Hospitals that are not privately owned fall into two categories: public/government owned facilities and non profit organizations. Modeling the economic impacts of these two types of hospitals follow the same path in IMPLAN as neither will pay the full tax rate of a private hospital. This article will help you unpack the best way to model your public or nonprofit hospital or system of hospitals.
If you are only given a small amount of information, sometimes an Industry Event will suffice. Usually however, correctly modeling public (government run) and nonprofit hospitals involves following a method known as Analysis-by-Parts (ABP). This method splits the effects on an institution into its individual components: labor spending and operations spending.
There is a Sector in IMPLAN specifically for hospitals; Sector 482 - Hospitals is made up of both private and nonprofit hospitals. Employment and payroll at public hospitals actually fall under Sector 531 - State/Local Government Non-Education. However, in terms of tax liability, public and nonprofit hospitals are very similar. Therefore these types of institutions can be modeled in the same way with reductions in tax payments.
THE PROCESS USING PAYROLL:
Sometimes we are given very little information from which to model the economic impacts. The following example assumes that we only know the total payroll.
Tombstone Hospital System, a nonprofit, regional healthcare system, is located in Cochise County, Arizona and we want to find out their impact on the entire state. They have 500 employees with a payroll of $55M. Given that we do not know any information about the other expenditures Tombstone Hospital System is making, we will have IMPLAN estimate these for us using the regional detail in the model. However, even knowing this little bit of information, we can model its impact.
The first thing we need to figure out is what is included in the payroll figure. Wages and salaries need to be converted to Employee Compensation values for IMPLAN. Employee Compensation is the total cost of payroll: wages and salaries, plus benefits and payroll taxes. To convert payroll figures to EC, use the template IMPLAN to FTE Conversions. Using this document, we see that the ratio of wages to EC is 1.226079047. So we can multiply our $55M in payroll by 1.226079047 to yield an EC of $67,434,348.
If you have a count of full-time employees or full-time equivalent employment (FTE), you will need to adjust those figures as well. In IMPLAN, employment is based on headcount, not an FTE figure. This conversion is done using the same spreadsheet.
On the Events screen, we create an Industry Employee Compensation Event for $67,434,348. By clicking the Advanced menu button, we can add our 500 employees to this Event as shown. If you do not know the total employment, just leave it blank.
Now we drag our Event into our Group on the right side of the screen and hit Run. On our Results screen, we will have to make a few changes to ensure that our hospital is not showing payments to taxes that public and nonprofit hospitals are not required to pay. On the Tax Results tab, add up the Tax on Production & Imports and Private Enterprise columns for State & Local and Federal taxes; these will not be counted in this impact.
Next, subtract this total, $10,796,707, from both the total Value Added and Output figures (these manipulations are best made outside of IMPLAN in Excel). Remember these can be broken out by Direct, Indirect, and Induced effects if you would like to show the impact in detail.
Thus, our results show Tombstone Hospital’s 500 employees and $500M in payroll supports 1,552 jobs, $119.9M in Labor Income, $154.7M in Value Added, and $284.6M in Output.
THE PROCESS USING REVENUE:
The more information we have for our economic impact analysis, the stronger the results will be. If on top of employment and payroll, we also know spending either in total or by line item for other things that our hospital needs to function, we can enter them into IMPLAN using Analysis-by-Parts (ABP).
Band Aid is a proposed public hospital in Charlotte, NC. We are told that they will have $10M in revenue and $4M in Employee Compensation and we want to model their proposed economic impact on the local economy. Because the county will own the hospital, they will not be taxed in the same way as private hospitals.
STEP 1 – DIRECT EFFECTS
- No analysis required
- If not all the Direct factors are known, estimates of these factors can be made from the underlying Study Area Data using the information found on the Regions screen by clicking on the information button and then clicking on the Advanced Menu and selecting Customize Region
- Select Sector 482 - Hospitals
- Record the Output/Worker, TOPI/Worker, and OPI/Worker values in an Excel document
STEP 2 – INDIRECT AND INDUCED EFFECTS AS A RESULT OF INTERMEDIATE EXPENDITURES
- Choose an Industry Spending Pattern Event in the Impacts screen
- Select Sector 482 - Hospitals under Specification
- Enter $10,000,000 under the Value
- On the Advanced Menu, the default Value should be the total dollars spent on Intermediate Expenditures - this should be switched to Output as we know total proposed Revenue
- If we knew additional details about what Commodities Band Aid might or might not spend money on, we could edit the spending pattern on this screen as well - more information on how to do this can be found in the article ABP: Analysis-by-Parts Using an Industry Spending Pattern Event with Labor Income Events.
STEP 3 – INDUCED EFFECTS AS A RESULT OF LABOR INCOME
- Create a new Event for Labor Income
- Again, choose Sector 482 - Hospitals
- Enter the $4M Labor Income value that was given with the Employee Compensation Specification
Now that we have these three parts (one in Excel and two Events in IMPLAN), we can hit Run on our analysis.
The first thing we can see is that there is no Direct Effect given.
This reinforces the fact that the first thing we have to do is add back in our Direct Effect from the data we saved in Excel from Step 1.
We can copy the Indirect and Induced Effects from the Summary screen into our Excel document. Using the data given to us from the county ($10M in Revenue (Output) and $4M in Labor Income) and the Output/Worker, TOPI/Worker, and OPI/Worker figures from the study model, we can enter in all of the missing data as shown here. The template below can be downloaded for easy use.
Since we used ABP, no Direct taxes were collected so no further adjustments are necessary.
For a detailed walk-through of conducting an ABP, a template is available for an analysis which will omit the taxes.
GOVERNMENT SUBSIDIES & GRANTS:
Public and nonprofit organizations that receive part or all of their funding through government subsidies like Medicare and Medicaid will have negative results in TOPI. Also, the Direct Labor Income will be larger than the direct Value Added because this money is considered to be a negative tax value (a negative component of Value Added). If they receive the entirety of their funding through subsidies, then their Value Added will be negative. If this subsidy or grant is large enough, Labor Income can also be larger than Output. In fact, if the government foots the bill for the entirety of the hospital, the direct Output will be zero (because of the large negative TOPI).
Written August 26, 2019