Hospitals: Modeling Public & Nonprofit Hospital Impacts with Analysis-by-Parts

INTRODUCTION

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.

THERE IS AN EASIER WAY!

There is a new Event Type in IMPLAN called Industry Impact Analysis (detailed) released on October 6, 2021. In this Event Type, you can enter values you may have for Wage & Salary Employment, Employee Compensation, and spending on Intermediate Inputs (and also edit the Spending Pattern) or Output. Then, you can enter a zero for Proprietor Employment, Proprietor Income, Taxes on Production & Imports, and Other Property Income to reflect that public and nonprofit organizations are not paying these. And that's it. IMPLAN will calculate the Direct Effect for you!

DETAILED INFORMATION

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 Industry in IMPLAN specifically for hospitals; Industry 490 - Hospitals is made up of both private and nonprofit hospitals.  Employment and payroll at public hospitals actually fall under Industry 540 - * Employment and payroll of state govt, hospitals and health services.  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.  

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 for Industry 540 is 1.43033700172487.  So we can multiply our $55M in payroll by 1.43033700172487 to yield an EC of $78,668,535.09.

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 in Industry 490 - Hospitals for $78,668,535.09.  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.

ABP_-_NPO_Hosp_Impacts_Screen.jpgNow 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, filter for Direct Taxes and click Run.mceclip0.png

Now, add up the Tax on Production & Imports and Enterprises (Corporations) columns for the Federal, County, Subcounty General, Subcounty Special District, and State taxes; these will not be counted in this impact. You can use the template ABP - Removing Direct Taxes to fill in your data.

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mceclip10.pngCopy these numbers into the yellow boxes in the template.mceclip0.png

Next, copy your summary results into the template. This will then give you Results that omit the Direct TOPI and Enterprise payments from Value Added and Output.mceclip14.png

Thus, our results show Tombstone Hospital’s 500 employees and $55M in payroll supports 1,184 jobs, $106.7M in Labor Income, $136.7M in Value Added, and $278.4M 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 city 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 – INDIRECT AND INDUCED EFFECTS AS A RESULT OF INTERMEDIATE INPUTS

  • Choose an Industry Spending Pattern Event in the Impacts screen
  • Select Industry 490 - 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 (Intermediate Inputs) - this should be switched to Output as we know total proposed Revenue
    Hosp_Public_Band_Aid_-_Total_Output.jpg
  • 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.

STEP 2 – INDUCED EFFECTS AS A RESULT OF LABOR INCOME

  • Create a new Event for Labor Income
  • Choose Employee Compensation for the Specification with a Value of $4M

ABP_-_Public_Hosp_Impacts_Screen.jpg

STEP 3 – RUN THE ANALYSIS

Now that we have these two Events, we can hit Run on our analysis.  

The first thing we can see in the Results is that there is no Direct Effect.  

ABP_-_Public_Hosp_Results_Screen.jpg

STEP 4 – DIRECT EFFECTS

To figure out the Direct Effects we will need to add in, we will need to download the summary Results into Excel.  You can use the template ABP - Recalculating Directs to fill in your data. 

  • 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 Region Details  mceclip0.pngand then clicking on the Advanced Menu Hosp_Public_Band_Aid_-_Customize_Region.jpgand selecting Customize Region
  • Select Industry 490 - Hospitals
  • Record the Output/Worker (and if required the TOPI/Worker and OPI/Worker) values the Excel template

ABP_-_NPO_Hosp_Customize_Region.jpg

Using the data given to us from the county ($10M in Revenue (Output) and $4M in Labor Income) and the Output/Worker, we can enter in all of the missing data as shown here.

ABP_-_NPO_Hosp_Final_Excel.jpg 

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).

To estimate the Direct Effects, take what information you already know for Employment, Labor Income, and Output and enter that directly. The template is on Recalculating Direct Effects will help you to estimate the remaining pieces based on data from:

> Region Details
     > Study Area Data
          > Industry Averages

TEMPLATES

ABP - Removing Direct Taxes

ABP - Recalculating Directs

Recalculating Direct Effects

RELATED TOPICS

Hospitals: Considerations when Conducting Hospital Economic Impacts

Hospitals: Modeling Private Hospital Impacts with Analysis-by-Parts

CASE STUDY

The Economic Impact of Mayo Clinic: Now, Then & All Points in Between



Written August 26, 2019

Updated October 12, 2023