by Laurence S. Rosen
March 16, 2009

An interesting thing happened to Michigan’s economy as it turned the corner and pushed headlong into the 21st century, something unfathomable only decades earlier: health care moved into position to become Michigan’s largest private sector employer and, arguably, Michigan’s largest industry. More than half a million workers are employed directly in providing health care services and another 278,000 work in jobs that are dependent on the health care industry.

Even before the current precipitous decline of the auto industry we were beginning to become aware of this big new kid on the block. In 2005 Governor Jennifer Granholm had the following to say in a report on changes in the Lansing area’s economy.

Think back to the last time you visited your doctor’s office with a sick child or had a CT scan in the hospital, or paid a visit to a loved one in a long-term care setting. What you probably remember most about those experiences are the people who helped you through an uncertain or trying time; those highly-trained, compassionate people in the health care industry who have dedicated their lives to serving the health care needs of the people of Michigan.

Either directly or indirectly, more than 675,000 people in this great state work every day to deliver the high quality health care services that we have come to know and upon which we depend. Over the next 20 years — as our population ages, “baby boomers” retire, and the demand for health care workers increases — that number is expected to grow.

How did this happen? Michigan is the place where we make cars, and even with the competition foreign manufacturers posed to Detroit for the past few decades, Michigan was still a manufacturing state through good times and bad. At the beginning of this decade, manufacturing was still Michigan’s largest private sector employer with more than 850,000 workers — about one of every six employed people in the state depended on manufacturing for his or her livelihood. Since the end of World War II, manufacturing — and automobile manufacturing in particular — supported the American dream in Michigan with high wages, employment security, generous pensions, and most important, rock solid health care benefits. Even now, with a two-tiered wage system and shrinking employment, manufacturing employees in Michigan averaged more than $50,000 a year in wages — 27 percent above the statewide average — according to the latest data from the U.S. Bureau of Labor Statistics.

But manufacturing has been shrinking dramatically from year to year, from 900,000 workers in the late 1990s to an estimated 530,000 in December 2008. At the same time, employment in Michigan’s health care sector has continued to grow — slowly and steadily, but growth nonetheless. At the end of 2008, the gap in employment between the old standby — manufacturing — and the new kid — health care — had shrunk to less than 100,000, and the point at which the number of health care employees passes manufacturing employees in Michigan is near.

Source: Bureau of Labor Statistics, State and Local Employment Data. Tabulations by the author.

As policy makers and government officials started to notice these trends a few years ago, health care looked like it was the silver lining that would step in to pick up the slack in an increasingly turbulent world of struggling car makers and, now, crumbling financial institutions. As we look back over the past decade we see that hospitals, doctors’ offices, nursing homes, pharmacies, and many other health-related venues emerged as part of one Michigan industry that has consistently been associated with growing employment, high wages, and, in stark contrast to manufacturing’s image, an entryway into the 21st century world of high-tech industry. As the baby-boom generation started to reach retirement age, almost everyone came to accept the idea that health care would just keep growing to meet the needs of…well, us as we get older and need a few more tests, a few more pills, and a few more things fixed to keep us going.

The impact of the health care sector on Michigan’s economy is startling. In 2006 the average health care employee in Michigan earned about $40,000, slightly above the statewide average. A 2008 report from The Partnership for Michigan’s Health states that those directly involved in the provision of health care in Michigan earned approximately $26.3 billion in 2006, and if you add in those in positions that are indirectly related to health care or that rely on the business generated directly and indirectly through health care employment, the total reached almost $37 billion in 2006. Direct, indirect, and induced employment within the health care sector represents more than 790,000 Michigan residents. According to the report, “Michigan health care workers and their employers pay nearly $12 billion annually in taxes.”

Michigan also has a substantial investment in health care professional education. Hundreds of medical students are enrolled at the University of Michigan, Wayne State University, and at Michigan State University’s two medical schools — the College of Human Medicine and College of Osteopathic Medicine.

In response to physician shortages that are predicted to emerge over the next decade, MSU’s medical schools are expanding in Grand Rapids and in the Detroit area. The College of Human Medicine is moving its first two years of instruction to a new facility adjacent to Spectrum Health Care’s main campus in Grand Rapids and will add 50 new students in the process. MSU’s College of Osteopathic Medicine is planning to add classes of 50 students each at the Detroit Medical Center and at Macomb Community College. These new sites will eventually expand to 100 students each over and above those continuing to enroll at the main campus in East Lansing.

Plans also are being made to launch a new medical school that will be under the joint authority of Oakland University and William Beaumont Hospital, and both Western Michigan University and Central Michigan University are exploring the possibility of their own medical schools in the future.

Nursing education in Michigan is booming as well. There are programs across the state — from RN programs at community colleges, more academically oriented programs at the University of Michigan and Michigan State University, to accelerated programs where college graduates can become nurses in only 12 months of intense study at the University of Detroit Mercy. The only factor holding back even greater expansion of nursing education is a shortage of advanced degree nursing faculty.

Another factor that makes the healthcare industry so important to Michigan, especially during difficult economic times, is the often overlooked fact that this industry provides employment at all levels of skill and education, and it employs significant numbers of people all across the state. It is not just doctors, dentists, and nurses. At the higher levels are other professionals and the executives who are employed in hospitals, physician offices, clinics, public health agencies, managed care organizations, and retail outlets. Numerous more moderately skilled and compensated occupations occupy the middle rungs, including medical assistants, dental hygienists, health technicians and technologists, therapy assistants, and an army of medical coders, admission clerks, and computer operators.

There are also thousands of workers with fewer specialized skills who provide care for the chronically ill and the elderly. They work in nursing homes, home health agencies, and in hospitals as nurses’ aides, home health aides, kitchen staff, and housecleaning staff. Equally important is another frequently overlooked impact — the presence of health care institutions, services, and employees throughout the state, even in some of the most remote areas of the Upper Peninsula. In many communities health care is often the single largest employer in town, and wherever there is a hospital, no matter how small it may be, it is almost certainly the largest employer and the most important economic driver of the local economy.

Achilles heel
Hospitals are typically the largest and most visible institutions within the health care industry, and what happens to hospitals can serve as an indicator for the entire industry. In February the Michigan Health & Hospital Association reported that Michigan hospitals were facing some unprecedented financial problems that appeared to be a direct result of the recession.

Michigan hospitals are seeing more uninsured patients than ever and more Medicaid patients. While hospitals and physicians are reimbursed for the services they provide to our poorest citizens (half of whom are children) who are enrolled in the Medicaid program, Brian Peters, executive vice president of the Michigan Health & Hospital Association, explains that reimbursement rates are low and do not fully cover the cost of the services provided. He notes that hospitals are even seeing a rise in the number of patients who are insured but delaying or avoiding their co-pay obligations.

According to Tom Bissonnette, executive director of Nursing Practice and Operations at the Michigan Nurses Association, as unemployment grows so does the number of Michiganians without insurance, and these individuals often put off routine care until minor problems become serious ones. When that happens they show up at the emergency room where, by law, they must be treated regardless of their ability to pay. “When we see these people [in the ER] they are in worse shape than we would have expected.”

Dennis Paradis, executive director of the Michigan Osteopathic Association, calls this the “high-deductible syndrome.” Insured patients with plans that require high out-of-pocket payment do not always have the funds or the desire to pay their share of the cost.

As a result, financial officers report that Michigan hospitals on average lost almost 3 percent during the third quarter of 2008. Red ink has produced layoffs at the University of Michigan Medical Center, William Beaumont Hospital, and Sparrow Health System. Denise Holmes, associate dean of the MSU College of Human Medicine, says that it appears people are postponing elective surgeries and hospitals are responding by also cutting back on purchasing new equipment and new construction, among other cost-cutting strategies. Despite stability and even growth in the recent past, she notes that “health care is not immune to the laws of the economy.” Peters agrees, noting that for the first time since Medicare’s inception in the 1960s, hospitals are losing money on older patients who are enrolled in the federal program. He adds, “it’s not business as usual any more.”

The irony for thought leaders and policy makers in Lansing is that just as we began to capitalize on the strength of the health care industry to help shore up the state’s economy, manufacturing — the economic engine that helped build a strong and vibrant health system across Michigan by employing large numbers of well-paid manufacturing workers and providing them with health insurance — is shrinking faster than had ever been imagined. In just a matter of months, manufacturing has gone from being the foundation of Michigan’s health care industry to being a serious problem for the health care industry. As manufacturing declines ripple through Michigan’s economy, layoffs and the threat of layoffs lead to more adults losing their health insurance, more residents receiving care paid for by Medicaid, and even some Michiganians with health insurance putting off some of their care.

“The current mode is unsustainable,” says Peters. “We need an even playing field with coverage for everyone regardless of where they work.”

Critical issues
The changing character of the health care industry in Michigan is not simply a product of the economic stress we have experienced over the past year. There are a number of other underlying factors that pose challenges to Michigan’s health care industry that need to be addressed in the near future if we want this new economic engine to get over the rough spots and stay revved.

Health Care Costs. Health care costs are continuing to grow and will consume more of our personal (and statewide) wealth for the foreseeable future. Forecasts from the Centers for Medicare and Medicaid Services anticipate that total health expenditures in the United States will grow from $2.39 trillion in 2008 to $4.28 trillion by 2017. That’s an increase of 78.6 percent, up from 16.6 percent of gross domestic product in 2008 to 19.5 percent by 2017 when almost $1 of every $5 in the U.S. economy will be devoted to health care.

Unfortunately, rising costs do not necessarily translate into better care or better outcomes. In February, the Organization for Economic Co-operation and Development confirmed that the U.S. has the highest per capita health care costs among all developed nations, yet we lag behind other industrial nations in almost every indicator of health.

One factor contributing to higher costs yet poorer outcomes in the U.S. than among our peers in other nations is that our health care finance system is designed to pay for tertiary care — expensive procedures in expensive settings performed by expensive specialists — and not primary and preventive care. According to Paradis, not only is there a downward trend in the number of physicians who are choosing primary care for their practice, there is also a downward trend in the number of physicians assistants and nurse practitioners — “physician extenders” — that are choosing to work in primary care. These declines, he contends, reflect the fact that “primary care is just not an attractive business model.”

The one small piece of good news is that health care in Michigan is relatively cost effective in comparison with other states in this region and across the nation. Unfortunately, this is not enough in the short term to resolve any of our problems. Financial pressures will lead some Michigan hospitals to close in the future, and the range of specialists and sub-specialists will likely decline at the weaker institutions and become more concentrated at the stronger ones, according to Bissonnette.

The Uninsured. The percentage of people without health insurance in Michigan has been lower than average for years. The U.S. Census Bureau reports that Michigan had 10.8 percent of its population without health insurance during the years 2004 to 2007, compared to a nationwide average of 15.4 percent at that time. It should be noted that Michigan’s lower rate has been due, in part, to the strong presence of the automobile industry and Michigan’s strong labor union movement.

The ranks of the insured, however, are misleading as they also include those who are covered by Medicaid, and  Medicaid enrollment in Michigan has increased dramatically, from about one million in 2000 to 1.6 million in 2008. Growing unemployment will inevitably lead to more uninsured residents, some of whom will end up on the Medicaid rolls. And while the federal funds to pay for Medicaid services in Michigan are increasing, reimbursement does not fully cover the cost of care in most cases.

Health Care Workforce. Many health care occupations require extensive training and they pay well, but we are already experiencing shortages in some of these occupations, with more shortages to come in the years ahead. The nursing shortage in Michigan has been well documented, and the Michigan State Medical Society predicts there will be as many as 6,000 more physicians needed here in Michigan by 2020.

Nursing programs and medical schools have responded to these needs across the state by expanding to new locations and increasing enrollments. But both nursing and medical education face some serious challenges. The nursing profession has done a good job of stimulating interest in nursing careers among young people, but there is not enough nursing faculty to meet all of the demand. There will continue to be nursing shortages for years to come.

For physicians, expanding existing programs and establishing new medical schools to address anticipated shortages are only band-aids for the problem. Physicians learn most of their specialized skills on the job after medical school, and until the number of hospital residency programs expands to absorb new medical graduates, we are not likely to see a significant increase in physicians to fill the gap.

Technology. Health care technology provides both opportunities and challenges to the future of health care in Michigan. Some of the drivers of growing health care costs have been new and expensive technologies for diagnostic and treatment purposes. Even with Michigan’s Certificate of Need process requiring that expensive equipment be justified, the desire to have the most advanced equipment available has often produced a “medical arms race” that drives up the cost of health care for everyone.

On the other hand, there are new technologies that have the potential to make health care processes and practices more efficient and allow the use of scarce resources more effectively, including electronic medical records, computerized order entry systems for tests and prescriptions, and high-speed, real-time telemedicine. The major challenge now is to gain wider acceptance and use of these technologies among providers while assuring that patient information will remain confidential.

Next Steps
For years Michigan has had an enviable health care system with large, well respected health centers from Detroit to Marquette offering almost every type of medical service and equipment you could want. Four medical schools and dozens of nursing programs produce a large number of graduates each year, Michigan’s Life Sciences Corridor from Detroit and Ann Arbor to Grand Rapids promises new and exciting medical breakthroughs, and the seriousness of Michigan’s concern about health care is evidenced by the fact that we are the only state in the nation with our own surgeon general and our own chief nursing executive. And as Peters has noted, our long-term perception of health care in Michigan was that it was “recession proof.”

This has now all changed, and the future of the health care industry in Michigan will increasingly be determined by the health care industry itself as the driver of change and innovation in partnership with government, education, and business. As Bissonnette sees it, “health care will have to become part of the solution.” Like many other knowledge-based industries, health care is becoming global with some people seeking the best care they can get at prices they can afford. With several hospitals ranked in the Thompson Top 100 and our relative cost effectiveness, Michigan is “very well positioned to serve as a model for the rest of the nation and even other countries as they look for quality and cost effectiveness,” says Peters.

Evidence of this new approach is already starting to appear in two locations — Grand Rapids and Ann Arbor. In Grand Rapids, civic leaders, business leaders, health care institutions, and funders have made it community policy to build health care as one of Grand Rapids’ major industries. Sitting atop what locals call Pill Hill at the edge of downtown Grand Rapids is the main campus of Spectrum Health, including the new Helen DeVos Children’s Hospital. Adjacent is the Van Andel Research Institute, the new campus for the MSU medical school, and Grand Valley State University’s health careers building and school of nursing. Spectrum Health’s goal is to become one of the nation’s top 10 medical centers in the nation, drawing patients from throughout Michigan and beyond.

Ann Arbor is already Michigan’s premier center for health care services with the University of Michigan Hospital, St. Joseph Mercy Hospital, and the Veterans Administration hospital. The University of Michigan houses one of the nation’s leading medical schools and is widely known for health care research and innovation. The University of Michigan is also one of the anchor institutions in Michigan’s Life Sciences Corridor, and life sciences research will be enhanced by the University’s recent $200-million purchase of the former Pfizer Pharmaceuticals campus in Ann Arbor.

In both cases, linking health care services, research, and education has the potential to generate synergy in the form of new ideas, new programs, new products, and new employment opportunities that would not have otherwise been possible. Nonetheless, there are several issues that need to be addressed right away.

Coordinated health workforce planning. According to MSU’s Holmes, issues such as workforce shortages, the maldistribution of health care professionals, and the implementation of new or expanded educational programs in response to these issues have not been very well coordinated in the past. Even the prospect of spending hundreds of millions of dollars to establish new medical schools in response to our anticipated physician shortage has not been well planned.

Dr. Michael Sandler, M.D., president of the Michigan State Medical Society, told Crain’s Detroit Business that “before there are new medical schools there should be a study planned as to how best to coordinate this” (March 8, 2009). Holmes anticipates that the economic downturn will temporarily slow the demand for nurses in Michigan. The uncoordinated race among educational institutions across the state to produce new health care professionals will not necessarily place graduates where they are needed the most, nor are these programs coordinating their activities with other science and technology-based careers across the state. Nor are they necessarily targeting minorities who have traditionally been underrepresented in most health care occupations. Health care educators, public health officials, and health care providers need to coordinate these activities to produce the greatest impacts where they are needed most.

Health Care Technology. Adoption of electronic medical records and other patient information technology plus the establishment of electronic health information exchanges are critical to addressing health care cost and quality. As a side effect, greater implementation of these technologies also can provide a boost to Michigan’s information technology sector. New business incubators tied directly to health systems may provide ideal settings for the development of new health-related technologies and for fostering the growth of technology-based employment in the future. Michigan health care leaders and others will be looking towards the economic stimulus package to help fund new health information technology.

Health Care Reform. Most health care leaders agree that America’s health care system is unsustainable in its current form and that universal health care in some form or other is inevitable. But, as Paradis points out, “we can’t simply afford to take the health care system we have now and spread it out to the people who don’t have health insurance.” Nonetheless, creative efforts to reduce the number of Michigan citizens without health insurance, as well as serious discussion about how to find the balance between greater coverage and greater costs, need to be addressed right away.

One new, creative proposal was recently floated by the Michigan Primary Care Association and the Michigan County Health Plan Association. According to Doug Patterson, director of state policy for the organization, working people above the poverty level but with too little income to afford traditional health plans could be offered a bare bones plan that would “provide 90 percent of the care for 90 percent of the enrollees” for about $60 a month or about $100 million a year.

Another idea that has been gaining support is the “medical home” model of care that provides greater reimbursement to primary care physicians and, in turn, requires them to build strong relationships with their patients, emphasize preventive care, and produce better outcomes for their patients than our current system. Paradis refers to the patient-centered medical home model as the way to “reengineer health care delivery to make it more efficient” — but to accomplish this we have to reengineer health care finance to make this approach feasible.

One thing that is certain, however, is that everyone who has a stake in Michigan’s health care industry — and this includes health care leaders, small business owners, large employers, health insurers, physicians, health educators, government officials, union leaders, and patients — needs to be included in these discussions. And as the Michigan Nursing Association’s Bissonnette observed, “before reform can become a reality in Michigan, policymakers, health care providers, and patients all need to recognize that the old health care safety net will not necessarily be there in the future.”

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Photo by David Trumpie

About the Author

Laurence S. Rosen, Ph.D., is a project manager and health policy researcher for Public Policy Associates in Lansing. He has extensive experience analyzing health care trends in the U.S. and their relationship to demographic and workforce trends, and has authored several articles and given numerous presentations on health care issues, total quality management and population trends.

Prior to joining Public Policy Associates, Rosen was head of The Synchronys Group, a health care research and consulting firm, served as senior director for data services at the Michigan Health & Hospital Association and was Michigan’s first state demographer. He received his undergraduate training at Queens College of the City University of New York and his graduate training at Pennsylvania State University.

Among his most recent work, Rosen has prepared physician and nursing forecasts for the Michigan Health Council, completed an assessment of the financial implications of nurse staffing issues for the Michigan Nurses Association, completed physician forecasts for the Michigan State Medical Society, and managed a major health workforce research and policy project for the Michigan Department of Labor and Economic Growth. In 2004 he oversaw the coordination of “Health Care in America 2004: A Forum on Presidential Policy,” a program that brought health care policy advisors and spokespersons for major presidential primary candidates together with health care policy leaders and the media to discuss the major health care policy issues of the 2004 campaign.