Tapping the brakes on health sector’s growth

After holding their own during the slump, care providers and biotech firms are slowing a bit as they face limits imposed by outside forces

By Robert Weisman
Globe Staff / October 26, 2009

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The state’s health care and life sciences companies have been counter-cyclical players through the economic downturn, getting bigger and hiring more people while other businesses were forced to cut back.

Now that the Massachusetts economy appears poised for recovery, however, there are signs the steady growth enjoyed by health care, biotechnology, and related industries may be coming to an end.

Cost containment efforts by federal and state governments, and at private insurance companies, are putting fresh pressure on the same state providers that went through a growth spurt two years ago when Massachusetts passed a law improving residents’ access to health care.

“People who are running hospitals will be very cautious about expanding their employment,’’ said Paul F. Levy, chief executive of Beth Israel Deaconess Medical Center in Boston, whose staffing level has been flat or slightly down this year after five years of growth. “You’ve got the president saying his policy goal is to control health care costs. The insurance companies have been saying the same thing. All of the people who are paying the bills are trying to hold the line.’’

On the life sciences side, pharmaceutical giants have begun to scale back research and development, while smaller biotechnology companies are finding it more difficult to raise money from private investors or to sell their shares through initial public offerings. The window for stock offerings, known as IPOs, has largely been shut, and appears likely to remain so for some time.

“There’s a big missing piece in the biotech business model now, and it’s IPOs,’’ said Bill Lazonick, professor of regional economic and social development at the University of Massa chusetts in Lowell and director of its Center for Industrial Competitiveness. “Everyone in the industry knows that was a big part of greasing the wheels.’’

Even biotechnology companies that already are publicly traded, and have been generating revenue and profits, show signs of tapping the brakes. Cubist Pharmaceuticals Inc. of Lexington, which added 60 jobs this year and now has about 600 employees, expects to hire at a slower rate in the coming year.

“We’re hiring researchers, clinical scientists, and development people to invest in the [drug] pipeline,’’ said Michael W. Bonney, Cubist’s chief executive. “But I would be surprised if we add as many people on a percentage basis as we did this year.’’

The health care industry, the largest private-sector cluster in Massachusetts with roughly 486,000 encompasses everything from hospitals to nursing homes to physicians groups. Its output grew by 5.4 percent and its employment by 2.9 percent from the fourth quarter of 2007 through the first half of this year, according to economic research firm Moody’s But Moody’s projects output will grow only by 0.7 percent and employment by 0.3 percent in the coming year.

“Revenue growth is tightening up, and that’s going to constrain the job growth we’ve seen,’’ said Steven J. Tringale, managing director at Hinkley Allen & Tringale, a health care consulting firm in Boston. “What you’re beginning to see now is a plateauing in terms of demand, financial problems in state government, and a continued movement toward cost sharing’’ between employers and their workers.

Biotechnology, a fast-growing Massachusetts sector with an estimated 50,000 jobs, saw output expand by 5.3 percent and employment by 6.6 percent in the 21 months ending June 30, according to the data. For the coming year, the firm’s forecast is that biotechnology output will grow by another 6.5 percent, but employment will fall by 0.2 percent. As in other sectors of the economy, biotech and life sciences companies will be producing more with fewer workers.

But there is little fear among economists and industry professionals of a major reduction in the state’s vibrant health care and life sciences sectors. Both continue to draw hundreds of millions of dollars in annual research funding from government agencies such as the National Institutes of Health and some private investors, including major drug companies that have been striking new alliances with biotech firms even as they reduce their own research.

“Health care tends to be more recession resistant than other industries,’’ said Sudbury economic consultant Elliot Winer, who recently retired as chief economist and director of economic analysis for the Massachusetts Department of Workforce Development. “You’ve got an aging population that needs to be taken care of whether the economy is good or bad. You’ve got more people getting hip replacements and knee replacements. You’ve got new technology that allows people to get tests that they couldn’t get 15 years ago.’’

Winer agrees, nonetheless, that it will be difficult for health care and life sciences businesses to sustain over the next few years the same pace of growth they managed through the downturn.

“In the short term, you might see things turning negative,’’ Winer said. “We’re not going to go back to the boom days of the early 1990s where everything just took off. But once things do settle down, you may see a return to stable growth in these sectors.’’

TOMORROW: High-tech

Robert Weisman can be reached at


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The Massachusetts Economy - What's Next?

What's next?

A five-part series on the Bay State economy opens with a look at the life sciences and health care sectors.