Health Care’s ‘Tricky’ Role as Economic Leader in California

A new report measuring hospitals’ economic impact in San Francisco suggests the health care industry might be the most important economic engine driving the city’s economy.

Hospitals and hospital-related enterprises generate $15.3 billion in annual spending in San Francisco, as well as 98,994 jobs, about 18% of the city’s workforce, according to the report commissioned by the Hospital Council of Northern and Central California.

By comparison, the tourism industry, long considered the largest economic engine in the city, generated $8.3 billion in direct tourist spending and supported 67,122 jobs in San Francisco in 2010, according to the San Francisco Travel Association. The tourism revenue figure does not account for ancillary financial effects of the larger hospitality industry, making a direct comparison difficult.

The report’s author, Phillip King, an associate professor of economics at San Francisco State University, pointed out that his research did not directly compare the health care industry with any other industry. He was hesitant to declare health care as the city’s leading economic contributor.

“Health care has traditionally been number three, along with education, behind tourism,” King said. “I don’t know if health care will eclipse tourism in the number one spot, but I can say that over the last 10 years, most other industries –  including tourism and education — have stagnated while health care has grown.”

Employment in the health care industry has grown by approximately 10% since 2000, while employment in other sectors has declined by a similar amount, according to King’s research.

Study’s Findings

The report dealt only with hospitals, physicians and enterprises directly related to hospitals. It did not include related industries such as non-hospital pharmacies and biotechnology research.

Some of the key findings in “The Economic Impact of San Francisco’s Hospitals” are: 

  • Hospitals and health-related professions provide a variety of jobs with relatively good pay. Average earnings for health workers are 22% higher than average earnings for other occupations;
  • Hospitals generate more than 30,000 jobs in non-health related sectors. In particular, San Francisco’s hospitals are likely to be the largest driver of construction and construction jobs in the next four to five years — the total impact of this spending will be $7.7 billion and will generate 47,471 jobs. (Hospitals throughout California face seismic retrofitting regulations expected to generate considerable construction activity over the next decade); and
  • Hospitals play an important role in San Francisco’s emergence as a biotechnology center. San Francisco’s share of Bay Area biotechnology has grown fivefold over the past 10 years.

Statewide Implications

While no similar statewide research is available — nor is it likely to be done anytime soon — some contend the same factors at work in San Francisco also are at work throughout the state, and if they haven’t already, will soon make health care California’s most economically important industry.

During a deep and persistent recession, health care’s consistent job growth and vitality are bright spots.

“That’s definitely the case in San Francisco, and there’s no indication that that isn’t true virtually everywhere else in the state,” said Ron Smith, senior vice president of the Hospital Council of Northern and Central California. “I think the numbers in this report surprised a lot of people. Health care and hospitals have been a big economic contributor for years and a lot of people understood that, but when you see numbers of this magnitude — $15.3 billion for San Francisco — you realize how important this industry has become.”

Jan Emerson-Shea, vice president of the California Hospital Association, said measuring the financial impact of health care and specifically hospitals is not always a simple prospect.

“There is some truth to health care being a bright spot in the recession, but that has to be tempered with the fact that when Congress slashes Medicare payment rates and California slashes Medi-Cal payments, hospitals cannot continue to be the economic engines and continue to hire people. We’ve had hospitals across California doing layoffs,” Emerson-Shea said.

Federal cuts in Medicare payments will mean $17 billion less each year for California, and state cuts to Medi-Cal, California’s Medicaid program, will mean a loss of about $14 billion, Emerson-Shea said.

A report commissioned by the American Hospital Association and released last week shows that 194,000 hospital jobs could be lost nationally over the next decade if the congressional debt reduction committee can’t reach a compromise on Medicare payments.

The report, by Tripp Umbach, a firm specializing in conducting economic impact studies, contends that if the Joint Select Committee hits Medicare gridlock and sequestration occurs, Medicare would be subject to a 2% cut that translates to a projected loss of approximately $41 billion over the next 10 years for hospitals.

“It’s a real Catch-22 situation,” Emerson-Shea said. “On one hand, hospitals can help the economy, and with baby boomers aging, the demand is going to continue to grow. But on the other hand, with all the cuts we’re looking at, our hands are going to be tied just as the needs and demand are greater.”

Emerson-Shea said the California Hospital Association has considered — but decided against — undertaking statewide research to document hospitals’  financial impact on the state’s economy.

“It’s a tricky position we’re in,” Emerson-Shea said. “At the end of the day, we’re really about patient care. Yes, we are an economic driver, but the core of what we do is taking care of people. We see the value in this kind of research and we encourage regional associations if they want to pursue it, but we’ve decided not to go there ourselves.”

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