Heart of the economy: Health care is Twin Ports’ leading industry by a long shot

March 12--As the region's leading employer, health care provides for more than the well-being of patients -- hospital bills pay the bills of one in every four workers here.

"We see it happening, but until you actually put numbers on it, it's hard to really quantify how big a deal health care is in Northeastern Minnesota," said Cameron Macht at the state Department of Employment and Economic Development. "Right now, in St. Louis County or Duluth, almost a quarter of the jobs are in health care, a really high percentage even compared to the state."

Not only that, but those jobs are expected to grow at a faster rate than the entire regional economy in the next 10 years.

Even as low-wage gigs in tourism and services boom and higher-paying jobs in manufacturing and professional services lag, health care is one sector that the Twin Ports economy can count on.

"Even in times of recession, health care is almost always hiring and thriving," said Jen Schultz, co-director of the University of Minnesota Duluth's Health Care Management program and a state representative. "It's a pretty stable industry."

Health-care hub

Administrators at Duluth's two major health systems -- St. Luke's and Essentia Health -- have ample evidence of the effect their institutions are having on the region already:

-- Combining wages and benefits, St. Luke's paid out half a billion dollars in the Twin Ports last year; Essentia Health three-quarters of a billion dollars.

-- St. Luke's employs close to 2,800 people in the Twin Ports, Essentia just more than 7,000.

-- Essentia spent $30.3 million in local construction last year and $42.5 million the year before. St. Luke's spent about $20 million each of the past two years.

-- Overall, the Essentia system is Minnesota's largest private employer north of the Twin Cities, according to Jeff Korsmo, vice president of operations and administration for the system.

The reach goes beyond just health-care jobs.

"Economists use models to say that for every job in health care, we're also supporting part of a job in retail and part of a job in some supplier somewhere," Korsmo said. "So there's a significant ... multiplier."

John Strange, the CEO of St. Luke's, expanded on that.

"We pay good wages," he said. "We use a lot of local supplies. Our folks go out and buy locally. They buy houses, they buy groceries, they put their kids in school, they buy cars. It's a huge impact. And if you look at the people we've brought in, if you think about how many people we've recruited in that are new to the community, there's a large number of them. Every new physician we bring in probably means about three new jobs."

It might seem an ideal situation for people involved in health care -- including those in supporting and induced jobs such as construction and education. But top officials at Essentia say the local economy is top-heavy with health care.

"I'll give an example," said Dr. David Herman, Essentia's CEO. "If we need another surgeon here and we can attract a surgeon to come here, she can be a wonderful surgeon and have all the expertise, but if her spouse is an electrical engineer, where do they get a job in Duluth?"

Essentia's leadership is concerned enough about the issue that they're exploring ways to be a "catalyst for the broader economic development of this region," Herman said.

By the numbers

All signs point to health care's continued dominance.

While a quarter of employees in the region work in health care or social services, the concentration is even higher in Duluth. About one in three paychecks in the city come from that industry.

Data from the Department of Employment and Economic Development show that the percentage of health-care workers has been going up for more than a decade. In 2000, about 12,500 people worked in health care; in 2015 that number passed 18,000 for the first time.

That happened as Duluth's population remained relatively flat over the same period. And it's a greater percentage increase than the nation's health-care workforce overall during that time.

"Some of it is due to the demographic makeup of the region -- an older population -- so a pretty high percentage of jobs are located in nursing and home-care facilities," said Macht with DEED. "And we've seen a lot of growth in community and assisted living."

History helps health care here as well; because Duluth has long been the established hub of the greater region, hospitals naturally located and grew here. A history of economic decline in the region means that the percentage of the workforce in other industries has shrunk as well.

"There are other industries expected to grow, just not at the same pace or scale as health care/social assistance," Macht said.

Though changes to the Affordable Care Act could change how much governments, insurers and patients each pay for services, overall spending is likely to increase. As of 2015, health-care spending was expected to increase 5.8 percent per year through 2025, according to the federal Centers for Medicare and Medicaid Services.

Even if spending growth is curtailed in part, there is little chance the industry will be contracting, said Terry Hill, the senior adviser to the Duluth-based National Rural Health Resource Center.

"If you think about baby boomers now entering their Medicare years, the numbers of people who are going to require health care are going to expand dramatically, and the industry is going to have to keep pace, and we're going to have to work smarter," he said.

Growth

Even as health care in the region will be sustained by an aging population, maintaining or growing the Twin Ports' influence as a regional hub will help ensure growth.

"We draw from the whole Arrowhead, up to International Falls, over to the U.P. even," said Kim Dauner, co-director of UMD's Health Care Management program. "People come here for health care."

The top hospital administrators in Duluth confirm that.

"We go down to about Hinckley," Strange said of St. Luke's. "We go over past -- just about Ironwood, Mich., and then we go up to the Canadian border, and then over past Grand Rapids. So it's fairly huge -- 17 counties. It's a huge market area."

Essentia's Herman reports a similar range.

"We see people from the Upper Peninsula of Michigan," he said. "Certainly northern Wisconsin, certainly northern Minnesota, western Minnesota. All the way down to Sandstone, Spooner, Hayward, Ashland (and up to) I-Falls."

With that kind of range, there certainly won't be a shortage of patients for either health system. The workforce to serve those patients, however, is another story.

"Health care is just like any other industry in that respect," said Macht at DEED. "They're dealing with a declining workforce and more retirements out of the labor force. That's particularly acute in Northeastern Minnesota."

HEART OF THE ECONOMY

This is the first in a series of three stories examining the economic impact of the health-care industry in the Twin Ports.

-- Coming Monday in Business: A look at the forecast growth of health-care jobs in the region, and the challenges that will accompany it.

-- Coming Tuesday in Health: When it comes to health care and the local economy, how does the Twin Ports stack up against other medium-sized Midwestern cities?

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