Professor Mike Lord Adds Perspective to Health System Economic Impact Study Report

11.4.2011 Article, Faculty News, Healthcare

Healthy player: Study estimates $2.2 billion impact from Cone Health
Reposted from Triad Business Journal | by Owen Covington

Cone Health had an estimated economic impact of $2.2 billion in 2010 through the operation of the Greensboro-based health system, its role as a place for physicians to practice medicine and its construction projects, according to a study.

Cone Health officials planned to announce the study results Thursday during a groundbreaking for a $19 million expansion of the emergency department at Wesley Long Community Hospital.

While they were impressed with the number, officials said the impact this year and in the coming years is likely even higher when current construction projects, such as the Wesley Long project and the $200 million North Tower project started this year, are factored in.

“As we communicate with our community, we want to be sure we weave this message in,” said Jim Roskelly, executive vice president of strategic development with Cone Health.

The estimate from the study, which was commissioned by the health system, puts a dollar amount on the ripple effect the health system created in 2010 in the broader area its five hospitals and various facilities serve in the Triad while generating $883.2 million in revenue with a payroll of $387.7 million for more than 6,800 of its employees.

Conducted by Donald Jud, interim director of the Center for Business & Economic Research at UNC-Greensboro, the study is the second Cone Health has had prepared. The first was authored by Andrew Brod, a UNCG professor also with the center.

The 2005 study used data from 2003 to estimate an overall economic impact for the health system of $1.5 billion, but it’s difficult to compare the two. The 2005 study took into account factors such as uncompensated care and the impact of hospital visitors not included in the recent study. The earlier study also didn’t factor in impact of construction costs.

But comparing similar figures shows the growing complexity and reach of Cone Health within the economy, as the impact of its operations grew 32 percent from $1.3 billion to $1.7 billion, with a 23 percent increase in revenues between 2003 and 2010.

The health system’s overall impact on employment also grew, with an 11.5 percent increase from 16,322 jobs in 2003 to 18,198 jobs last year.

“However you slice it, it’s a big institution, a big part of our economy,” Jud said. “It’s one of the areas that’s on the bright side of our local economy.”

Roskelly and Tim Rice, president and CEO of Cone Health, emphasized the health system’s role in recruiting and attracting physicians to the community, or helping retain physicians who might otherwise have left.

That’s included strong growth in the number of physicians Cone Health employs directly, which was between 150 and 200 at the time of the first study but now tops 300.

“These are good jobs for this economy,” Rice said. “The growth in the physician arm of our organization has been dramatic.”

Rice noted that while many other industries in Greensboro have fallen off in recent years, the health care industry, and Cone Health in particular, have continued to grow. Roskelly said the health system consistently receives the highest credit ratings and is financially sound, while elsewhere hospitals and health systems are struggling.

“We’re not an organization that’s focused on ‘How are we going to make our payroll,’” Roskelly said.

Jud’s study found that health care had risen to 7.9 percent of gross domestic product in the Greensboro-High Point area in 2009.

Within a total Greensboro-High Point area GDP of $33.3 billion in 2010, Cone Health accounted for 3.6 percent, according to Jud.

Both studies take into account the indirect impact of Cone Health interacting with other businesses, and the induced impact that comes from Cone Health employees spending their paychecks with other businesses.

Estimates for 2010 show that every dollar paid in wages to Cone Health employees created an additional 70 cents in indirect and induced labor income in the region. Each dollar Cone Health generated in revenue created an additional 90 cents when turned over in the regional economy.

While the growth of a health system has a net positive impact on a community, there is a “catch 22,” said Mike Lord, professor of management at Wake Forest University's Schools of Business.

“You have to look at the other side of the coin and where is that revenue coming from,” Lord said. “You don’t see economic activity that might be diminished or reduced because of increased health care costs.”

Don Dalton, spokesman for the N.C. Hospital Association, said he’s seeing more hospitals and health systems in the state conducting economic impact studies, in part to fend off critics.

“Right now, we are a target,” Dalton said of health systems. “Everybody wants to cut health care costs, and we do too, but it puts hospitals in the situation of needing to point out that we are one of the drivers of local economies.”