Study: Hospitals major contributors to economy

Michelle Swafford

Monday, May 2, 2005 | 10:58 a.m.

A study released today by UNR shows that Nevada hospitals are major contributors to state and local economies through tax revenue, job creation, capital investments and uncompensated health care services.

"We tried to make the point that too often the health sector is looked at as something that takes dollars away and it's an economic engine in its own right," said John Packham, a health policy analyst for the University of Nevada School of Medicine and co-author of the study. "If you add all the secondary jobs and payroll that are created, it's an unrecognized sector and in Nevada that's only going to continue to grow."

The Nevada Hospital Association commissioned the study, Contributions of Hospitals to the Nevada Economy, following the introduction of a series of state Assembly bills that would require acute-care hospitals to reinvest a portion of their profit in Nevada, mandate additional reporting to state agencies and the Legislature's health care committee and increase the discount given to uninsured patients.

The bills were created after contentious hospital rate negotiations among Las Vegas Valley hospitals and the Health Services Coalition, which represents unions and employers for more than 300,000 teachers, firefighters, hotel and casino workers, carpenters, cement masons and plasterers, police officers, electricians, plumbers, convention workers, trash collectors, truck drivers and grocery workers.

The Health Services Coalition and some of the legislators called the February situation "a crisis" that must be avoided in the future. The parties say hospitals send most of their profit to out-of-state headquarters instead of investing it locally and increase the rates patients pay to increase that profit.

Hospitals say those claims are inaccurate and that is why they commissioned the study.

Using state data and a hospital survey, the study showed that Nevada's 29 acute-care hospitals employed 22,821 people at the end of fiscal year 2004 -- up 36 percent from fiscal year 2000 -- and spent $1.31 billion in salaries and benefits for those employees, which is a 59 percent increase from fiscal year 2000.

Other study findings include:

Nevada hospitals' operating revenue increased 59 percent to $2.8 billion from fiscal year 2000 to fiscal year 2004, while operating expenses increased 60 percent to $2.74 billion during the same period.

Hospital profitability decreased to 2.2 percent of revenue from 3.3 percent in that time.

"Hospital margins in Nevada are pretty slim as most industries go," Packham said. "I was surprised by how slim they were and how volatile they are."

The amount of money Nevada hospitals wrote off for free or discounted health care increased to $206.8 million in fiscal year 2004 from $107.1 million in fiscal year 2000.

Capital spending for new, renovated and expanded hospitals increased 70 percent to $378.7 million in fiscal year 2004 from $222.8 million in fiscal year 2000.

In the past decade, 12 Nevada hospitals have been built or expanded at a cost of about $1.2 billion; of that amount $164.4 million was spent in Clark County in 2003 and 2004.

"Those are pretty substantial amounts of money that go back into the community," Packham said. "We were interested in documenting that the impacts aren't limited to running a hospital. If you add hospital construction, that's a substantial contribution to the state's economy."

Hospital construction is going to continue at nearly the same rate for the next five to 10 years, he said.

The preceding highlights are the direct impact hospitals have on the economy, but the study found that Nevada hospitals also have an indirect impact on the economy through hospital purchases in other industries -- such as food, laundry, construction -- and the jobs and payroll that are created from hospital employees' spending.

Economic impact findings for indirect contributions include:

In 2002, Nevada's 25 acute-care hospitals employed 23,045 people and spent $885.8 million for payroll, but indirectly created an additional 17,849 jobs and an additional $481.6 million for payroll.

Clark County's 10 hospitals in 2002 employed 14,900 people and spent $584.6 million for payroll, but indirectly created an additional 11,488 jobs and an additional $320.9 million for payroll.

Construction on Clark County hospitals in 2003 and 2004 created about 1,589 jobs and $82 million for payroll and indirectly created 1,155 additional jobs and an additional $43.5 million for payroll.

More than half of the personal income generated directly and indirectly from Clark County hospitals in 2003 and 2004 was spent on taxable items, creating sales tax revenue.

The state projects that "the hospital industry and health care sector in Nevada will continue to exhibit robust employment growth through the end of the decade," because of overall population growth and an aging population, the authors reported.

Nevada's health care industry is projected to grow 43 percent between 2002 and 2012, which is slightly more than the 41 percent growth projected for all industries in Nevada, the study said.

"As state policymakers consider medical and health care priorities for Nevada, they should bear in mind the importance of hospitals to the state's economy," the study said.

The Assembly Committee on Health and Human Services has heard numerous comments from health care consumers, many of which are Health Services Coalition members, about the escalating costs of health care and whether local hospitals care about anything other than their profitability.

Assembly Committee Chairwoman Sheila Leslie, D-Reno, and Assembly Speaker Richard Perkins, D-Henderson, have been pressing the health care industry to operate more transparently by reporting more of their financial information to state officials and investing a percent of their profit locally. They introduced bills to address their concerns in the Assembly, which passed and are now in the Senate.

"These bills are about getting useful information about the hospitals so policymakers like me can make good decisions on behalf of constituents," Leslie said. "We're just trying to get at the facts. We know we have a problem. That's indisputable. We're paying at the top (for health care services) and we can't seem to get the answers we need."

Prior to reading the study, Leslie said she is "sure that hospitals do have a significant economic impact in our state. Without a doubt they're an economic force. The question I want answered is how much profit are they really making."

She said she wants to know how hospitals "can be so bullish on Nevada" if they are making such a small profit.

"I know they provide much-needed hospital beds," Leslie said. "What I'm interested in is why our hospital costs are so high."

She said Nevadans pay some of the highest hospital rates in the country and she suspects the reason is so hospitals can send more money to out-of-state headquarters.

Bill Welch, president and chief executive of the Nevada Hospital Association, said hospital costs are high in Nevada for a host of reasons including a high number of uninsured patients, problems with Medicaid, a nursing shortage that drives up salaries, a mental health crisis and a large percentage of patients who go to the emergency room for primary care.

"We are the fastest-growing state," he said. "We are having to reinvest and build facilities faster than you're seeing in other parts of the country."

He said the study was conducted to point out some of the misconceptions about the hospital sector and show the economic impact it has in Nevada.

"We think the study helps us reinforce what we believe that we've been trying to communicate for some time," Welch said, adding that the association had no input on how the study was conducted. "I hope that those that are in this mode to attack the health care industry will take a second look and say wow they really do contribute to this economy. You can create an environment that makes it pretty unfriendly and discourage any future investment in this state."

He said it is untrue that Nevada hospitals underwrite their parent companies.

"I don't care what HCA and Universal makes on a national basis, the argument that Nevada hospitals are underwriting those companies is a fallacy," Welch said.

He said on average Nevada hospitals send nearly 6 percent of their profit to their parent companies, which is reported to the state.

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