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Why it’s impossible to close a hospital

Hospitals are major employers in their local markets; they are often the largest provider of jobs in a community. In its latest TrendWatch report, Beyond Healthcare: The Economic Contribution of Hospitals, the American Hospital Association details the economic impact of hospitals in each of the fifty states.
The bottom-line: hospital employment generates economic ripple effects way beyond the direct jobs provided in health care.
Hospitals
employ more than 5 million people nationwide – making them the
second-largest employer in the private sector – and account for more
than 4% of employment most everywhere. The Department of Labor
calculates that private-sector jobs indirectly generated by hospitals
is one in 10. That’s huge.

As
the chart to the left shows, hospital jobs pay more. That means those
workers generally spend more in their local economy, thus providing
spillover effects to other local employers like dry cleaners, food
establishments, auto repair shops, and other services used by workers
going to-and-from their daily jobs.

These ripple effects happen in at least three ways:
1. Purchasing goods and services from other businesses in the community
2. Providing income for employees, who then spend it in the community; and,
3. Paying wages and salaries, which are subject to federal, state and local taxes.

Jane’s Hot Points:
Always remember that one worker’s income is another one’s cost. For
some communities, the hospital is the local monopsony providing the
lion’s share of meaningful employment.
The
chart on the right from the AHA study illustrates that in many states,
hospitals provide at least 1 in 10 jobs: this is true for Maine, North
Dakota, Pennsylvania, and nearly 1 in 10 for Massachusetts, Michigan,
Missouri, Ohio and West Virginia, among others.

The microeconomy of the hospital is thus a major contributor to the States’ and nation’s macroeconomy.

When
there’s talking of closing hospitals, there’s no doubt why it’s so
tough to do so. Financing hospitals, appropriately, has implications
well beyond "the bed" and the individual patient.

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jim jaffeBarry CarolPeterDoug Recent comment authors
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Barry Carol
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Barry Carol

Echoing jim jaffe’s point, in NJ four hospitals have closed in the last 18 months. We now have 77 hospitals statewide. Twenty years ago, we had 112. Since we still have too many beds in some markets, more closings or downsizings are likely over the near to intermediate term, especially now that the state government is less willing (or able) to keep propping them up with subsidies.

jim jaffe
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jim jaffe

it ain’t easy, as I also point out in my Baltimore Sun piece, http://www.baltimoresun.com/news/opinion/oped/bal-op.healthcare10apr10,0,4406200.story
that said, hundreds of hospitals and tens of thousands of beds have disappeared in the past decade or so and the trend continues. same argument is made about military bases, but we’ve found a mechanism that works there despite similar arguments.

Barry Carol
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Barry Carol

I agree with Peter on this one. Here in NJ, now that the state’s finances are in such poor shape, we are no longer as willing to continue to prop up failing hospitals with taxpayers’ money in markets with a surplus of beds. We are finally going to let some of them fail and close which is a good thing and about time. In New York, a state commission tackled the task of figuring out which hospitals to downsize, close or otherwise restructure in an effort to rationalize the system, at least to some extent. The end result was presented… Read more »

Peter
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Peter

So is a hosptial any more or less economically necessary to a community than a steel plant? I think the question is how high is the utilization and where would citizens need to go for care. Can two hospitals be combined for cost savings? Healthcare should not be immune to cost controls if we want to continue to be able to afford it, given you can afford it now.

Doug
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Doug

insightful article and one of the missing conversation threads in the debate over cost of healthcare espicially as a percentage of GDP. I am proponent of better aligning the $$ incentive in healthcare to improve quality across the board as well as increase access for everyone in our country. The focus on cutting costs oversimplifies the challenges our healthcare system face and turns a blind eye to the economic ecosystem a community’s healthcare system creates. There has to be a balance I believe as long as the fulcrum by which decisions are balanced is quality and access then we as… Read more »