What is the impact of health care institutions on the local economy of the Sudbury region?

A health care institution like a hospital or a nursing home provides a service to a community and thereby contributes to the health and well-being of the residents. But does it do more than that? From an economic perspective, a health care institution is no different than any other business or organization in a community: it hires people and pays them wages, it buys goods and services from local and non-local suppliers, it pays local taxes and it receives income from its "customers". In other words, besides making health services available to the residents, a health care institution has an economic impact on the community in which it is located.

An appreciation of the economic impact of the health care sector would contribute to a better understanding of its role in the overall economic development of the Sudbury region. To this end, the Centre for Rural and Northern Health Research (CRaNHR) at Laurentian University, with the cooperation of Hôpital Régional de Sudbury Region Hospital (HRSRH), the physician community, Northeastern Ontario Regional Cancer Centre (NEORCC), Northeast Mental Health Centre (NEMHC), Pioneer Manor, Extendicare Falconbridge, Extendicare York and Garson Manor, conducted a study of the economic impact of these health care institutions in collaboration with Informetrica Limited, an Ottawa-based economic consulting firm. The study was financially supported by FedNor and HRSRH.

Nature of Economic Impact Study

Economic impact studies determine the changes in economic activities that occur as a response to an economic stimulus. Such studies measure the effects of the economic stimuli in the form of incomes, jobs and taxes. The economic stimuli being measured in this study are those generated by the aforementioned publicly-funded health care institutions in the Sudbury region. The income impact reported here is the Gross Domestic Product (GDP) at factor cost generated within the Sudbury region by these health care institutions. Employment impacts reported here are measures of local employment generated by these institutions. Local tax impacts represent revenue received by the local municipality from the property taxes paid by the health care institutions and their employees. This includes the taxes paid by businesses and their employees in the area who serve the local health care institutions, as well as the institutions' employees. In discussing the economic impact of the health care sector, it is useful to distinguish between the direct effects, indirect effects and induced effects.

The direct effects of the health care institutions are those directly attributable to the institutions and their activities, and are represented by the revenues received and the expenditures they make for labour, services and capital inputs.

Indirect effects include new activities in the local economy as a result of spending on goods and services by the health care institutions. However, not all purchases are local. Spending outside the region for the production of health care services is considered a leakage. Indirect effects are reduced if more non-local purchases are made.

Induced effects are new economic activities in the region originating from the spending out of the incomes of those employed by the local health care institutions and by those employed by local businesses that provide goods and services to the health care institutions. Therefore, the induced effects are the spending and re-spending of income derived directly or indirectly from the health care institutions.

Together, the direct, indirect and induced effects make up the total impact of the economic stimulus being measured.

Data and Methodology

This study used mostly secondary data obtained from a variety of sources. Revenue and expenditure data were provided by each of the participating health care institutions. The exceptions to this were Extendicare York, Extendicare Falconbridge and Garson Manor whose expenditure and revenue data were obtained from the Ministry of Health and Long-Term Care. Average OHIP billings by Sudbury physicians were obtained from the Institute for Clinical Evaluative Sciences. Another source of data was a survey of expenditures by Sudbury-region physicians conducted by CRaNHR. Data from other sources were also used.

An income multiplier was used to determine the total spending and re-spending of incomes by the employees of the health care institutions of concern and the local businesses that provided goods and services to these institutions. The multiplier was calculated through the minimum requirements approach. A Canada-wide cost comparison study was done by Informetrica Limited to help determine the values of the income multipliers used for this study. The multipliers used here incorporated consumer spending and population. The income multiplier used for this study was 2.03.

Economic Impact of Sudbury Regional Hospital

Being one of the largest employers in the Sudbury region, HRSRH employed more than 2,700 people in the 1998/1999 fiscal year, or roughly 2,000 full-time-equivalent (FTE) positions. Its total revenue in 1998/1999 was $170,780,000, with the provincial government contributing roughly 80% of this amount. About 60% of the revenue (or about $100,000,000) was spent on employee wages. Since 99% of the hospital employees lived in the Sudbury region, most of the wages paid remained in the region. The net direct and indirect local income impacts from hospital operations were around $135,000,000. The induced local income impact originating from hospital expenditures was estimated to be over $139,000,000.

In terms of employment impact, it was found that the hospital had a direct and indirect employment impact of 3,018 person-years in 1998/99. The induced employment effect was estimated to be 4,699 person-years.

Another aspect of the hospital’s economic impact is the income generated by physicians, particularly specialists, who work at the hospital. A survey of Sudbury physicians conducted by CRaNHR revealed that roughly 10% of the earnings by non-specialist physicians were derived from work at HRSRH, while about 90% of OHIP billings by specialist physicians were derived from hospital-based services. The analysis showed that the local income impact of physicians attributable to their medical practice at HRSRH was $30,150,000 in 1997/1998 and the total local employment impact was 731 person-years of employment.

The economic impacts of HRSRH and physicians with hospital privilege can be combined to determine the total economic impact they had on the Sudbury region, as shown in the following table. Together, they provided a net local income impact of about $305,154,000 in 1998/99. They also contributed about 8,450 person-years of employment to the Sudbury region.