Academic medical centers boost economy locally, nationally

Academic medical centers and teaching hospitals helped to employ more than 3 million Americans while pumping more than $500 billion into national and local economies. Those are the findings of an Association of American Medical Colleges report on the economic impact of the education, research and clinical services of AAMC-member medical schools, such as the Stanford University School of Medicine.

The report, prepared in March by consulting firm Tripp Umbach and released in October, looked at 131 accredited U.S. medical schools and nearly 400 major teaching hospitals. It found that the organizations had more than 1.86 million full-time employees and were directly or indirectly responsible for 3.3 million full-time jobs—meaning that one of every 43 wage-earners in the country is dependent on an academic medical center or affiliated hospital for income.

The consultants also calculated medical centers’ expenditures for capital improvements and goods and services, and spending by employees, medical residents, students, patients and patient visitors to determine that the total economic impact was $512 billion. As Paul Umbach, senior principal of the consulting firm, pointed out, this means academic medical schools and their teaching hospitals represent $1 in every $5 of the health-care sector of the economy, which is roughly $2.5 trillion.

In reaching this figure, the report calculates how medical center expenditures are re-circulated in the economy when direct recipients of medical center moneys use that income. The authors determined that every dollar spent by academic medical center leads to an additional $1.30 spent: That winds up being a total impact of $2.30. This “multiplier effect” is on par with that attributed to spending by the National Institutes of Health; a 2008 Families USA report showed that each dollar spent by the NIH on research led to an average of $2.21 in state economic output.

The report points out that some public leaders and elected officials erroneously believe that academic medical centers don’t generate government revenue. However, medical schools and both public and not-for-profit hospitals indirectly generate revenue through income tax paid by staff, sales tax revenues paid by businesses providing goods and services to the institutions, and other business taxes. The consultants found the institutions generated more than $22 billion in revenues for state government in 2008.

“U.S. medical schools and teaching hospitals are substantial economic engines in terms of jobs, state tax revenues and economic growth,” said AAMC president and CEO Darrell Kirch, MD. “While the recent recession has certainly challenged every sector of our financial system, AAMC-member institutions continue to be strong economic drivers for their communities, their states and the nation.”

In California, academic medical centers and affiliated hospitals, including Stanford, were responsible for more than 234,000 jobs and an economic impact of more than $41 billion. They also generated more than $2 billion in state government revenue.

Philip Pizzo, MD, dean of Stanford’s School of Medicine, recently referred to the report as an indicator of the importance of academic medical centers and the need to include them in health-care discussions in Washington. He recently participated in a congressional briefing in which he highlighted the unique role of these centers. “One of the key messages we delivered is that academic medical centers are critically important to our nation’s future precisely because they are at the intersection of education, research and patient care,” he wrote in the Oct. 12 issue of the Dean’s Newsletter.