Mayo Clinic’s Prognosis: City Must Double in Size—And Pay for It

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July 24, 2013; New Republic


The future of health care is as uncertain as it’s ever been, and providers across the nation (if not the world) are attempting to position themselves for the unknown future. The Mayo Clinic, based in Rochester, Minnesota, has been a world-famous destination medical complex for generations. Foreign princes and billionaires are treated alongside patients whose specialized medical needs can’t be served by doctors closer to home.

Mayo has embarked on a 20-year, $5.6 billion effort to double the size of its flagship campus, which would incidentally double the size of the city of Rochester, currently at a population of 108,000. The funding for the expansion includes $3.5 billion from Mayo and $2.1 billion from “industry partners,” presumably vendors and suppliers doing business with Mayo in Minnesota and at its locations in Scottsdale (Arizona), Jacksonville (Florida), and elsewhere.

Why expand? Simply put, Mayo’s market of “the sickest of the sick” and those who can afford to buy what they perceive as the best health care in the world is expanding at a strong pace. Mayo anticipates that the proprietary nature of many healthcare systems will reduce patient care options and increase demand for Mayo’s “out-of-network” services. Under the Affordable Care Act, the success of hospitals and the insurance companies that forge alliances with hospital systems is based on capturing vast groups of patients and providing all their care. In this way, a patient’s “medical home” can monitor patient health, encourage wellness, and receive increased payments based on the better health and lower utilization of expensive medical interventions. When a patient can’t be served well within a captured network, or when a patient desires and is able to solicit care alternatives, Mayo wants to be a patient’s first choice to fill the need.

Does the state and local government investment of half a billion dollars make sense when so many of Mayo’s patients will come from outside the state? Perhaps. Mayo is the dominant employer in Rochester and an economic engine for the community, and arguably for the state of Minnesota. Doubling the city’s population will generate income, sales, real estate, and other tax revenues for years to come. Employment opportunities in the growing and generally well-paying health care field will increase for Minnesotans, while also attracting new residents with above-average education and income profiles. Doubling the population will allow the Rochester area to develop a more diversified service economy including arts, entertainment, lodging, dining, and events that will attract and retain Mayo patients, families, and employees in the area.

The risk to taxpayers in Minnesota and elsewhere where similar efforts may be happening is that investing in healthcare-related infrastructure may work against economic and population diversification. This leaves the community vulnerable to the priorities of the healthcare complexes being built, leveraging further concessions and influencing the community dialogue toward health care and, potentially, away from other community needs. In the event that the current healthcare boom turns to bust, communities with large healthcare-related investments may find themselves on the wrong side of the business cycle.—Michael Wyland