Health Care and

Community Economics

Presentation at:

Southern Institute for Rural Development

Fort Meyers, Florida

September 8-10, 2003

Health Care andCommunity Economics

By:

Gerald A. DoeksenRegents Professor andExtension Economist

Phone: (405) 744-6081Email: gad@okstate.edu

Cheryl F. St. ClairAssistant State Extension Specialist

Phone: (405) 744-6081Email: cheryl@okstate.edu

RURAL DEVELOPMENTCOOPERATIVE EXTENSION SERVICE

OKLAHOMA STATE UNIVERSITY

To demonstrate the importance of the health sector to the rural economy and

Helping Decision-Makers MaintainPrimary Health Care Services in Rural Communities

Overall Objective:

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.

Component Employees Payroll

Hospital Subtotal Physicians, Dentists and Other Professionals

Physicians (2) 20.0 $590,670

Dentists (2)8.0 $322,244Optometrists (2)

6.5 $309,200Chiropractors (1) 2.0 $80,000

Subtotal Nursing Homes and Protective Care (2) Subtotal

Other Medical & Health Services Home Health Care (4) County Health Department DME Suppliers

Subtotal

35.0 $583,33311.0 $232,92012.5 $267,200

Pharmacies (3) Subtotal

TOTALS

Local Data Needed for Health Sector Impact AnalysisAtoka County, Oklahoma

303.0 $6,755,067

36.5 $1,302,114

92.0 $1,272,000

19.0 $697,500

97.0 $2,400,000

58.5 $1,083,453

Overview of Community Economic

System

Households

Industry

Basic

ServicesGoods &

$

Inputs

Products

Inputs

$ $

$

$

Services

$ $

Labor

Health Sector EmploymentComponents Employment Multiplier Impact

Hospital

Physicians & Dentists

Nursing & Protective Facilities

Other Medical & Health Services

Pharmacies

1.70

1.79

1.54

1.62

1.49

TOTALS

97.0

36.5

92.0

58.5

19.0

303.0

165

65

142

95

28

495

in Atoka County, OklahomaEconomic Impact of the Health Sector on Employment

Health Sector IncomeComponents Income Multiplier Impact

Hospital

Physicians & Dentists

Nursing & Protective Facilities

Other Medical & Health Services

Pharmacies

147

1.34

1.66

1.62

1.61

TOTALS

$2,400,000

$1,302,114

$1,272,000

$1,083,453

$697,500

$6,755,067

$3,528,000

$1,744,833

$2,111,520

$1,755,194

$1,122,975

$10,262,522

Economic Impact of the Health Sector on Incomein Atoka County, Oklahoma

Employment, Income, Retail Sales, and Sales Tax CollectionsResulting from the Health Sector in Atoka County, Oklahoma

Health SectorComponents

EmploymentImpact

IncomeImpact

Retail Sales

3 CentSales Tax

$3,753$375,293

Hospital $1,179,040 $11,790

Physicians & Dentists $583,114 $5,831

Nursing & Protective Facilities $705,659 $7,057

Other Medical &

Health Services $586,577 $5,866

Pharmacies

TOTALS $3,429,683 $34,297

$3,528,000

$1,744,833

$2,111,520

$1,755,194

$1,122,975

$10,262,522

165

65

142

95

28

495

Summary of Research Studies

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

Direct health sector employment from 10-15 percent of all employees

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

Health Services Foster Rural DevelopmentHealth Services Foster Rural Development

Health Services Attract RetireesHealth 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 non- conventional 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

Overview of Strategic Health

Planning

Getting StartedInitiating

Group

Overview of Strategic Health

Planning

Getting StartedInitiating

Group

CommunityFacilitator

SteeringCommittee

ResourceTeam

Overview of Strategic Health

Planning

Getting StartedInitiating

Group

CommunityFacilitator

SteeringCommittee

ResourceTeam

PublicityTask Force

Overview of Strategic Health

Planning

Getting StartedInitiating

Group

CommunityFacilitator

SteeringCommittee

ResourceTeam

PublicityTask Force

InventoryTask Force

Overview of Strategic Health

Planning

Getting StartedInitiating

Group

CommunityFacilitator

SteeringCommittee

ResourceTeam

SurveyTask Force

PublicityTask Force

InventoryTask Force

Overview of Strategic Health

Planning

Getting StartedInitiating

Group

CommunityFacilitator

SteeringCommittee

ResourceTeam

SurveyTask Force

Data & InfoTask Force

PublicityTask Force

InventoryTask Force

Overview of Strategic Health

Planning

Getting StartedInitiating

Group

CommunityFacilitator

SteeringCommittee

ResourceTeam

SurveyTask Force

Data & InfoTask Force

PublicityTask Force

InventoryTask Force

DevelopPlan

CommunityReviews Plan

RevisePlan

ImplementAction Plan

Follow-up &Continuation

Basic Methodology for Analyzing an Issue

STEPS

I. Estimate NeedsII. Project Costs

A. Capital or Start-upB. Annual Operating

III. Estimate RevenueIV. 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.

Atoka County, Oklahoma

ADAIR

ALFALFA

ATOKA

BECKHAM

BLAINE

BRYAN

CANADIAN

CARTER

CH

ER

OK

EE

CHOCTAW

CIMARRON

CLEVELAND

COMANCHE

COTTON

CRAIG

CUSTER

DE

LA

WA

RE

DEWEY

ELLISGARFIELD

GRADY

GRANT

GREER

HA

RM

ON

HARPER

JACKSON

JEFFERSON

KAY

KIOWA LATIMER

LOVE

MAYES

MURRAY

MUSKOGEE

NOBLE

NOWATA

OKLAHOMA

OK

MU

LG

EE

OSAGE

OTTAWA

PAWNEE

PAYNE

PUSHMATAHA

ROGER MILLS

ROGERS

SEQUOYAH

STEPHENSTILLMAN

TULSA

WAGONER

WASHITA

WOODS

WOODWARD WA

SH

ING

TO

N

SHALLMAR-

MAJOR

KINGFISHER

BEAVERTEXAS

LOGAN

CREEK

LINCOLN

OKFUSKEE

McINTOSH

CADDO

MCCLAIN

GARVIN

SE

MIN

OL

E

PO

TT

A-

WA

TO

MIE

HUGHES

PITTSBURG

HASKELL

LE FLORE

COAL

JOHNSTON

PONTOTOC

MCCURTAIN

Atoka

Tushka

Caney

Stringtown

Estimated Populationof Atoka County, Oklahoma,

Medical Service Area

Service Area Population

Atoka 3,270

Caney 190

Stringtown 370

Tushka 270

Wardville 50

Remainder of county 9,050

Total Medical Service Area Population 13,200

Total Annual Physician and Primary Care Physician Office VisitsGenerated in the Atoka County Medical Service Area

ANNUAL PHYSICIAN OFFICE VISITSMALE FEMALE TotalVisit Total Visit Total Physician

Age Population Rate Visits Population Rate Visits Visits

Under 15 1,408 2.4 3,379 1,257 2.2 2,765 6,14415-24 1,029 1.0 1,029 820 2.4 1,968 2,997

25-44 2,071 1.6 3,314 1,553 3.3 5,125 8,43945-64 1,607 3.0 4,821 1,506 4.0 6,024 10,845

65-74 465 5.2 2,418 579 5.8 3,358 5,77675+ 379 6.5 2,464 563 6.5 3,660 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 UsageBy Local Residents in Atoka County, Oklahoma, Medical Service Area

70% 75% 80% 85% 90% 95% 100%

Usage Level 17,557 18,812 20,066 21,320 22,574 23,828 25,082

No. of Physicians 3.5 3.8 4.0 4.3 4.5 4.8 5.0

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 aPrimary Care Physician Office

TotalEquipment Cost

EQUIPMENT SUMMARY Total Reception Area $1,927 Total Business Office $24,604 Total Examination/Treatment Rooms (3) $26,202 Total Laboratory $4,894 Total Physician's Office $3,435 Total Conference Room/Staff Lounge $1,442

TOTAL EQUIPMENT SUMMARY $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) $10,172

ESTIMATED TOTAL ANNUAL CAPITAL COSTS

$10,172

Alternatives 1 & 2

Estimated Annual Capital & Operating Costs for a Primary Care Physician Practice in Atoka

Costs for Costs for 2,750 4,750 Visits Visits

ESTIMATED ANNUAL CAPITAL COSTS

ESTIMATED ANNUAL OPERATING COSTS

Total Annual Building Costs

Total Annual Office Costs

Total Annual Medical Costs

Total Personnel Costs with Benefits

TOTAL ANNUAL

OPERATING EXPENSES

TOTAL ANNUAL CAPITAL & OPERATING EXPENSES

$60,256 $71,640

$139,674

$149,846

$10,172 $10,172

$20,702$20,702

$22,150 $22,468

$17,682 $24,864

$120,790

$130,963

Estimates of Primary Care Physician Office Visits and Revenues by Type of Visit for 2,750 Visits

Type of Visits

Initial Office Visits

Routine Office Visits

Visits w/Add'l Charges

Hospital Visits

ER Visits

Nursing Home Visits

Nursery Visits

Home Visits

2,750

410

2,340

1,293

237

226

99

47

116

No. ofVisits Percent of

Total Visits

14.9%

85.1%

47.0%

8.6%

8.2%

3.6%

1.7%

4.2%

Alternative 12,750 Office Visits

Estimates of Primary Care Physician Office Visitsby Type of Visit

VisitsType of Visits 2,750

Initial Office Visits 410

Routine Office Visits 2,340

Visits w/Add'l Charges 1,293

Hospital Visits 237

ER Visits 226

Nursing Home Visits 99

Nursery Visits 47

Home Visits 116

1999 Rate ScheduleHigh Average Low

$60.75$40.64

$27.00$47.52

$33.28$25.47

$83.98$30.69

$11.48$55.50

$46.18$34.76

$135.00$76.68

$40.50$65.49

$41.18$24.75

$189.00$118.22

$67.50$101.25

$54.70$35.86

Revenues High Average Low

$24,908$16,660

$11,070$111,197

$77,869

$59,610$108,591

$39,676

$14,837$13,153

$10,945$8,239

$30,510$17,330

$9,153$6,483

$4,076$2,450

$8,883$5,556

$3,173$11,745

$6,345$4,159REVENUES - High Range $315,469

REVENUES - Average Range $178,459REVENUES - Low Range $112,691

Alternative 1 - 2,750 Visits

Alternative 2

4,750 Visits

No. ofVisits

Type of Visits 4,750 High Average Low High Average Low

$60.25 $43,011Initial Office Visits 708 $40.64 $28,770

$27.00 $19,116$47.52 $192,076

Routine Office Visits 4,042 $33.28 $134,508$25.47 $102,968

$83.98 $187,535Visits w/Add'l Charges 2,233 $30.69 $68,521

$11.48 $25,624$55.50 $22,699

Hospital Visits 409 $46.18 $18,889$34.76 $14,218

$135.00 $52,650ER Visits 390 $76.68 $29,905

$40.50 $15,795$65.49 $11,199

Nursing Home Visits 171 $41.18 $7,041$24.75 $4,231

$189.00 $15,309Nursery Visits 81 $118.22 $9,576

$67.50$5,468

1999 UpdatedRate Schedule

Revenues for4,750 Visits

Estimates of Primary Care Physician Office Visits and Revenuesby Type of Visit for 4,750 Visits

$544,728$308,149

$194,591

REVENUES - High RangeREVENUES - Average RangeREVENUES - Low Range

High HighAverage Average

Estimated Total Collected Revenues for Scenarios with 2,750 Office Visits and 4,750 Office Visits for Atoka

Collection RatesRevenues for 2,750 Visits Revenues for 4,750 Visits

Low Low

$315,469

$299,696

$283,923

$268,149

$252,376

$236,602

$220,829

$544,728

$517,492

$490,256

$463,019

$435,783

$408,546

$381,310

$178,459

$169,536

$160,613

$151,690

$142,767

$133,844

$124,922

$308,149

$292,742

$277,334

$261,927

$246,519

$231,112

$215,705

Total Revenues

95% Collections

90% Collections

85% Collections

80% Collections

75% Collections

70% Collections

$112,691

$107,056

$101,422

$95,787

$90,153

$84,518

$78,884

$194,591

$184,861

$175,132

$165,402

$155,673

$145,943

$136,213

$260,262 $449,401$147,229 $254,223 82.5% Collections $92,970 $160,537

High Ave. Low High Ave. Low

Revenues Based on 82.5% Collections $260,262 $147,229 $92,970 $449,401 $254,223 $160,537

Total Annual Capital & Operating Expenses $130,963 $130,963 $130,963 $149,846 $149,846 $149,846

NET INCOME $129,299 $16,266 ($37,993) $299,555 $104,377 $10,691

Scenario for 2,750 Visits Scenario for 4,750 Visits

Estimated Net Income for a Primary Care Physician Practice

For Both Alternative 1 and Alternative 2

Marshall County

ADAIR

ALFALFA

ATOKA

BECKHAM

BLAINE

BRYAN

CANADIAN

CARTER

CH

ER

OK

EE

CHOCTAW

CIMARRON

CLEVELAND

COMANCHE

COTTON

CRAIG

CUSTER

DE

LAW

AR

E

DEWEY

ELLISGARFIELD

GRADY

GRANT

GREER

HA

RM

ON

HARPER

JACKSON

JEFFERSON

KAY

KIOWA LATIMER

LOVE

MAYES

MURRAY

MUSKOGEE

NOBLE

NOWATA

OKLAHOMA

OK

MU

LGE

E

OSAGE

OTTAWA

PAWNEE

PAYNE

PUSHMATAHA

ROGER MILLS

ROGERS

SEQUOYAH

STEPHENSTILLMAN

TULSA

WAGONER

WASHITA

WOODS

WOODWARD WA

SH

ING

TO

N

SHALLMAR-

MAJOR

KINGFISHER

BEAVERTEXAS

LOGAN

CREEK

LINCOLN

OKFUSKEE

McINTOSH

CADDO

MCCLAIN

GARVIN

SE

MIN

OLE

PO

TT

A-

WA

TO

MIE

HUGHES

PITTSBURG

HASKELL

LE FLORE

COAL

JOHNSTON

PONTOTOC

MCCURTAIN

Madill

Oakland

Kingston

McBride

Estimating Need: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

Estimating Need for an ADS Facility in Madill, Marshall County,

Oklahoma

946Population age

65 and older in service area

x 1.25% = 12

2,309participant days

52weeks per year

12 x 3.7days per week

=x

254operating days per year

2,309 = 9FTE 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

Furnishings

Activity Room $4,910 7,480Reception Area 3,210 3,210Director's Office 1,490 3,070Additional Staff Office 1,035 1,715Kitchen 3,280 3,850Medical Room 870 870Exercise Room 2,550 3,900TOTAL CAPITAL EXPENDITURES $17,345 $24,095

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 $85,611Includes Building Rent, Utilities & Phone, Personnel & Benefits, Staff Development, Supplies, Insurance, Accounting/Legal, Meals/Snacks & Miscellaneous

TOTAL ANNUAL CAPITAL $59,434 $88,021& OPERATING EXPENSES

Cost/Participant/Year $11,887 $8,802Cost/Participant/Day $46.80 $34.65

Estimated Annual Revenues for Proposed Adult Day Services Center

Alt. 1 Alt. 2

Participants 5 10

ESTIMATED REVENUES

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

Partial Reimbursement (70% of Participants) (@ $18/day Partial Pay) 13,716 32,004

CO-PAYMENTS (70% of Participants) (@ $7/day Co-Pay) 5,334 12,446

Estimated Uncollectibles (40% of Co-Payments) <2,134> <4,978>

ANNUAL REVENUE $29,616 $58,522

Est. Supplemental Fundingfor Proposed Adult Day Services Center

Alt. 1 Alt. 2

Participants 5 10

ANNUAL REVENUE $29,616 $58,522

ANNUAL CAPITAL & OPERATING EXPENSES 59,434 88,021

NECESSARY SUPPLEMENTAL FUNDING $29,818 $29,499

Co

st

pe

r p

arti

cip

an

t d

ay

Average daily census

20

30

40

50

60

70

80

8 10 12 14 16 18 20 22 24 26

Effects of Utilization of Adult Day Services Centers on Cost Per Participant Day

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 Coefficient0-19 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 Coefficients Estimated 2002 2002 Based on 2000 Number of County Data Per 100,000 Patients in County

Category Population Population (Prevalence Data)

BY RACE White 28,953 56.8 16.4 Black 802 239.9 1.9 Native American 2,212 166.2 3.7 Asian and Other 608 22.2 0.1 TOTAL 32,575 22.1

BY AGE 0-19 9,708 1.6 0.2 20-44 10,072 35.6 3.6 45-64 8,151 134.4 11.0 65-74 2,536 272.2 6.9 75+ 2,108 230.0 4.8 TOTAL 32,575 26.5

BY POPULATION TOTAL 32,575 76.4 24.9

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 F. Number of stations required ((A + B)/E) 7.3 5.5 G. Actual number of stations (round up to whole number) 8 6 Number of Annual Treatments

H. Number of annual treatments from prevalent patients (A x 3 x 52) 3,120 3,120 I. Number of annual treatments from new patients (B x 3 x 52) 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 K. Maximum number of patients (G x E) 24 24 L. Maximum number of annual treatments (K x 3 x 52) 3,744 3,744

Sample Dialysis Facility

Patients Stations Treatment Schedule

Mon Tues Wed Thur Fri

22 8 3 0 3 0 3

Estimated Total Capital Costs

Construction $276,612

Water treatment $27,300

Bio-medical equipment $8,549

Clinical equipment $160,922

Other $33,317

TOTAL $506,700

Total Capital Costs

Total Capital Costs $506,700

Annual Capital Costs $78,572 Based on 7 years @ 7% on Dialysis

Machines, and 10 years @ 7% on

Construction and All Other Equipment

Estimating Personnel CostsRegistered nurse (RN) $46,800

Patient Care Tech (PCT) 25,060

Chief Technician 27,040

Housekeeper (1/2 time) 5,356

Financial manager (1/2 time) 20,800

Subtotal Personnel $125,056 Benefits @ 35% $43,770

Staff Development $4,000Contract Personnel (no benefits)

Medical Director / Nephrologist $35,000

Renal social worker 5,000

Hemodialysis dietitian 5,000

Subtotal Contract Personnel $45,000

TOTAL PERSONNEL COSTS $217,826

Estimating Operating Costs

• Personnel $217,826• Maintenance $26,062• Supplies $7,568• Bio-Medical supplies $355,853 • Utilities $72,190• Building lease $28,000• Communications $5,952• Insurance $2,471

TOTAL $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

2,949Number of Private Pay treatments/year

140Number 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 $813,980Total Annual Capital costs $78,572

Total Annual Operating costs $715,922

Total Annual Capital &

Operating Costs $794,494

Total Revenues less Total Costs $19,486

Available Budget Studies fromOklahoma 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/