 35 percent in Louisiana. Nursing and residential care facilities comprise 17.5 percent of healthcare employment nationally, but in Louisiana they consist of more than 15 percent.

Healthcare and Regional Economies

The healthcare sector is larger in terms of employment in the Baton Rouge and New Orleans regions. This is not surprising; however, the economic value of healthcare facilities is more significant in the smaller markets throughout the state in such regions as Alexandria and Monroe. Healthcare services in the regions of Central and Northern Louisiana are more sensitive to changes in the industry, because the balance of healthcare employment to other employment is greater. Healthcare is larger in absolute terms in the Baton Rouge and New Orleans regions; however, healthcare represents a smaller part of the total economy in those regions. It is against this background that we focus on the economic impact and significance of healthcare providers and especially hospitals in Louisiana and across the various regions of the state. This is in addition to the fundamental purpose that hospitals serve, which is providing healthcare to the people of the state.


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Hospitals and Sources of Revenue

Sources of hospital revenue in Louisiana are illustrated below in Figure 3 and shown divided by region in Figure 4 on the next page. Hospitals receive their revenue from private insurance companies, federal insurance programs such as Medicare, federal and state insurance programs such as Medicaid, self payment by individuals, and payments for uninsured care from state and federal sources. Hospitals care for individuals who are unable to pay for their medical care. These costs are either offset by payments from state and federal governments, absorbed by the hospital, or ultimately shifted to other payors through higher costs for medical services. Private insurance payments include policies that are secured via employment with a company or organization that has an employer-sponsored insurance program. In 2015, according to the Kaiser Family Foundation, 98 percent of firms with 200 or more workers offer health benefits for their employees, while nearly 56 percent of the firms with three to 199 workers offer an employer-sponsored insurance plan for their employees. Approximately 47 percent of the firms with three to nine employees offer some form of health benefits for their employees.

In Louisiana, Medicare is by far the largest component of revenue received by the hospitals. In 2013 and 2014, Medicare revenue represented 47 percent of hospital revenue. Private insurance totaled 29 percent of hospital revenue in both 2013 and 2014, while Medicaid equaled 17 percent in 2013 and 16 percent in 2014. Self-pay and uninsured payments accounted for 7 percent in 2013 and 8 percent in 2014.


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Medicare accounted for more than half of hospital revenue in Houma-Thibodaux (Region 3), Monroe (Region 8) and the Northshore (Region 9) for both 2013 and 2014. Medicaid accounted for approximately 20 percent of hospital revenue for New Orleans/Jefferson (Region 1), Lake Charles (Region 5) and Alexandria (Region 6). The Shreveport (Region 7) and Lafayette (Region 4) regions had the largest self-pay population. Shreveport had revenue from self-pay individuals of 9 percent in 2013 and 11 percent in 2014. Lafayette had 13 percent self-pay in 2013; however, this slipped to 8 percent in 2014.

Medicaid Medicare

Self-Pay Private


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The federal government provides coverage through the Medicare program for adults above the age of 65 who are retired and are not eligible for employer coverage and for people with disabilities. The federal and state governments are insurers through the Medicaid program for income-qualified individuals. Presently, close to 1.3 million people in Louisiana are now covered by Medicaid, which represents approximately 30 percent of Louisiana’s population. Of these Medicaid enrollees, as illustrated below in Figure 5, about half are children, and 26 percent are parents who meet the income specifications. The elderly who qualify for Medicaid assistance make up about 9 percent of Medicaid enrollees, and people with disabilities make up close to 16 percent of the Medicaid enrollees. As indicated in Figure 5, approximately 65 percent of Medicaid expenditures will provide medical support for people with disabilities and the elderly. In Louisiana, most children are now covered by insurance, either through private insurance or through Medicaid. In fact, Louisiana has a relatively low number of children, an estimate of approximately 4 percent, who are not covered by insurance.

Some individuals do not carry insurance or cannot afford it. They do not qualify for Medicare since they are still under the age of 65 and do not qualify for Medicaid because their earnings are not sufficiently low. Kaiser Family Foundation estimated there were approximately 866,000 uninsured, non-elderly Louisiana residents with about a third of these people being eligible for tax credits to lower the cost of private insurance. Roughly 18 percent of these individuals are eligible for subsidies; however, are subject to penalties for not purchasing coverage.


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Hospitals and Employment

Hospitals in Louisiana employ more than 103,400 individuals with an annual payroll of more than $5.5 billion. More than 50 Louisiana hospitals have more than 500 employees, and 30 hospitals have more than 1,000 employees, according to the latest publication of County Business Patterns. Hospitals accounted for less than 0.2 percent of all business establishments in the state, but approximately 5.4 percent of Louisiana employment and 6.5 percent of annual Louisiana payroll. Hospital employment is a significant economic and social factor in assessing the vitality of the state and of the various communities around the state. Table 3 compares healthcare and hospitals to other industries in terms of annual payroll and workers per establishment. With more employees than the retail, or leisure and hospitality sectors, healthcare also has a payroll that is twice as large. There is a significant difference between hospitals and other industrial sectors in terms of employment per establishment. Mining establishments have about 24 workers per enterprise; healthcare about 23 employees, and hospitals approximately 270. Hospitals are very labor intensive in terms of providing services to the public. They also need to be of a sufficient size to provide the essential healthcare services to the community in which they are located.

Economic Impact of Louisiana Hospitals

Hospitals are created to serve the people in a community and are not necessarily the initial driver in the economic development process. Hospitals are built, because the community needs essential healthcare services, and it will not grow and prosper without them. From this perspective, hospitals serve an important support role. The lack of medical care and facilities can deter economic development. Economic development may start without an adequate healthcare system, but it will not continue unless an acceptable healthcare system is created, including the presence of hospitals.


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The economic benefits of the hospital industry extend far beyond the doors of the hospitals and the people directly employed by the hospital. In addition to spending driven by hospital operations and employees, construction activity for hospitals also creates jobs in the construction industry with economic ripples that are associated with any construction job. These economic ripples include purchases from local businesses resulting from construction projects and the businesses that sell products to these construction firms. The economic effect also occurs because of workers’ spending and the stores that sell goods and services to the employees of the construction firm. Though the economic impact from the construction is for a limited time, given the size of the hospital industry and the need for modernization, there will always be some construction projects going on throughout the state. Once the construction project is completed, then the operation of the hospital creates economic ripples throughout the local and state economy. The economic impacts are estimated and summarized in the following sections of this report. Construction Activity and Economic Impacts

Statewide capital investment is illustrated below in Figure 6 for 2013 and 2014 for both construction activity and equipment purchases. Construction activity by region is illustrated in Table 4 on the next page. Hospitals spent approximately $335 million on construction projects in 2013 and nearly $403 million in 2014. Hospitals spent roughly $192 million on equipment in 2013 and $188 million in 2014.


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These are substantial expenditures that positively affect the total economy. The economic impact of construction spending is more substantial than the economic impact of equipment purchases. By their nature, construction projects involve substantial material purchases, as well as, additional human resources. Hence, we will focus on the economic impact of the construction spending by hospitals. The economic impact of these construction expenditures is documented on the next page in Table 5 for 2013 and Table 6 for 2014. Statewide, construction activity at hospitals led to the creation and support of 5,734 jobs in 2013 and 6,898 new jobs in 2014. This economic activity also led to the generation of personal earnings of almost $224 million in 2013 and $269 million in 2014. In turn, state and local tax collections rose by approximately $30 million in 2013 and $36 million in 2014. This impact varies across the state depending on the extent of construction projects occurring within a region. Major construction projects related to hospitals were occurring in Baton Rouge, Lafayette and Jefferson as of 2013 and 2014. Capital expenditures in these parishes amounted to more than $100 million in 2013 and 2014. The construction expenditures included in these estimates for Table 4 do not include the costs incurred in the construction of the University Medical Center in New Orleans.


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Continuing Impact of Hospitals on the Louisiana Economy

Net revenue earned by hospitals was estimated to be $14.9 billion in 2014 based on estimates derived from information reported by the Becker’s Hospital Review. The net revenue represents the amount of money to be used by the hospitals in establishing and affording expenditures such as wages and salaries, supplies, business services, medical supplies and other normal operating costs. The estimated statewide and regional impacts related to hospital expenditures are presented in Table 7. It is estimated that state business activity increased by approximately $32 billion, personal earnings approached approximately $12.5 billion, new jobs created and supported amounted to 311,120 statewide, and state and local tax collections brought in an estimated $1.7 billion. Regional estimates are also included in Table 7. In the New Orleans region, more than 84,000 jobs are directly and indirectly connected to the expenditures of hospitals. In Baton Rouge, Lafayette and Shreveport, 34,000 to 40,000 jobs in each region are directly and indirectly related to hospital expenditures. Other regions have between 13,083 and 24,030 jobs that are directly or indirectly related to hospital expenditures.


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Hospital expenditures created and supported jobs across the various sectors of the economy with almost 250,000 jobs in personal and business services, about 6,500 jobs in financial services, more than 30,000 jobs in retail and wholesale trade, approximately 12,500 jobs in transportation and utilities, and the other jobs in construction, manufacturing and agricultural activities.

Caring for the Uninsured and Medicaid Expansion

Medicaid insures approximately 30 percent of people in Louisiana, but hospital revenue from Medicaid only equals about 17 percent of all revenue. As noted previously, Medicaid in Louisiana covers children under the age of 19, parents who qualify because of low incomes less than 19 percent of the FPL, elderly people who are also considered low income and people with disabilities. Presently, the federal government contributes about 62 percent of the cost of Medicaid, and Louisiana must cover the rest, which is approximately 38 percent. Since Louisiana has incorporated children within the Medicaid program (starting in 1998), the uninsured rate among children in Louisiana has been in the 3 to 5 percent range based on estimates from the Kaiser Family Foundation and surveys conducted on behalf of DHH. The Affordable Care Act (ACA), passed in 2010, proposed to use the Medicaid program to reduce the number of uninsured, non-elderly adults who had income below 138 percent of the FPL. In order to assist states in expanding the Medicaid program, the federal government agreed to pay 100 percent of the cost of the program through 2016, and its participation would gradually decline, paying 90 percent of the cost after 2020. This federal participation rate in Medicaid is much higher than the current rate for children, low income parents, the elderly and individuals with disabilities. Presently, the state has an obligation to provide healthcare services for the uninsured whether or not it accepts Medicaid expansion. In Louisiana, a public, charity hospital system was used to care for this population, but this system has been discontinued. This function of caring for these patients has since been transferred to private hospitals that contract with the state.


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The federal government provides Medicaid Disproportionate Share Hospital (DSH) payments to states to assist in paying for healthcare for the uninsured population. The federal government funds presently about 62 percent of the cost of healthcare assistance for this group. The federal government scheduled gradual reductions in DSH payments assuming Medicaid expansion in the ACA would reduce the percentage of uninsured individuals. Louisiana is a major recipient of these DSH payments; in fact, Louisiana receives more than any other state except New York, California and Texas, which are considerably larger in terms of population. Medicaid expansion can be approached from several perspectives at the state level. First, there is the discussion of the benefits of having a true health insurance program available under Medicaid expansion to those currently uninsured compared to a safety net program in which an uninsured person gets treated in an emergency room setting. This discussion centers on the potential gains in worker productivity if lower income residents had access to healthcare as opposed to just having access to emergency care. Second, the federal government plans to gradually diminish DSH payments, because it was expected that states would expand Medicaid to take care of the uninsured. Though DSH payments will not be eliminated, the state will not receive as much as Louisiana has been receiving. The U.S. Congress has delayed the reduction in DSH payments, with this decline now starting in 2018. Finally, as previously mentioned, the state has an obligation to care for uninsured patients whether or not it accepts expansion, so the comparison is between the costs of caring for these patients with and without Medicaid expansion. It is estimated that Louisiana will be losing between $810 million to $864 million annually in federal support by not accepting Medicaid expansion. These federal payments to Louisiana would support the following:

An estimated 16,800 additional jobs in the Louisiana economy; An estimated payroll of $680 million; and State and local tax collections of approximately $89 million per year.


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Impact of Medicaid Cuts

In our current system, for every dollar of Medicaid spending in Louisiana, the state contributes 38 cents, and the federal government contributes 62 cents. The state can leverage its dollars. For example, a $150 million commitment by the state to the Medicaid program, assuming a 62 percent match by the federal government, will lead to a federal commitment of approximately $245 million in Louisiana’s Medicaid program. Louisiana receives approximately $1.65 for every dollar the state contributes. Medicaid contributions are leveraged and have exacerbated effects because of the federal matching program. If the state reduces its direct expenditures for Medicaid by $150 million, the state will lose an additional $245 million of federal dollars for an overall reduction of $395 million. This would lead to statewide reductions in jobs, personal earnings and overall business transactions. Summary and Conclusion

Hospital expenditures have a major economic impact on the state in terms of business activity, personal earnings and overall jobs created and supported. Similarly, hospital expenditures have a substantial impact on all regions of Louisiana because hospitals are widely dispersed throughout the state. A major reduction in hospital expenditures in any part of the state will create economic ripples that will be difficult to offset immediately by other economic measures.

Hospitals and the Louisiana Economy, 2016 · 2018-04-01 · Hospitals and the Louisiana Economy,...

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