PITTSBURGH — While most of the nation is still trying to claw its way out of the deep economic crater left by the recession, this onetime steel capital is already out — thanks largely to the relentless growth in healthcare jobs.
Partly because of the outsized ambitions of the University of Pittsburgh Medical Center, the healthcare industry has replaced manufacturing as the region’s powerhouse. About 1 in 5 private-sector employees in the Pittsburgh area today works at a hospital, a doctor’s office or in some other health services business.
But even as the healthcare boom has sped up Pittsburgh’s recovery, the economic transformation has left many people worried about the side effects.
Among the concerns: overdependence on a rapidly shifting industry, huge nonprofits that don’t generate much in tax revenue, and a business model that exacerbates the disparity in income among workers in different but similar jobs.
And that’s not just in Pittsburgh.
“This is the U.S. in a microcosm,” Eileen Appelbaum, a senior economist at the Center for Economic and Policy Research, said about the rise of healthcare and the issues that has wrought.
New outpatient clinics, doctors’ buildings and nursing centers have mushroomed coast to coast to meet higher demand from aging baby boomers and medical advances.
Healthcare firms now dominate the rankings of major employers in large cities as well as rural communities such as Klamath Falls, Ore., where a growing medical center has brought more diversity to the historically white logging town.
In affluent Oakland County, Mich., part of the tri-county Detroit area,General Motors Co.had for decades been the top employer. But since 2008, that title has been claimed by Beaumont Health System. And two other hospital employers are right behind GM.
Nationwide, healthcare services have added some 770,000 to their payrolls since the start of the economic recovery in June 2009 — about a third of all new jobs, according to the U.S. Labor Department.
Absent the hiring related to healthcare, the country’s unemployment rate would be 9.8% today instead of 8.1%, said economist Charles Roehrig of the Altarum Institute, a healthcare policy group in Ann Arbor, Mich. Pittsburgh’s latest jobless figure is 7.1%.
Even though healthcare’s growth remains solid — the industry added 19,000 jobs nationwide in April — Roehrig and other experts see an inevitable retrenchment.
Spending for medical care is nearing one-fifth of the American economy, much more than in other developed nations and beyond what governments, businesses and consumers can afford.
Uncertainties hang over President Obama’s healthcare overhaul while theU.S. Supreme Court weighs the constitutionality of the law — a law that is likely to accelerate the already fast pace of consolidation in the industry.
“We’re reaching this odd era where the growth rate of resources [is] rapidly declining at the same time the needs for healthcare are going up,” Roehrig said.
Healthcare has fueled job growth for a generation. When Pittsburgh’s steel industry began its collapse in the early 1980s, healthcare employment was a third of manufacturing’s and the University of Pittsburgh Medical Center was little more than an operator of a single psychiatric hospital.
Today, from his suite on the 62nd floor of downtown’s tallest building, once owned by U.S. Steel Corp., UPMC Chief Executive Jeffrey A. Romoff has a wide view of the city’s cleaner skies and rivers — and of much of his $10-billion empire.
The company has about 20 hospitals, 3,300 doctors and 1.8 million health plan enrollees. It employs about 55,000 people, more than any private employer in Pennsylvania, including No. 2Wal-MartStores Inc.Over the last 15 years, UPMC’s annual revenue has grown 13% on average, and its employment has increased 17% a year.
But Romoff, 66, readily acknowledged that was not a sustainable pace.
He knows his researchers can’t count on continuing to win half a billion dollars in grants yearly from the National Institutes of Health, given federal budget constraints. And significant changes are likely in store to keep Medicare and other public health programs in check.
“What we will be doing is drastically investing and changing the way we do business,” Romoff said, explaining that UPMC had opened hospitals in Italy and Ireland and joined withGeneral Electric Co.to make disease-detection gadgets for exports.
UPMC and other health firms in Pittsburgh and around the country also are merging or buying smaller enterprises to build scale and become more efficient, sometimes leaving patients caught in the middle.
For months, UPMC has been fighting with Highmark Inc., the region’s dominant health insurance firm, over Highmark’s bid to buy a local hospital group. Under pressure from Pennsylvania’s governor, the two sides agreed this month to extend a contract through 2014.
Both are nonprofits, exempt from paying property, sales and income taxes.
“A lot of folks are angry at both systems,” said state Sen. Wayne D. Fontana. “Highmark and UPMC are battling each other like big corporations do in the private sector.”
Fontana wants larger nonprofits that own properties to pay fees to help cover essential public services. As UPMC, Highmark and other nonprofits, including the University of Pittsburgh and Carnegie-Mellon University, have bought more properties, their acquisitions have taken those assets off tax rolls, further pinching a city in financial straits.
In Allegheny County, which includes Pittsburgh, officials said that exemptions for nonprofits cost the county tens of millions of dollars in lost tax revenue.
In response, Highmark and other nonprofits are making voluntary payments in lieu of property taxes. UPMC said it gives millions in charity care and has pledged $100 million to support Pittsburgh public school students pursuing post-secondary studies.
Since the recession, several states have looked at revoking or peeling back tax exemptions for nonprofits — efforts that opponents call shortsighted.
“They’re economic engines. That can get overlooked,” said Tim Delaney, chief executive of the National Council of Nonprofits, a trade group in Washington.
Few people would say that the healthcare boom has been bad for local economies. In Pittsburgh, it’s helped revive neighborhoods, open up more opportunities for women and staunch the region’s long population decline.
Pittsburgh’s number of people from India, for example, nearly doubled between 2000 and 2010 — a trend that has had an “unmistakable impact” in the area, said Michael Madison, a University of Pittsburgh School of Law professor. “This is a community that is generally well-educated and entrepreneurial,” he said.
Yet healthcare’s rise hasn’t been a cure for some of the nation’s biggest economic ills: stagnating wages and widening income disparities.
Although healthcare creates a broad spectrum of jobs, including many well-paying ones in nursing, the industry’s fastest-growing occupations are home health aides and personal-care assistants — jobs that are expected to jump about 70% nationwide, to 3.2 million by the end of the decade from 1.9 million in 2010, the Labor Department said.
The average pay: about $10 an hour.
On the other end of the spectrum, the number of doctors and surgeons also is expected to increase at a faster-than-average pace. Their median salary, the point at which half earned more and half earned less, was $111,000 in 2010.
The upshot in Pittsburgh is that even though healthcare has added as many jobs over the years as manufacturing has lost, it hasn’t filled the hole in terms of job quality.
Half of Pittsburgh’s service workers, including those in healthcare, make less than $25,000 a year, said Mark Price, a labor economist at Keystone Research Center in Harrisburg, Pa. That’s true of only one-fourth of manufacturing employees.
Dennis Verosky counts himself as one of the fortunate ones.
Laid off from Pittsburgh’s historical Homestead steel mill in 1985, Verosky retrained to become a medical technologist, earning an associate’s degree in 1988. He has had steady work ever since.
Verosky’s father, a steelworker, died of a stroke in a mill near Homestead just a few months before he was set to retire. Verosky said his own career change helped his health and probably saved his marriage.
But it didn’t save or restore his earnings. Today, the 62-year-old makes about $22 an hour operating X-ray machines and other equipment at UPMC’s Shadyside hospital. Accounting for inflation, that’s roughly half of his pay as a steelworker in 1985.
“To me, it’s much better,” said Verosky, a balding man with a gray mustache and wire-rim glasses. “It’s a cleaner environment, for one. The opportunities to be more successful are here.”
As for the loss in pay, that’s another matter, he said. “You just got to live with it. It’s out of your hands.”