Health care conundrum

IN MASSACHUSETTS, the health care industry is both an economic engine and an economic drain. It is an industry we rely on today for jobs and economic stimulus and one for which we have even higher hopes in the future. But it’s also one whose rising costs, which seem to know no bounds, come largely at the expense of all other segments of the economy.

Health care is certainly a major source of jobs. Massachusetts General Hospital is the single largest private employer in the city of Boston, and the Partners Health-Care system it’s part of is the largest private employer in the state, with a payroll of 30,000 people. A total of 136,300 workers labor in Massachusetts hospitals, the seventh densest concentration of hospital employment in the 50 states.

That’s just for starters. According to a 2003 study of the economic contributions of the industry, prepared by the Milken Institute for the New England Healthcare Institute, the health care sector overall employed a total of 393,000 people in the Bay State in 2001. Then there are all the jobs in supplier industries, and the jobs created when all those employees spend their money in the local economy – nearly 850,000 jobs, all told, for a total economic impact of $60 billion. Among metropolitan areas, Greater Boston (which reaches up to southern New Hampshire) had the highest concentration of health employment in the country. In a new study, released this week, Milken declared Boston the leading metropolitan area in the country in the emerging life-sciences sector, with jobs in biotech, medical devices, and pharmaceuticals topping 42,000, compared with 27,000 in second-place Philadelphia.

But this bounty in jobs and revenue comes at a price to the rest of the Massachusetts economy. In a 2002 report, the Massachusetts Business Roundtable noted that medical plans in Massachusetts were among the most expensive in the United States and their costs were rising by 12 percent that year – all of which, the report claimed, put employers at a competitive disadvantage when compared with those in other regions. Last year, the Massachusetts Taxpayers Foundation cited high annual premium increases as an element of the high cost of doing business in Massachusetts. And just last week it was reported that employers will face another leap in premiums in January, with increases ranging from 7 to 15 percent.

That doesn’t mean health care providers are flush. Even as spending careens out of control, the hospital industry reminds us that in Massachusetts alone of the 50 states, hospitals are

paid less than the cost of service by all three major payers – Medicare, Medicaid, and private insurers. Lately, cost control has been accomplished mostly by government fiat (such as the Balanced Budget Act of 1997, through which Congress simply declared that Medicare would pay less) and hard bargaining by insurers, not by innovation in care delivery or management.

Nursing homes – those that have not already shut their doors, that is – teeter on the edge of bankruptcy even as the Baby Boomers, the largest population cohort in history, age toward eventual infirmity. Meanwhile, the Massachusetts Medical Society’s annual survey reveals a steady deterioration in physician satisfaction. Even as we seem to pay too much for health care, there is reason to believe we are not paying enough

If the emerging life-sciences sector makes good on its promises, this tension between hopes for growth and fear of its consequences will only get worse. The Massachusetts Biotechnology Council estimates that Massachusetts-based companies account for 8 percent of the world’s pharmaceutical pipeline. Based on brave projections of how many “downstream” manufacturing jobs could be retained in the Bay State, the biotech trade group claims that this still young industry could produce more than 100,000 additional jobs by 2010. That’s a big payoff to the Massachusetts economy. But with those innovations

likely to yield the most expensive additions to the health care menu yet, that bonanza will come at a high price.

The politics are already getting complicated. With the Massachusetts biotech industry entering adolescence, drug giants like Abbott, AstraZeneca, Merck, and Pfizer are establishing research facilities here, and Novartis has located its global research headquarters in Cambridge. But even the growing presence of Big Pharma in their back yards has not kept the municipalities that are counting most heavily on a biotech future, like Boston and Worcester, from jumping on the drug importation bandwagon. In fact, the lawmaker leading the charge for Canadian drugs is state Senator Jarrett Barrios of Cambridge, whose district extends almost to Kendall Square.

“Biotechnology and biomedicine may mean to the first half of the 21st century what electronics and computers meant to the latter half of the 20th century,” the Milken Institute declared in its 2003 report. That is an exciting prospect, but also a worrisome one. The information technology revolution that drove the US (and Massachusetts) economy to dizzying heights in the 1990s also improved productivity in every industry that purchased its wares. It is hard to see the coming biomedical boom setting off a similarly virtuous economic cycle.

Thanks to the system of employer-based insurance, nearly every dollar that goes into the pocket of our flourishing health care industry will come out of another pocket of our regional economy. Never before have we counted so heavily for our economic future on a sector whose growth we are so anxious to restrain.

Robert Keough is editor of CommonWealth, a quarterly journal published by MassINC, a nonpartisan think tank in Boston. This essay is adapted from CommonWealth’s just-released health care extra, online at www.massinc.org.