Trends in Health Care Industries and Why the Health Care Sector Should be Included in Your Economic Development Strategy
Tuesday, December 01 2015
By Jim Damicis, Senior Vice President Camoin Associates, and Alexandra Tranmer, Economic Development Specialist Camoin Associates
Conventional thinking about the health care industry in economic development circles dictates that it is an industry bogged down in federal and state bureaucracy, with little room for employment or growth opportunities. Yet, Jim Damicis and Alex Tranmer explore industry and market data to demonstrate the valuable role that health care and related subsectors can have on a community, proving it is a vital component of any economic development strategy.
Examples include: blood tests, X-rays, or rehabilitation treatment.
Health care and related sectors are often overlooked in economic development. There are several reasons for this. First, they are often seen as “out of one’s” control due to federal and state bureaucracy (laws, regulations, insurance, etc.). Economic developers feel there is little they can do to influence decision-making within the context of economic development, namely supporting investment and jobs. Second, health care is not viewed as an export-intensive industry bringing in wealth from outside local and regional boundaries. Rather, it is seen as distributing money within the local/regional economy serving local residents and workers. Third, except for select science and tech-intensive specialty occupations such as doctors, many of the jobs such as medical technicians and facilities maintenance typically support low to moderate wages. Fourth, the industry outlook for investment and job creation is often distorted by trends occurring in the larger institutions within the industry, primarily hospitals and large health care networks. Driven by technology and regulations, consolidation of existing hospitals and practices has occurred. However, emerging opportunities in new, innovative, small, and niche markets and businesses are simultaneously occurring and can be easily overlooked.
The Far Reaches of Health Care
So, what are the major trends in health care related to economic development?
Growth is being driven by many factors, including:
The following table indicates historic and anticipated growth in health expenditure until 2021.
Employment and Occupations6
Between 2005 and 2015, the Health Care and Social Assistance sector 3.9 million jobs were added, most among all sectors in terms of absolute job growth. This represented a growth rate of 25 percent over the ten-year period. And growth is projected to continue. Between 2015 and 2025 the sector is projected to add another 4.1 million jobs (most among all major sectors), an increase of 21 percent. Additionally, in 2015 there were another 2.5 million jobs in industry sectors closely related to health care including Pharmaceutical and Medicine Manufacturing, Medical Equipment and Supplies Manufacturers, which includes wholesalers, pharmacies and health care stores, testing laboratories, and Research and Development entities.7
Industry subsectors that have experienced the highest growth in terms of absolute numbers include: Individual and Family Services, Home Health Care Services, General Medical and Surgical Hospitals, Offices of Physicians, and Outpatient Care Centers. Individual and Family Services added nearly 1.2 million jobs in the last decade, which vastly outnumbers the next largest gain in jobs, 495,615, in the Home Health Care Services subsector. Employment in these subsectors grew at a much higher rate than jobs in the overall U.S. economy, which added approximately 7.2 million jobs, or an increase of 5 percent.
What does all this growth mean in terms of workforce?
Personal Care Aides are projected to experience the greatest growth at the 5-digit SOC code occupation level, adding 557,930 jobs, or a 36 percent increase. This will be followed by Registered Nurses, adding 394,569 jobs and Home Health Aides, adding 318,715 jobs.
Out of the top 10 5-digit SOC codes with the highest projected employment growth, Physical Therapists have the highest median hourly earnings, at $39.26/hr. Personal Care Aides have the lowest hourly earnings, at $9.76/hour. With an increased education level, the hourly wage gain is significant, jumping to $31.95/hour for Registered Nurses and $20.46/hour for Licensed Practical and Licensed Vocational Nurses. This jump in earnings demonstrates the importance of career ladders and workforce development opportunities through higher education.
Finally, it is worth noting that most job growth will be in occupations requiring middle skills - which require more than a high school graduation, but less than a four-year degree. This makes health care and related sectors critical to local and regional workforce development as many of the occupations can be accessed with skills and training available at institutions and schools within the region, including community colleges.
Market Trends and Real Estate Demand for Medical Office Buildings (MOBs)
While the full ramifications of the Affordable Care Act cannot be judged yet, the expected increase in patients has driven demand for health care-related real estate. Additionally, the aging population will continue to tax the health care system and force hospitals and their affiliates to expand their square footage if they are to keep up with the demand from the population. The Outpatient Care Centers subsector performed particularly well over the last three years. Outpatient facilities are typically separate from larger hospitals and can be housed in variety of MOBs, further driving demand for real estate. Further contributing to growth in outpatient facilities is both a consolidation of larger companies, while smaller companies are entering into the market. An industry report for a leading market research firm writes:
“Enticed by growing margins and the potential to strike lucrative acquisition deals with larger industry players, new operators will continue to enter the industry in the next five years, pushing the number of companies upward at an annualized rate of 3.6 percent during the period.”9
During the recession, MOBs were more stable than suburban or Central Business District (CBD) commercial office space, due in part to relatively long term leases of 7-10 years. Colliers International, as well as other real estate developers, note that MOBs are becoming more common as investment properties. About 78 percent of MOB sellers and buyers were investors, as opposed to developers or hospitals in 2013. This is more than double the number of investors the previous year.10
Other significant trends in the field of MOBs include: the necessity for flexible space and multi-specialty offices, which has resulted in the overall increasing size of MOBs. Due to technology advances and the growing amount of technological equipment being used in procedures and follow-ups, space must allow for the technology to be used efficiently. Flexible space opens the possibility for adaptability when technology or the needs of the patient change.
While paper records once took up large portions of a doctor’s office, many hospitals and MOBs have gone, or are going digital, so hard copy records are no longer maintained and stored. Although some space may be saved by digital records, the overall size of MOBs is increasing due to a variety of specialties being housed together under one roof. This can increase cost but also operating efficiency, as overhead costs are lower per physician with a larger group, and if a patient needs to visit multiple specialists they do not have to travel to different locations. The Senior Vice President and National Director at Skanska USA, a construction management company specializing in health care says that while he estimates the average MOB used to be 30,000-60,000 sq. ft., today he says the average is closer to 100,000 sq. ft.11
Key Strategy Issues for Economic Developers
2. Centers for Medicare and Medicaid Services’ (CMS) National Health Expenditure Accounts (NHEA).
3. Compound annual interest refers to average annual growth.
4. IBISWorld, Business Environment Report, Total health expenditure, April 2015
5. IBISWorld, Business Environment Report, Total health expenditure, April 2015
6. Source: Calculated by Camoin Associates, based on data from EMSI; QCEW Employees, Non-QCEW Employees & Self-Employed - EMSI 2015.2 Class of Worker; www.www.economicmodeling.com/
7. These industries include the NAICS Codes: 3254, 3391, 4461, 54138, 5417
8.Colliers International, Medical office Highlights, 2015 Outlook, 2015, http://www.colliers.com/-/media/files/marketresearch/unitedstates/2015-market-reports/1HMedicalOffice_d10_FINAL.pdf
9. IBISWorld, Emergency & Other Outpatient Care Centers in the U.S., May 2015
10. JLL, Medical office buildings top investors’ wish lists, , 2013, http://www.us.jll.com/united-states/en-us/Research/medical-office-buildings-top-investors-wish-lists.pdf?9eb409c9-b566-474c-8a69-3431848b3159
11. Ashok Selvam, “Medical office buildings grow in girth”, Modern Healthcare, September 2012 http://www.modernhealthcare.com/article/20120915/MAGAZINE/309159938
About the Authors
Jim Damicis, Senior Vice President
Alexandra Tranmer, Economic Development Analyst