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Monday, November 19 2018

By Jim Damicis, Senior Vice President Camoin Associates, Alexandra Tranmer, Project Manager Camoin Associates

In previous research articles on healthcare, we have considered digital technology trends, the changing dynamics of real estate and retailization of the healthcare industry, and why healthcare should be a consideration in a community’s economic development strategic planning. This time around, our research examines the critical role that healthcare plays in supporting and growing industry clusters, specifically, Life Sciences, Information Communications Technology (ICT), and Medical Device Manufacturing. These clusters are producing significant contributions to the nation’s economy and creating high wage jobs.

While healthcare is often deemed too difficult to manage at a local level due to the federal involvement in regulations or overlooked as a non-export industry, local and regional economic developers can harness the workforce, technology, and sheer size of the healthcare industry to further support job growth in their communities. Furthermore, the number of projected openings in the healthcare field continue to rise and supporting and training the workforce for these positions will be crucial to ensuring the stability and growth of healthcare networks across the country, while providing significant employment and career opportunities.

After exploring the healthcare industry’s role in the overall U.S. economy, we will demonstrate through real-world examples how the fields of Life Sciences, ICT and Medical Device Manufacturing capitalize on various levels of healthcare in metros across the country.


 
Healthcare Performance in the U.S. Economy
For the purposes of this article, we will refer to healthcare as it is defined by NAICS 62, Health Care and Social Assistance.
1 This includes thesubsectors of:
• Ambulatory Services
• Hospital Operations
• Nursing and Residential Car Facilities
• Social Assistance

What is typically thought of as the traditional healthcare industry is the central economic driver for many communities across the country. From the doctors and nurses caring for patients, to the business operations of hospitals and its subsidiaries, to outpatient facilities and physical therapy clinics for post-operation rehab, the healthcare network provides a range of occupations that employ millions of people across the country. Across the U.S., the Health Care and Social Assistance industry currently contributes to 13 percent of overall employment. In 2018, NAICS 62 employed over 21 million people, ranking as the second largest industry in terms of jobs in the United States.

Over 2013 to 2018, the number of jobs added in the Health Care and Social Assistance industry contributed to over 18 percent of all job growth in the United States. During this period job growth within the industry reached 13 percent, compared to nine percent for all industries.2  

 

Gross Domestic Product (GDP) by industry, reported by the Bureau of Economic Analysis, demonstrates each industry’s contribution to the U.S. economy, or its “value-added.” GDP captures industry employee compensation, gross operating surplus, and taxes.3 In Quarter 1 of 2018, the Bureau of Economic Analysis reported that Health Care and Social Assistance industry contributed $1.5 trillion to the country’s $20 trillion total GDP.  

Healthcare’s Role in Cluster Development
Although the healthcare field is a major employer, it is often passed over by communities during economic development strategic planning processes and target industry analyses because it is deemed too difficult to regulate at the local level, while state and federal officials debate about the future of insurance premiums, Medicare and Medicaid, and prescription drug coverage. Additionally, it is traditionally seen as a non-traded sector, meaning that the industry does not contribute to creating and exporting goods outside of a region. While healthcare may not be a traded sector, there are numerous instances of healthcare facilities that attract customers to a specific region, as well as businesses that relocate in close proximity to healthcare facilities in order to improve their services. For example, a public-private partnership between Rochester, Minnesota, the Mayo Clinic, and other levels of local and regional government created the Destination Medical Center (DMC)
4 as a multi-billion-dollar economic development project to attract private investment and create jobs to foster the area’s health and wellness cluster.

Beyond playing a vital role in overall community health and productivity, healthcare entities also act as important nodes in the web of cluster development. More and more, the lines are blurred between where healthcare ends and the next industry begins. Teaching hospitals function as testing grounds and research space for new medicines, while technicians play overlapping roles in the day-to-day operations of the hospital and advance technology developed by medical device manufacturing companies. As electronic health records are introduced into more healthcare networks, hospitals administration must collaborate with software companies to ensure patient privacy and 24/7 access to customer support. The interconnectedness of healthcare to Life Sciences, Medical Device Manufacturing, and ICT means that communities with strong healthcare networks also have the potential to retain, attract, and cultivate business development among sectors that may not typically be associated with healthcare. In this industry cross-over, there are unique economic development opportunities including workforce development, entrepreneurship, community health and wellness, and business development.

How Do Industry Sectors Become a Successful Cluster?
At risk of making an obvious statement, the sole presence of a hospital or outpatient clinic does not mean that a Life Sciences cluster is bound to form, expand, and thrive. Developing and solidifying clusters requires consistent efforts from public and private sector stakeholders to assess the market and strategic injections of funding and other resource support.
5 Clusters must have a critical mass of firms that are close together and economically tied to each other. This economic linkage is what the Brookings Institution calls “interdependence.” This means more than firms locating near each other in terms of geography, but that they gain a competitive advantage from being in proximity.

Economic development organizations (EDOs) have spent countless hours and resources attempting to cultivate successful industry clusters. Brookings outlines the three traits of a successful cluster as being industry-driven, university-fueled, and government funded.6 Determining the right formula to develop mutually beneficial relationships and connect the right players to be coaxed into a successful, strong network of public-private partnerships has proven very challenging to replicate. Clusters can be an important part of a region’s economy, increasing competitiveness and driving job growth, wage growth, and new business creation.

The following sections demonstrate the dynamics between healthcare partners and the three industry clusters of Life Sciences, ICT, and Medical Device Manufacturing.

Healthcare Systems Boosting Life Sciences Clusters
Life Sciences is an expansive industry that generally refers to the “application of biology and technology to improve health care, and includes biopharmaceuticals, medical, technology, genomics, diagnostics, and digital health.
7 This industry has flourished over the last decade, as the combination of growing consumer markets and technology uptake has amplified the growth of Life Sciences firms.

Based on JLL’s 2018 Life Sciences Outlook ranking system, the Greater Boston area performs as the #1 Life Science Cluster across the United States. The San Francisco Bay Area follows in second place, and the top three is rounded out by the San Diego Metro Area. JLL notes that Boston’s Life Science cluster is supported by a significant agglomeration of healthcare professionals. The 2018 labor force data show that in the Boston Metropolitan Statistical Area (MSA), Health Care and Social Assistance (NACIS 62) employs the greatest number of people with over 457,300 jobs, comprising over 15 perccent of the MSA’s workforce. Employment is anchored by institutions like Massachusetts General Hospital, Brigham and Women’s Hospital, Boston Children’s Hospital, Dana Farber Cancer Institute, and Beth Israel Deaconess Medical Center, among other world-renowned facilities that dot Boston’s landscape. This is also supported by several anchor universities and colleges including Harvard, Massachusetts College of Pharmacy and Health Sciences, Simmons University, Boston University, Boston College, Northeastern University, and others.

The U.S. Cluster Mapping Project visually represents Greater Boston’s biopharmaceutical cluster (below), demonstrating the intricate web of sectors that are involved in producing a successful cluster.8 Teaching & Specializing Hospitals are featured among other nodes in the Biopharmaceuticals Clusters including medical device manufacturing, information technology, research and educational institutions, and supplementary business services like accounting and law firms.


It is not just the healthcare workforce that supports growth in Boston’s Life Sciences cluster and others like it. As technologies are more frequently used in the application of healthcare and pharmaceutical development, skills related to technology are just as important as training in the medical field. JLL reports that workforce among the Life Sciences cluster remains competitive, as the direction of R&D in the Life Sciences field turns to more and more technology-based innovations.

On a list of the top ten companies investing in R&D, five of ten are biopharmaceutical companies. Biopharmaceutical companies such as Roche, Merck, Novartis, Johnson & Johnson, and Pfizer fall amongst Amazon, Microsoft and Apple in terms of R&D investment.9 The Bureau of Labor Statistics also projects that employment for R&D in biotechnology will increase by 19 percent between 2016 and 2026, outpacing overall U.S. employment growth by nine percentage points.

Biotechnology firms are essentially vying to attract the same workers that might otherwise have typically entered a technology start-up in Silicon Valley. Using EMSI labor force data to breakdown the top 20 occupations in both Life Sciences and ICT, we can see that both clusters overlap across eight, or 40 percent, of their top 20 occupations. These occupations include:   

  • Software Developers, Applications
  • Customer Service Representatives
  • General and Operations Managers
  • Market Research Analysts and Marketing
  • Business Operations Specialists
  • Management Analysts
  • Sales Representatives, Wholesale and Manufacturing, Technical and Scientific Products
  • Office Clerks, General

Bringing Healthcare into the 21st Century – Information Communications Technology  
As technology enters more aspects of the healthcare field, the world of “health tech” continues to evolve with wearable devices that monitor vital statistics to combat chronic illness, and data input systems that improve access to patient records. The relationships between technology giants, insurers, and hospitals are shifting in a way that seeks to empower patients to understand their medical options and their diagnoses more clearly.
 
While federal regulation on access to healthcare remains in flux as both political parties duke it out to establish new legislation, the private sector continues to bound forward with advancements in health tech. For example, the ride sharing app, Uber, recently launched Uber Health, to assist clinics in arranging transportation for their patients. The service currently runs in 250 cities where Uber is available. Challenges arise as the privacy associated with healthcare procedures is not always adhered to by tech companies; however, both industries are working together to establish standards to ensure patients are not putting themselves or their information in harm’s way. While tech companies like Uber look to expand their reach into more corporate and institutional settings, Silicon Valley giants like Apple have begun to cater specialized versions of products like the Apple Watch and iPad for everyday healthcare uses.

The next innovations in healthcare require more than typical laboratory equipment, they require advanced technology, skilled technicians, and the network and business acumen to bring the new developments to market. In Orlando, FL, Lake Nona Medical City is a master-planned community that has rapidly become a medical care and research hub, anchored by the University of Central Florida’s (UCF) Health Sciences Campus and College of Medicine, as well as the Burnett School of Biomedical Sciences.

The GuideWell Innovation Center, within the Lake Nona Medical City, houses an array of research spaces amongst its 92,000 square feet of space. The center boasts the world’s fastest internet speeds, catering to companies who can capitalize on accessing some of the most advanced technology and medical facilities in the country, along with amenities like research spaces and an educated workforce.10

Medical Device Manufacturing  
Medical Device Manufacturing is a subsector of manufacturing that spans the production of sensors, tools, electrodes, and other devices that contribute to improving patient health. The work involved in manufacturing the components that make up these devices is hyperspecialized and often requires intensive investment to meet the Food and Drug Administration’s (FDA) guidelines of production. While instruments in this sector are a costly investment for hospitals or other health network operators, the technological advancements keep doctors and nurses on the cutting edge of patient care.

The Medical Device Manufacturing industry’s market share continues to grow as the aging population drives demand, especially in a positive economic outlook. Industry revenue is expected to total $39.5 billion in 2018, and although the industry experienced a decline of 1.3 percent between 2013 and 2018, IBIS World reports that annual growth is expected rebound to three percent over 2018 to 2023. While domestic demand is expected to grow, additional government regulations have been viewed as burdensome by some companies and industry analysts anticipate firms off-shoring some of their processes, including R&D work.11

This industry is heavily concentrated in pockets throughout the U.S., but nowhere more so than Warsaw, Indiana, which is known as the “Orthopedic Capital of the World” and home to industry leaders like DePuy Synthes, Medtronic, and others. The Warsaw metropolitan area employs 7,250 people in the medical device manufacturing industry, and has a location quotient of 97.5, meaning that this industry is 97 times more prevalent in Warsaw than the national average. OrthoWorx, a non-profit organization based in Warsaw partners with local manufacturers and other stakeholders to safeguard the metro’s control of the market and continue to support existing and growing businesses in this field.

While Warsaw has a tight hold on the orthopedic device market, another Midwest location has built a name for itself in medical manufacturing and innovation over centuries. The Greater Minneapolis- Saint Paul Region has a historic legacy of medical device manufacturing and continues to support companies that have called the area home for decades, while also incubating some of the newest technology available on the market. Although the neighboring Rochester metro area is home to the Mayo Clinic, the Minneapolis-Saint Paul-Bloomington, MN-WI metro area also supports a strong healthcare industry. Over the last five years, the Health Care and Social Assistance industry (NAICS 62) demonstrated the largest job growth among all industries, growing by 14 percent or over 36,950 jobs.

Together, the Rochester and Minneapolis-Saint Paul-Bloomington, MW-WI metros anchor Minnesota’s Medical Alley, which has attracted companies from around the world, including Australia and the United Kingdom. Supporting industries ranging from medical device, digital health, biopharmaceuticals, and diagnostics, these highly specialized clusters rely on the regional partnership of private and public-sector entities to produce the appropriate resources, incentives, and workforce to continue innovating. The regional EDO, Greater MSP, boasts that the FDA approves new devices from this region 26% faster than the national average.12

What Does This Mean for Economic Developers?
The healthcare industry is a critical component of developing Life Sciences, Information Communications Technology, and Medical Device Manufacturing clusters. While a complete cluster strategy is not within the wheel house of every EDO, there are three foundational elements to keep in mind to support your local industries.  

Data, data, data: Having relevant, reliable data to leverage your region’s strengths in healthcare and related industries is vital to understand where the overlaps could be economically beneficial to your community. Key data points to uncover these linkages include: location quotient, the number of business establishments, employment change in terms of percentage and number of jobs, top occupations and the skills that cut across industry sectors, education attainment level and R&D statistics.

Partnerships: Cluster development requires partnerships that extend across sectors. From workforce development in the tech sector to your community’s planners and engineers, to universities and colleges, and entrepreneurs and capital networks – all play a role in supporting cluster development. Economic development organizations are a critical part of supporting these partnerships by serving as conveners, providing data and analysis, performing retention and expansion services, and attracting new companies and investment.

Listen to your employers: All the clusters discussed in this industry are rapidly changing. Often, private industry tends to adapt quicker than what the public sector and educational curriculum can keep up with. Economic developers should communicate frequently with their major employers about challenges facing their growth potential. This could be a workforce mismatch, the need for more developable land or a faster broadband connection, among other business development quandaries. Identifying an obstacle to industry growth will allow economic developers to call on 1) relevant data and 2) their partners to determine the best solution to mitigate challenges.

Bios:
Jim Damicis: Jim is Camoin Associates’ Senior Vice President. He has more than 25 years of experience in public policy research and analysis. Jim brings a holistic, innovative approach to Camoin’s data-driven economic development planning efforts. Through his work with the Communities of the Future and World Future Society, he is a national leader in preparing the profession, communities, and regions for an emerging economic future.

Alex Tranmer: Alex Tranmer is a Project Manager with Camoin Associates. Alex and Jim have previously collaborated to write industry outlooks for biotechnology, health care and the changing retail market. She works on a variety of different projects with the firm ranging from strategic planning to market analyses to municipal grant administration.

Sources:
1 Northern American Industry Classification System (NAICS)
2 Economic Modeling Specialists International, https://www.economicmodeling.com/
3 U.S. Bureau of Economic Analysis, “Value Added by Industry, Qtr 1 2018"
4 https://dmc.mn/
5 Donahue, R., Parilla, J., & McDearman, B. (2018). Rethinking Cluster Initiatives. Metropolitan Policy Program at Brookings.
6 Donahue, R., Parilla, J., & McDearman, B. (2018). Rethinking Cluster Initiatives). Metropolitan Policy Program at Brookings.
7 2018 Global life sciences outlook. (2018). Retrieved https://www2.deloitte.com/global/en/pages/life-sciences-and-healthcare/articles/global-life-sciences-sector-outlook.html
8 Clusters 101. (2018). Retrieved from http://www.clustermapping.us/content/clusters-101
9 Molla, R. (2018, April 09). Amazon spent nearly $23 billion on R&D last year - more than any other U.S. company. Retrieved from https://www.recode.net/2018/4/9/17204004/amazon-research-development-rd
10 http://www.guidewellcenteratlakenona.com/
11 IBIS World Industry Report 33451b, Medical Device Manufacturing in the US. June 2018.
12 https://www.greatermsp.org/clientuploads/Minnesota_Medical_Alley_Booklet.pdf

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