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VOL. 125 | NO. 227 | Monday, November 22, 2010


  

Healthy Industry

During feeble economy, health care business thrives

By Tom Wilemon

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Throughout a prolonged recession and anemic recovery, hospitals and health care companies have given Memphis a powerful antidote to an ailing economy.

Meri Armour, president and CEO of Le Bonheur, and Gary Shorb, president of Methodist Healthcare, help Le Bonheur patients untie the giant bow to open the new Le Bonheur Children's Hospital building last summer. Thanks to investments like the one made at Le Bonheur and elsewhere, the health care industry is performing well. (Photo: Courtesy of Le Bonheur Children's Hospital)

They have invested more than a billion dollars in new construction and equipment, expanded operations and kept tens of thousands of people working.

As bad as the Great Recession has been for Memphis, it would have been worse without the life sciences industry.

While other segments of the economy scaled back and shed workers, this industry followed through with its planned expansions. Despite a recession that began in December 2007, a stock market crash in October 2008 and the ensuing tight credit markets, health care and biotechnology stayed on track.

Had Memphis’ health care industry retreated, the consequences would have been grim. The industry employs one out of every seven workers in this city.

“Since 2005, we have either located new projects or assisted life science companies already in Memphis with expansion needs,” said Leigh Anne Downes, director of life science development for the Greater Memphis Chamber. “The number of those companies total 28, which equates to over 3,600 new jobs in the health care sector.”

Accredo Health Group Inc. added 510 more people to its Memphis payroll in 2008, putting total employment at 1,700 by the end of that year. Then the company kept on hiring. Accredo, which provides specialty drugs for people with chronic and complex health problems, now employs more than 1,800.

Orthopedics and medical device manufacturers also continued to pump money into the economy. Smith & Nephew currently has 2,005 people on its payroll, Medtronic Inc. employs 1,500 and Wright Medical Technology Inc. has about 1,000 workers.

The big three players in the orthopedics industry also spent millions of dollars for warehouses, factory equipment and offices. Smith & Nephew completed a $25 million global distribution center south of the Memphis International Airport in October 2008, then followed through with another $42 million investment to convert an office complex on Goodlett Farms Road into a centralized hub for research, marketing and medical education.

Medtronic finished last November a $65 million expansion to its distribution center on Swinnea Road, from where it ships about 1,500 spinal surgery sets a day.

Wright continues to expand its operations in Arlington. Last November, it bought a building for $1.6 million then this year began a $2.2 million project to increase its distribution capacity.

Smaller companies, such as Big River Engineering and Manufacturing, which makes medical instruments, also expanded. The company transformed an abandoned Downtown building into an energy saving facility.

But the biggest symbol of economic renewal has been the new $340 million Le Bonheur Children’s Hospital.

“A lot of people felt warmhearted that something so wonderful was coming out of the ground,” said Donna Abney, vice president of strategic planning for Methodist Le Bonheur Health Care. “Maybe it was just against the backdrop of such a tough time economically that it would be more noticeable. There was just sheer pride that Memphis could do it. It was a sign of innovation and forward movement, vision and bravery and not fear – all those good attributes that we want to be associated with.”

When Abney says “we,” she is speaking of the greater Memphis community. Local residents and organizations contributed $100 million toward the cost of the hospital.

While giving to health care institutions plunged 11 percent nationally during 2009, it remained strong in Memphis.

The gifts to Le Bonheur Children’s Hospital have given back. Its construction was a $726 million boon to the city’s economy, while the hospital itself has a $544 million annual impact, according to a study by Cyril F. Chang, a professor with the University of Memphis who also serves as director of health care economics for the Methodist hospital system.

The children’s hospital is not the only big investment in the Memphis Medical Center. Completed or current construction projects in this Downtown district exceed $1.3 billion. They include investments by the VA Hospital, St. Jude Children’s Research Hospital, University of Tennessee Health Science Center and the Memphis Bioworks Foundation.

The most ambitious of those projects is Bioworks’ $450 million UT/Baptist Research Park, which is a six-building complex targeted for completion by 2015.

“The stakeholders in the Medical Center see the big picture and they work together,” said Beth Flanagan, director of the Memphis Medical Center. “You have to remember they are competitors all sitting together and working together to make it a better place. It helps when we go to our federal delegation. It’s all of us as one group saying this is important instead of just one institution.”

The growth of the Memphis-based health care industry has also brought benefits to the greater Mid-South. Baptist Memorial Health Care invested $165.1 million from 2007 to 2010 to upgrade facilities in three states. Its biggest project is a new hospital in Jonesboro, Ark., a town of almost 70,000 about an hour from Memphis.

“When all is said and done in Jonesboro, we will spend approximately $400 million there,” said Don Pounds, chief financial officer for the Baptist system. “We have already invested in the purchase of the acute care hospital, and there’s a surgical hospital that we bought in 2009. Then in 2010, we bought the NEA Clinic. We’ve invested $100 million thus far with another $300 million approximately to go.”

Bids for the project were scheduled to go out this month, and a general contractor for the project could be selected in early January. Methodist is also building a new hospital in the Mid-South. Abney said she expects construction on a $137 million hospital for Olive Branch in DeSoto County to begin in early to mid 2011.

Besides the new hospitals, expansions are also occurring. Dallas-based Tenet Healthcare Corp. is spending $34 million for an addition to Saint Francis Hospital-Bartlett that will add 96 beds and bring another 155 employees to its payroll by the first quarter of 2012. Early next year, the hospital is scheduled to complete its new outpatient diagnostic imaging center, a $5 million investment that will create 10 jobs.

In addition to building a new children’s hospital, Methodist Le Bonheur Healthcare is also spending $121 million to expand its Germantown hospital. It has completed the $51 million Women’s and Children’s Pavilion, which accounts for 108,000 square feet of the 218,000-square-foot expansion.

Despite all the local infrastructure investment, executives with the hospitals said it’s a misconception to think that health care is recession proof.

“As we saw the economic deterioration of a couple of years ago, our board of governors and our senior management sort of looked at what we had on our plate over the next five years,” Abney said. “We made a decision to move into a very fiscally lean mode to survive the couple of years through what we saw coming that we have definitely experienced.”

As people lost jobs during the recession, they also lost their health insurance. The payer mix changed, making it more difficult for hospitals to determine revenue streams. The Regional Medical Center at Memphis, which already had a low percentage of patients with health insurance, was floundering because of cutbacks in state subsidies to the safety net hospital.

Now on more solid financial footing, The MED can make investments. This month, it will complete a $200,000 project to convert 112 semi-private rooms into single-bed units. The hospital’s board just approved a budget with $20 million in capital outlays, including money for an electronic health record system.

Going forward, economic leaders are looking for the health care industry to continue or even hasten growth. Orthopedic companies stand to benefit from an economic recovery because more people are likely to undergo elective surgery, such as hip and knee replacements, if they feel secure about taking time off from work.

St. Jude over the past two years has acquired more property adjacent to its campus for future expansions, but the hospital’s most ambitious work continues to be research.

The infrastructure is now in place for Memphis to grow in other life science fields. The city is connected to high-speed research networks through the Memphis Coalition for Advanced Networking.

The Memphis Bioworks Foundation added incubator space during the recession by expanding into two more floors and adding lab space. Another research facility, the $25 million Regional Biocontainment Laboratory was completed last year. During the recession, Bioworks has doubled the number of startup ventures that it is assisting.

“Today, we’re looking at about 23 or 24 new companies that we’re working with – new organizations that are either here in our building or they are located in the community,” said Brandon Wellford, chief financial officer of Bioworks. “We’ve seen a tremendous number of new ideas, new companies that have started up over that time.”

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 74 74 17,939
MORTGAGES 95 95 20,660
FORECLOSURE NOTICES 8 8 2,701
BUILDING PERMITS 141 141 36,977
BANKRUPTCIES 59 59 11,485
BUSINESS LICENSES 17 17 5,865
UTILITY CONNECTIONS 27 27 6,857
MARRIAGE LICENSES 41 41 4,090