New AAMC Study Examines Members' Economic Impact

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Managing Editor Scott Harris sharris@aamc.org Staff Writer Elissa Fuchs efuchs@aamc.org

New AAMC Study Examines Members' Economic Impact

A recent AAMC report on the economic impact of medical schools and teaching hospitals indicates that many of these institutions function as engines of significant growth in their communities, affecting not only their immediate regions but also the economy of the entire nation.

"The reality is that many of our institutions are very large enterprises and are important not only to the health status of their local communities but also to the communities' economic well-being," said AAMC Division of Health Care Affairs Senior Vice President Robert Dickler. "These institutions' ability to attract outside funding and to bring in faculty and staff who can contribute financially to the community, as well as their ability to serve patients from dispersed areas, mean that their import extends significantly beyond their traditional missions of teaching, research, and patient care."

The report, prepared for the AAMC by Tripp Umbach Healthcare Consulting, Inc., found that the combined impact of AAMC members on states and the entire country during 2002 exceeded $326 billion. But because the study focuses only on the economic influence of AAMC members, (allopathic medical schools and their affiliated hospitals) the total financial effect of all U.S. medical schools and teaching hospitals is actually higher than the above figure.

According to the report, AAMC members have an economic weight of more than one-half of the total economic impact of the Internet industry, which amounts to $507 billion yearly, and more than twice the annual impact of the arts and cultural organizations' $134 billion figure.

"It is interesting to look at what is still a relatively small community, with 126 medical schools and more than 300 hospitals and health systems, and see that this limited number of organizations can have such a far-reaching economic impact," said Dickler. "Maybe that shows up in the most graphic way not in the dollar amounts but in the employment figures, which show that directly or indirectly one out of every 54 wage earners in the country has a linkage to the activities of an AAMC medical school or teaching hospital."

One of the study's important findings is that a total of 2,709,321 jobs in the United States in 2002 were directly or indirectly attributable to AAMC members. On a direct-employment basis alone, AAMC institutions were responsible for a total of 1,505,178 full-time-equivalent positions. This figure includes staff, physician employees, and independent physician contractors.

As major employers in their home states, medical schools and teaching hospitals are generators of a considerable portion of local residents' personal incomes, the study explains. "Businesses operating within each state in the wholesale, retail, service, and manufacturing sectors benefit from the direct expenditures of the institution and its staff on goods and services," the report states. In addition, businesses in each state are recipients of spending by hospital patients, students, and their visitors.

All of the above "direct expenditures" are then "re-circulated" into the economy, as the recipients of the first round of income re-spend a portion of it on other businesses and individuals within the state. This re-spending has been termed by economists the "multiplier effect," and according to the study, a medical school and teaching hospital have a multiplier effect of 2.3. In other words, "for every dollar spent by a medical school or teaching hospital, an additional $1.30 is indirectly generated for a total impact of $2.30," according to the report.

Another significant figure that came out of the study was the total amount of state tax revenue generated by AAMC members - $14.7 billion. Since most AAMC members are not for profit, and are, therefore, exempted from paying taxes, this figure was indirectly generated through income taxes paid by medical school and hospital staff, sales and corporate net income taxes, as well as capital stock and franchise taxes produced by businesses receiving revenue from AAMC members. "It's interesting to see the indirect and direct tax generation activity of a community that is primarily not for profit," said Dickler. "Most of these institutions don't pay taxes, but their aggregate economic activity indicates that they are responsible for a significant level of taxes. They are not paying in a classic way, but that doesn't mean that the public at large isn't benefiting from the tax revenue generated out of the aggregate activity."

New York, Pennsylvania, and California are the top three states where AAMC members have the most financial impact, according to the Tripp Umbach economic model. New York's total impact was $49,024,547,555; Pennsylvania followed at $26,462,163,305; and California was third at $25,577,220,817.

The study noted that in addition to these quantifiable economic impact measures, "AAMC members institutions generate financial and social cost savings through their provision of community health improvement activities, preventive and primary care, and access to care." However, because of the difficulty in accurately measuring such an impact, Tripp Umbach did not include it in the study.

-Suria Santana

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