Health care one of the bright spots for NWI economy - January 2, 2015

Courtesy of NWI Times

January 02, 2015 12:00 am • Giles Bruce (219) 853-2584, giles.bruce@nwi.com

While the overall outlook for Northwest Indiana’s economy is rather drab, health care remains one of the few industries that continues to see growth.

That was the message at a recent Indiana University Kelley School of Business forum in Schererville, where several IU professors gave their economic predictions for 2015.

“Locally, one of the only bright spots of the last few years has been health care. It’s really a growing industry,” said Micah Pollak, an assistant professor of economics at IU Northwest. He noted the number of health care jobs in the region has grown by more than 20 percent in the past decade and 80 percent since 1990.

“The only caveat I have about that is I don’t think it’s a long-term solution. Fifty years down the road, as the aging population goes through the health care system, we may not have the need for quite as much health care.”

While local hospital executives agree the growth may not continue at the same rate going forward, with the increased emphasis on bending the cost curve through wellness and prevention, they note the population continues to grow and live longer. Plus, it’s unknown how future advances in medical treatments and technology will affect the industry.

But for now, health care is the largest source of jobs in the region.

According to a 2013 report from the Northwest Indiana Forum, a private organization composed of local businesses and industry, outpatient care is the second-biggest industry in Northwest Indiana, bringing in more than $2 billion annually, while hospitals rank fifth, earning $912 million a year. The two sectors were, respectively, the No. 1 and 3 drivers of economic growth in the region from 2001 to 2011.

Combined, the sectors employ more than 31,000 people in Northwest Indiana, or nearly 12,000 more than work in primary metal manufacturing. In other words, health care now provides more jobs in the region than the steel industry.

Mary Ann Shacklett, chief financial officer for Community Healthcare System, said reasons for the growth include the large aging population in Northwest Indiana and the increase in life expectancies.

“I’ve been here in the Community Healthcare System for 30 years. When I started, our Medicare volume back at that time was about 20 percent,” she said. “Now the Medicare volume for our system is about 53 percent.”

The growth in health care as a share of the economy is not just a local phenomenon. The industry has gone from 7 percent of gross domestic product in 1980 to 17 percent today, said Gene Diamond, regional CEO for Franciscan Alliance. Health care makes up a similar portion of the region’s economy.

Indeed, Pollak notes that health care stands out so much in Northwest Indiana largely because of the downward slide of other industries.

“Employment in most other sectors in the region has, at best, remained the same or, in the case of most goods-producing sectors like manufacturing, declined significantly,” he said.

While high-paying manufacturing jobs have been largely replaced by service-sector employment, health care careers usually pay better than other service jobs, like those in retail and food service, Pollak said.

Pat Bankston, associate dean of the medical school at IU Northwest, argues the local health care business could grow even more if the region overcame its physician shortage and expanded its trauma and teaching programs. He noted that, according to some estimates, as much as $2 billion leaves the region each year when residents seek care in the Chicago area.

“Even though it is a huge industry in Northwest Indiana, certainly we’re not meeting the need that we could,” he said.

While Diamond, of Franciscan Alliance, expects health care to continue to remain an important part of the local economy for the foreseeable future, he says the business model is shifting from a focus on inpatient to outpatient care. That’s because the federal government and insurers are increasingly incentivizing health care providers to keep patients out of the hospital.

“Health care has changed permanently in a way that will result in a reduction of the number of employees caring for inpatients in hospitals,” he predicted. “On the outpatient side and other areas where health care is delivered, you’re going to see a flat-to-increasing number of employees.”

Furthermore, the country’s overall health care spending has slowed in recent years, and the Affordable Care Act included several provisions meant to contain the industry’s costs. But Steve Lunn, CEO of Porter Health Care System, noted the population of Northwest Indiana was predicted to rise 5.1 percent from 2010 to 2025 with the number of seniors expected to increase 52.2 percent over that same period, according to data from the IU Kelley School of Business. Plus, more and more people are gaining insurance coverage under Obamacare.

“The trend, or the push, is to reduce costs and reduce health care expenditures, to try to figure out how to take care of people in a more efficient fashion,” Lunn said. “But the overall pie will continue to grow as health care utilization continues to increase.”

As things stand, local hospital systems, which have bought scores of independent doctors’ offices and outpatient clinics in recent years, rank among the top employers in the region. Community Healthcare System has about 7,000 employees, followed by Franciscan Alliance with 6,000, Porter Health Care System with 3,000, and Methodist Hospitals with 2,400.

And hospital executives point out the industry’s reach goes beyond just employment.

“You have the direct impact of payroll dollars. Then you’ve got the other investments the health care system makes: in technology, equipment, facilities, supplies,” said Methodist Hospitals CFO Matt Doyle.

“On an annual basis, our operating costs will be hundreds of millions of dollars. Those expenses flow back through the communities we serve.”

Other economists warn that since the health care industry is so reliant on government funding, through programs like Medicare and Medicaid, its growth may not be sustainable, particularly without political compromise.

“(Health care) is a bright spot as far as employment. It’s a drag in terms of the obligations and government policy that we’ve put on ourselves,” James Smith, a senior lecturer in finance at IU Indianapolis, noted at the recent forum.

“Our worry as economists is that as these future obligations keep growing, we really need to address how we’re going to fund them.”