Health Care
and
Community Economics
Presentation at:
Southern Institute for Rural Development
Fort Meyers, Florida
September 8-10, 2003
Health Care and
Community Economics
By:
Gerald A. Doeksen
Regents Professor and
Extension Economist
Phone: (405) 744-6081
Email: gad@okstate.edu
Cheryl F. St. Clair
Assistant State Extension Specialist
Phone: (405) 744-6081
Email: cheryl@okstate.edu
RURAL DEVELOPMENT
COOPERATIVE EXTENSION SERVICE
OKLAHOMA STATE UNIVERSITY
Helping Decision-Makers Maintain
Primary Health Care Services in Rural Communities
Overall Objective:
To demonstrate the importance of the health
sector to the rural economy and
To discuss what community leaders can do to
improve primary health care
More specifically:
1. Measure the total impact of the health sector on a community’s economy;
2. Illustrate the importance of the health sector for industrial growth;
3. Illustrate the importance of the health sector for retirement growth;
4. Discuss and demonstrate what community leaders can do to
maintain and promote their health sector; and
5. Review a community health planning process.
Local Data Needed for Health Sector Impact Analysis
Atoka County, Oklahoma
Component
Hospital
Employees
Payroll
97.0
$2,400,000
Subtotal
20.0
8.0
6.5
2.0
36.5
$590,670
$322,244
$309,200
$80,000
$1,302,114
Subtotal
92.0
$1,272,000
35.0
11.0
12.5
58.5
$583,333
$232,920
$267,200
$1,083,453
19.0
303.0
$697,500
$6,755,067
Subtotal
Physicians, Dentists and Other Professionals
Physicians (2)
Optometrists (2)
Dentists (2)
Chiropractors (1)
Nursing Homes and
Protective Care (2)
Other Medical & Health Services
Home Health Care (4)
County Health Department
DME Suppliers
Subtotal
Pharmacies (3)
TOTALS
Subtotal
Inputs
$
Overview of
Community
Economic
System
$
Products
Basic
Industry
Labor
$
$
Inputs
Goods &
Services
Households
$
$
Services
$
Economic Impact of the Health Sector on Employment
in Atoka County, Oklahoma
Health Sector
Components
Employment
Employment
Multiplier
Impact
Hospital
97.0
1.70
165
Physicians & Dentists
36.5
1.79
65
Nursing & Protective
Facilities
92.0
1.54
142
Other Medical &
Health Services
58.5
1.62
95
Pharmacies
19.0
1.49
28
TOTALS
303.0
495
Economic Impact of the Health Sector on Income
in Atoka County, Oklahoma
Health Sector
Components
Income
Multiplier
Income
Impact
Hospital
$2,400,000
147
$3,528,000
Physicians & Dentists
$1,302,114
1.34
$1,744,833
Nursing & Protective
Facilities
$1,272,000
1.66
$2,111,520
Other Medical &
Health Services
$1,083,453
1.62
$1,755,194
$697,500
1.61
$1,122,975
Pharmacies
TOTALS
$6,755,067
$10,262,522
Employment, Income, Retail Sales, and Sales Tax Collections
Resulting from the Health Sector in Atoka County, Oklahoma
Health Sector
Components
Employment
Impact
Income
Impact
Retail
Sales
3 Cent
Sales Tax
165
$3,528,000
$1,179,040
$11,790
Physicians & Dentists
65
$1,744,833
$583,114
$5,831
Nursing & Protective
Facilities
142
$2,111,520
$705,659
$7,057
Other Medical &
Health Services
95
$1,755,194
$586,577
$5,866
Pharmacies
28
$1,122,975
$375,293
$3,753
$10,262,522 $3,429,683
$34,297
Hospital
TOTALS
495
Summary of Research Studies
 Direct health sector employment from 10-15 percent of
all employees
 Direct and secondary health sector employment from
15-20 percent of all employees
 Hospital often second largest employer in community
 Hospital and nursing homes employ large numbers
 Employment multipliers ranged from 1.30 to 1.81
 Income multipliers ranged from 1.46 to 1.87
Impact of Hospital Closures on Physician Supply
Studied 132 communities where hospitals closed in 80’s
 49 percent of the towns lost physicians during
two years after closing

13 percent FEWER physicians in communities
after two years
Health Services Promote Job Growth
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Health Services Attract Retirees
What Can Rural Community Leaders Do?
1. A realistic perspective on health care delivery
2. A willingness to identify, develop and pursue nonconventional solutions
3. Frugality and tight management to carefully
allocate limited resources
4. The ability to gain support from local health care
consumers
5. Political effectiveness - communicating the needs to
those outside the community who could offer
assistance
What Can We Do?
 Help educate consumers and providers
 Help community leaders plan their
health delivery system:
 Community health planning
 Conduct feasibility studies
Getting Started
Overview of
Strategic Health
Planning
Initiating
Group
Getting Started
Initiating
Group
Community
Facilitator
Steering
Committee
Overview of
Strategic Health
Planning
Resource
Team
Getting Started
Initiating
Group
Community
Facilitator
Steering
Committee
Publicity
Task Force
Overview of
Strategic Health
Planning
Resource
Team
Initiating
Group
Getting Started
Community
Facilitator
Steering
Committee
Publicity
Task Force
Inventory
Task Force
Overview of
Strategic Health
Planning
Resource
Team
Initiating
Group
Getting Started
Community
Facilitator
Resource
Team
Steering
Committee
Publicity
Task Force
Inventory
Task Force
Overview of
Strategic Health
Planning
Survey
Task Force
Initiating
Group
Getting Started
Community
Facilitator
Resource
Team
Steering
Committee
Publicity
Task Force
Inventory
Task Force
Overview of
Strategic Health
Planning
Survey
Task Force
Data & Info
Task Force
Initiating
Group
Getting Started
Community
Facilitator
Resource
Team
Steering
Committee
Publicity
Task Force
Inventory
Task Force
Survey
Task Force
Develop
Plan
Community
Reviews Plan
Overview of
Strategic Health
Planning
Revise
Plan
Implement
Action Plan
Follow-up &
Continuation
Data & Info
Task Force
Basic Methodology for Analyzing an Issue
STEPS
I.
II.
III.
IV.
Estimate Needs
Project Costs
A. Capital or Start-up
B. Annual Operating
Estimate Revenue
If Doesn’t Break Even, Other
Sources of Funds
EXAMPLE OF A HEALTH FEASIBILITY STUDY
To illustrate this methodology,
a primary care physician feasibility study,
including the cost
of establishing a primary care physician practice,
will be presented.
The information is
designed to assist local decision-makers
in assessing the need and potential
for primary care physician services and
in assessing the cost of establishing
a new primary care physician practice.
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Estimated Population
of Atoka County, Oklahoma,
Medical Service Area
Service Area
Population
Atoka
3,270
Caney
190
Stringtown
370
Tushka
270
Wardville
Remainder of county
Total Medical Service Area Population
50
9,050
13,200
Total Annual Physician and Primary Care Physician Office Visits
Generated in the Atoka County Medical Service Area
ANNUAL PHYSICIAN OFFICE VISITS
MALE
FEMALE
Visit
Total
Visit
Population
Rate
Visits Population
Rate
Age
Total
Visits
Total
Physician
Visits
Under 15
15-24
1,408
1,029
2.4
1.0
3,379
1,029
1,257
820
2.2
2.4
2,765
1,968
6,144
2,997
25-44
45-64
2,071
1,607
1.6
3.0
3,314
4,821
1,553
1,506
3.3
4.0
5,125
6,024
8,439
10,845
65-74
75+
465
379
5.2
6.5
2,418
2,464
579
563
5.8
6.5
3,358
3,660
5,776
6,124
Total
6,959
17,425
6,278
22,900
40,325
Annual Primary Care Physician Office Visits = 25,082
Based on 62.2% of Total Physician Office Visits = Primary Care Physician Office Visits
Primary Care Physician Office Visits Given Usage
By Local Residents in Atoka County, Oklahoma, Medical Service Area
Usage Level
No. of Physicians
70%
75%
80%
85%
90%
95%
100%
17,557
18,812
20,066
21,320
22,574
23,828
25,082
3.5
3.8
4.0
4.8
5.0
4.3
4.5
If 85% usage level, then 21,320 total primary care physician office visits
for an estimated 4.3 Total Primary Care Physicians
Based on 4,976 average primary care office visits/ physician practice/year in Oklahoma
Typical Equipment Found in a
Primary Care Physician Office
Equipment
EQUIPMENT SUMMARY
Total Reception Area
Total Business Office
Total Examination/Treatment Rooms (3)
Total Laboratory
Total Physician's Office
Total Conference Room/Staff Lounge
TOTAL EQUIPMENT SUMMARY
Total
Cost
$1,927
$24,604
$26,202
$4,894
$3,435
$1,442
$62,505
Estimated Capital Costs for a Primary Care Physician
Practice in Atoka
Cost Item
Total Cost
TOTAL ESTIMATED CAPITAL COSTS
Estimated Total Equipment Costs
$62,505
ESTIMATED TOTAL CAPITAL
COSTS
$62,505
TOTAL ESTIMATED ANNUAL
CAPITAL COSTS
Equipment
(Based on a 10 year loan @ 10% interest)
ESTIMATED TOTAL ANNUAL
CAPITAL COSTS
$10,172
$10,172
Alternatives 1 & 2
Estimated Annual Capital & Operating Costs
for a Primary Care Physician Practice in Atoka
Costs for
2,750
Visits
Costs for
4,750
Visits
$10,172
$10,172
Total Annual Building Costs
$20,702
$20,702
Total Annual Office Costs
$22,150
$22,468
Total Annual Medical Costs
$17,682
$24,864
Total Personnel Costs with Benefits
$60,256
$71,640
OPERATING EXPENSES
$120,790
$139,674
TOTAL ANNUAL CAPITAL
& OPERATING EXPENSES
$130,963
$149,846
ESTIMATED ANNUAL CAPITAL COSTS
ESTIMATED ANNUAL OPERATING COSTS
TOTAL ANNUAL
Alternative 1
2,750 Office Visits
Estimates of Primary Care Physician Office Visits and Revenues
by Type of Visit for 2,750 Visits
Type of Visits
No. of
Visits
2,750
Percent of
Total Visits
410
14.9%
Routine Office Visits
2,340
85.1%
Visits w/Add'l Charges
1,293
47.0%
Hospital Visits
237
8.6%
ER Visits
226
8.2%
Nursing Home Visits
99
3.6%
Nursery Visits
47
1.7%
116
4.2%
Initial Office Visits
Home Visits
Alternative 1 - 2,750 Visits
Estimates of Primary Care Physician Office Visits
by Type of Visit
Type of Visits
Initial Office Visits
Visits
2,750
1999 Rate Schedule
High Average Low
Revenues
High Average Low
$60.75
$24,908
410
$47.52
Routine Office Visits
2,340
$83.98
Visits w/Add'l Charges 1,293
$55.50
Hospital Visits
237
$135.00
ER Visits
226
$65.49
Nursing Home Visits
99
$189.00
Nursery Visits
47
$101.25
Home Visits
116
REVENUES - High Range
REVENUES - Average Range
REVENUES - Low Range
$40.64
$33.28
$30.69
$46.18
$76.68
$41.18
$118.22
$54.70
$27.00
$25.47
$11.48
$34.76
$40.50
$24.75
$67.50
$35.86
$16,660
$111,197
$77,869
$108,591
$39,676
$13,153
$30,510
$6,483
$8,883
$11,745
$10,945
$17,330
$4,076
$5,556
$6,345
$11,070
$59,610
$14,837
$8,239
$9,153
$2,450
$3,173
$4,159
$315,469
$178,459
$112,691
Alternative 2
4,750 Visits
Estimates of Primary Care Physician Office Visits and Revenues
by Type of Visit for 4,750 Visits
Type of Visits
No. of
Visits
4,750
1999 Updated
Rate Schedule
High Average
Low
$60.25
Initial Office Visits
708
$40.64
4,042
390
Nursing Home Visits
171
$46.18
$18,889
$34.76
$14,218
$52,650
$76.68
$29,905
$40.50
$15,795
$11,199
$41.18
$7,041
$24.75
$189.00
Nursery Visits
$25,624
$22,699
$65.49
81
$68,521
$11.48
$135.00
ER Visits
$102,968
$187,535
$30.69
409
$19,116
$134,508
$25.47
$55.50
Hospital Visits
Low
$192,076
$33.28
2,233
Average
$28,770
$27.00
$83.98
Visits w/Add'l Charges
High
$43,011
$47.52
Routine Office Visits
Revenues for
4,750 Visits
$4,231
$15,309
$118.22
$9,576
$5,468
$67.50
REVENUES - High Range
REVENUES - Average Range
REVENUES - Low Range
$544,728
$308,149
$194,591
Estimated Total Collected Revenues for Scenarios
with 2,750 Office Visits and 4,750 Office Visits for Atoka
Collection Rates
Total Revenues
Revenues for 2,750 Visits
High Average
Low
Revenues for 4,750 Visits
High Average
Low
$315,469 $178,459 $112,691 $544,728 $308,149 $194,591
95% Collections $299,696 $169,536 $107,056 $517,492 $292,742 $184,861
90% Collections $283,923 $160,613 $101,422 $490,256 $277,334 $175,132
85% Collections $268,149 $151,690
$95,787 $463,019 $261,927 $165,402
82.5% Collections $260,262 $147,229
$92,970 $449,401 $254,223 $160,537
80% Collections $252,376 $142,767
$90,153 $435,783 $246,519 $155,673
75% Collections $236,602 $133,844
$84,518 $408,546 $231,112 $145,943
70% Collections $220,829 $124,922
$78,884 $381,310 $215,705 $136,213
For Both Alternative 1 and Alternative 2
Estimated Net Income
for a Primary Care Physician Practice
Scenario for 2,750 Visits
High
Ave. Low
Revenues Based on
82.5% Collections
$260,262 $147,229
Scenario for 4,750 Visits
High
Ave.
Low
$92,970 $449,401 $254,223 $160,537
Total Annual Capital &
$130,963 $130,963 $130,963 $149,846 $149,846 $149,846
Operating Expenses
NET INCOME
$129,299
$16,266 ($37,993) $299,555 $104,377
$10,691
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Estimating Need:
RESEARCH SHOWS:
• 15 percent of the older adult population could
benefit from Adult Day Services (ADS)
• 1.25 percent actually participate
Estimating Need for an ADS Facility
in Madill, Marshall County,
Oklahoma
946
x
1.25%
=
12
Population age
65 and older in service area
12
x
3.7
days per week
2,309

52
x
=
weeks per year
254
operating days per year
=
2,309
participant days
9
FTE participants
Madill Adult Day Services Study
to be based on TWO ALTERNATIVES
 Alternative 1 -- 5 Participants
 Alternative 2 -- 10 Participants
Est. Capital Expenditures for Proposed
Adult Day Svcs. Facility
Category
Alt. 1
Alt. 2
$4,910
3,210
1,490
1,035
3,280
870
2,550
7,480
3,210
3,070
1,715
3,850
870
3,900
$17,345
$24,095
Furnishings
Activity Room
Reception Area
Director's Office
Additional Staff Office
Kitchen
Medical Room
Exercise Room
TOTAL CAPITAL
EXPENDITURES
Estimated Annual Capital and Operating Expenses for
Proposed Adult Day Services Center
Category
Alt. 1
Alt. 2
Annual Capital
Expenses
$1,735
$2,410
Annual Operating Expenses2
$57,699
$85,611
TOTAL ANNUAL CAPITAL
& OPERATING EXPENSES
$59,434
$88,021
Cost/Participant/Year
Cost/Participant/Day
$11,887
$46.80
$8,802
$34.65
Includes Building Rent, Utilities & Phone,
Personnel & Benefits, Staff Development,
Supplies, Insurance, Accounting/Legal,
Meals/Snacks & Miscellaneous
Estimated Annual Revenues
for Proposed Adult Day Services Center
Alt. 1
Alt. 2
5
10
Private Pays
(10% of Participants) (@ $25/day Full Pay)
$6,350
$6,350
Full Reimbursement
(20% of Participants) (@ $25/day Full Pay)
6,350
12,700
13,716
32,004
5,334
12,446
Estimated Uncollectibles (40% of Co-Payments)
<2,134>
<4,978>
ANNUAL REVENUE
$29,616
$58,522
Participants
ESTIMATED REVENUES
Partial Reimbursement
(70% of Participants) (@ $18/day Partial Pay)
CO-PAYMENTS
(70% of Participants) (@ $7/day Co-Pay)
Est. Supplemental Funding
for Proposed Adult Day Services Center
Alt. 1
Alt. 2
5
10
ANNUAL REVENUE
$29,616
$58,522
ANNUAL CAPITAL
& OPERATING
EXPENSES
59,434
88,021
NECESSARY
SUPPLEMENTAL
FUNDING
$29,818
$29,499
Participants
Effects of Utilization of Adult Day Services Centers
on Cost Per Participant Day
8
0
7
0
6
0
Costperaticpantdy
5
0
4
0
3
0
2
0
8 1
01
21
41
61
82
02
22
42
6
A
v
e
r
a
g
e
d
a
i
l
y
c
e
n
s
u
s
Source: Zelman, W.M., The University of North Carolina, Chapel Hill,
Elston, J.M., and Weissert, W.G., The University of Michigan, Ann Arbor
Estimating Feasibility
of Kidney Dialysis Center
for Lincoln County, Oklahoma
Mary K. Lawler, RN, Ph.D.
Gerald A. Doeksen, Ph.D.
Fred C. Eilrich
Oklahoma Cooperative Extension Service
Oklahoma State University
Lincoln County, Oklahoma
Objectives
1. Estimate patients
2. Estimate total capital needed
3. Estimate annual capital and annual
operating costs
4. Estimate revenues
5. Determine feasibility
Estimated Oklahoma
Prevalence Coefficients
Age
Coefficient
0-19
1.6
20-44
35.6
45-64
134.4
65-74
272.2
75+
230.0
Prevalence Rate Defined
Coefficient of 35.6 means for
every 100,000 people 20-44
years old, there are 35.6
patients receiving kidney dialysis
in Oklahoma
Estimating Prevalent Patients
Category
2002
County
Population
Coefficients
Based on 2000
Data Per 100,000
Population
Estimated 2002
Number of
Patients in County
(Prevalence Data)
BY RACE
White
Black
Native American
Asian and Other
TOTAL
28,953
802
2,212
608
32,575
56.8
239.9
166.2
22.2
16.4
1.9
3.7
0.1
22.1
9,708
10,072
8,151
2,536
2,108
32,575
1.6
35.6
134.4
272.2
230.0
0.2
3.6
11.0
6.9
4.8
26.5
32,575
76.4
24.9
BY AGE
0-19
20-44
45-64
65-74
75+
TOTAL
BY POPULATION
TOTAL
Estimating Number of Stations and Annual Treatments.
3-day week
6-day week
Number of Stations
A. Number of prevalent patients estimated from coefficients
20
20
B. Expected number of new patients estimated from coefficients
2
2
C. Number of daily treatments per M.W.F. rotation per station
3
2
D. Number of daily treatments per T.Th. Sat. rotation per station
0
2
E. Total number of possible treatments per day per station (C + D)
3
4
7.3
5.5
8
6
3,120
3,120
312
312
J. Total number of annual treatments (H + I)
3,432
3,432
J. Number of annual treatments expected (90%)
3,089
3,089
24
24
3,744
3,744
F. Number of stations required ((A + B)/E)
G. Actual number of stations (round up to whole number)
Number of Annual Treatments
H. Number of annual treatments from prevalent patients (A x 3 x 52)
I. Number of annual treatments from new patients (B x 3 x 52)
K. Maximum number of patients (G x E)
L. Maximum number of annual treatments (K x 3 x 52)
Sample Dialysis Facility
Patients Stations
Treatment Schedule
Mon Tues Wed Thur
22
8
3
0
3
0
Fri
3
Estimated Total Capital Costs
Construction
Water treatment
Bio-medical equipment
Clinical equipment
Other
TOTAL
$276,612
$27,300
$8,549
$160,922
$33,317
$506,700
Total Capital Costs
Total Capital Costs
Annual Capital Costs
Based on 7 years @ 7% on Dialysis
Machines, and 10 years @ 7% on
Construction and All Other Equipment
$506,700
$78,572
Estimating Personnel Costs
Registered nurse (RN)
$46,800
Patient Care Tech (PCT)
25,060
Chief Technician
27,040
Housekeeper (1/2 time)
Financial manager (1/2 time)
5,356
20,800
Benefits @ 35%
$125,056
$43,770
Staff Development
$4,000
Subtotal Personnel
Contract Personnel (no benefits)
Medical Director / Nephrologist
$35,000
Renal social worker
5,000
Hemodialysis dietitian
5,000
Subtotal Contract Personnel
TOTAL PERSONNEL COSTS
$45,000
$217,826
Estimating Operating Costs
•
•
•
•
•
•
•
•
Personnel
Maintenance
Supplies
Bio-Medical supplies
Utilities
Building lease
Communications
Insurance
TOTAL
$217,826
$26,062
$7,568
$355,853
$72,190
$28,000
$5,952
$2,471
$715,922
Estimating Collections
• Medicare pays $233 per treatment
• Third-party payers pay on average $1,023
• Medicare does not pay for first 90 days; often
this is not collected
Estimating Revenue
Number of Medicare treatments/year
2,949
Number of Private Pay treatments/year
140
Number of treatments NOT reimbursed
(1st 90 days)
39
Estimating Revenue
2,949 treatments @ $233
$687,117
140 treatments @ $1,023
$143,220
Adjustment for Non-Reimbursed ($16,357)
Total Revenue
$813,980
Determining Feasibility
Total Revenue
Total Annual Capital costs
Total Annual Operating costs
Total Annual Capital &
Operating Costs
Total Revenues less Total Costs
$813,980
$78,572
$715,922
$794,494
$19,486
Available Budget Studies from
Oklahoma Cooperative Extension Service
Primary Care Physician
Obstetrics/Gynecology Physician
Pediatrician
Emergency Medical Services (Basic and Advanced)
First Responder Systems
Outpatient Rehabilitation
Adult Day Services
Kidney Dialysis
Assisted Living Facilities
Federally Qualified Health Centers (FQHCs) –
• Primary Care Physician
Fire Protection, Solid Waste, Transportation Systems
Budget Studies
Under Construction
Rural Health Clinics
Dental Services
Specialty Physicians
Federally Qualified Health Centers (FQHCs)
• Dental
• Pharmacy
Rural Health Works
National WebSite:
http://rd.okstate.edu/health/