The Long Term Prognosis for Houston’s Healthcare Sector is still Favorable

Texas Medical Center

Recent News out of the TMC are a Sign of the Times

When most people associate an economic engine with the Houston economy, the energy industry is the first thing that comes to mind. Houston is without a doubt the “Energy Capital” of the world and also the home of NASA’s Johnson Space Center and The Port of Houston, one of the nation’s key ports.

Houston is also a Major Healthcare City

Lesser known too many outside the city of Houston is the Texas Medical Center, the world’s largest concentration of expertise in medical treatment and care, medical research and medical technology. The Texas Medical Center (TMC) represents one of Houston’s major economic drivers and core industries with an estimated regional annual economic impact of $20 billion.

Texas Medical Center Facts and Figures:

  • Texas Medical Center includes 46 member Institutions.
  • Six general hospitals: Ben Taub General Hospital; Lyndon B. Johnson General Hospital; Memorial Hermann Hospital-Texas Medical Center; Houston Methodist Hospital; CHI St. Luke’s Health; and The University of Texas Medical Branch at Galveston.
  • Eleven specialized hospitals: Harris County Psychiatric Center; Quentin Mease Community Hospital; Shriners Hospitals for Children– Houston and Galveston; Texas Children’s Hospital; DePelchin Children’s Center; The Institute for Rehabilitation and Research (TIRR); The University of Texas M.D. Anderson Cancer Center; Children’s Memorial Hermann Hospital; The Menninger Clinic; and the Michael E. DeBakey Veteran Affairs Medical Center Houston.
  • Two specialized patient facilities: Texas Heart Institute; and Houston Hospice.
  • Four medical schools: Baylor College of Medicine; Texas A&M University Health Science Center; The University of Texas Medical School; and The University of Texas Medical Branch at Galveston.
  • Five schools of nursing: Prairie View A&M University College of Nursing; Texas Woman’s University Institute of Health Sciences; The University of Texas School of Nursing; Houston Community College; and the University of Houston-Victoria School of Nursing.
  • 106,000+ Employees
  • 5,000+ Physicians
  • 9,200 Patient Beds
  • 10 million patient encounters per year including approximately 16,000 international patient visits.
  • Size: 50 million developed square feet, 290 buildings, 1,345 total acres and $25billion in GDP, TMC is the 8th largest business district in the Unites States
  • $3 Billion in construction projects underway in the TMC.

The TMC Catches a Cold

During Houston’s energy downtown over the past 3 years, the Texas Medical Center and Houston’s healthcare sector had been the regions shining economic star.

However,  the first half of 2017 has produced hundreds of layoffs at Texas Medical Center institutions such as MD Anderson Cancer Center, Memorial Hermann and CHI- St. Luke’s. Healthcare job growth has slowed in Houston as the sector added 7,100 jobs over the past 12 months, the weakest 12-month performance in five years.

At mid-year 2017, we have seen 3 CEO’s from major TMC hospital system institutions; MD Anderson Cancer Center, Memorial Hermann and CHI St. Luke’s step down from their leadership positions.

Sign of the Times

The challenges TMC Hospital institutions are facing are not Houston specific but the same challenges hospital systems all over the United States are facing. Hospital systems run on tight margins and there are a number of factors putting pressure on the bottom lines of hospital systems. Beyond what is going on in Washington D.C. and all the uncertainty that swirls around the Affordable Care Act.  Hospital systems are being required to spend significant capital to upgrade their technology at a time when their is downward pressure on reimbursement rates from Medicaid, Medicare and private insurance carriers.

In addition hospital systems are struggling with lower in-patient volumes as healthcare delivery shifts from an in-patient to an out-patient setting. This trend is requiring significant capital outlays for new facilities outside the flagship campus in high-growth under-served suburban communities as health systems search for the answers to shifting demographics and consumer demands.

All these factors combined are significantly impacting the business models of all major health systems and some organizations are better positioned than others. As a result of this, job cuts, system consolidation and CEO turnover is inevitable.

The Long Term Prognosis Remain Favorable for Houston’s Healthcare Sector

Houston is the 4th largest city in the country and still growing.  Despite the energy downturn which slowed the metro’s red hot job growth over the past 3 years, the demand for new medical facilities  in the region and healthcare jobs , many of which will be outside the Texas Medical Center will remain in order to serve the Houston region’s expanding population.

Three of Houston’s major health systems: Houston Methodist, Memorial Hermann and Texas Children’s Hospitals are all in the process of executing major expansions inside and outside the Texas Medical Center.  M.D. Anderson and UTMB have announced significant suburban expansions. The delivery of healthcare is evolving, and health systems are adapting as they seek to co control costs and maintain the quality of care.

Proximity to Patients will Drive Growth

The Texas Medical Center is already the world’s largest medical center and while it will continue to grow and remain the fulcrum of Houston’s healthcare landscape, it won’t be at the same pace as development in suburban areas, as Houston health systems pursue the most desirable payor mix in high-growth  communities.

Approximately 300,000 people are employed in the healthcare sector in the Houston region. I wouldn’t let a few hundred job cuts in an industry in flux, combined with a handful of CEO resignations in a sector that is still adding jobs dampen my enthusiasm for the long-term fundamentals of the Houston Healthcare market. Whether of not our elected officials figure out how we should pay for healthcare is another story.

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