Economics of Health Care Val Schott, MPH, Director OSU Center for Rural Health

Scope of Rural Health

© 2006 Oklahoma State University NATIONAL TRENDS IN HEALTHCARE Table 1 United States Health Expenditures and Employment Data ; Projected for 2005, 2010 & 2015 UNITED STATESDATA TotalPer CapitaHealth Ave. AnnualHealth &Ave. Yrly YearHealth ExpendituresSectorEmploymentSocial Asst.Employment Expenditures As % of GDPEmploymentIncreaseEmploymentIncrease ($$ Billions)($$)(%)(000)(%)(000)(%) 1970$75.1$3577.2%3, ,1069.1%5,2787.3% , %7,8144.8%N/A 20001,358.54, %10,1032.9%N/A 20011,474.25, %10, %N/A 20021,607.95, %10,6732.8%N/A 20031,740.65, %N/A 14,759N/A 20041,877.66, %N/A 15,0522.0% Projections 20052,016.06, % 20102, % 20154, , %

© 2006 Oklahoma State University NATIONAL TRENDS IN HEALTH CARE  Health care services as a share of the national gross domestic product (GDP)  %  %  Per capita health expenditures  1970 $357  2004 $6,280  Employment in the health sector  Increased 250 percent from 1970 to 2002

© 2006 Oklahoma State University NATIONAL TRENDS IN HEALTH CARE – PROJECTIONS  Health care expenditures as % of GDP  %  %  Per capita health care expenditures  2010 $9,148  2015 $12,320  Total health expenditures  Increase to over $4 trillion in 2015

© 2006 Oklahoma State University NATIONAL HEALTH CARE EXPENDITURES

© 2006 Oklahoma State University

MARSHALL MEMORIAL HOSPITAL MEDICAL SERVICE AREA

© 2006 Oklahoma State University ECONOMIC IMPACT OF MARSHALL MEMORIAL HOSPITAL Website: Cheryl St. Clair, Associate State Extension Specialist, OSU, Stillwater, OK ; Gerald A. Doeksen, Extension Economist, OSU, Stillwater, OK Jack Frye, Rural Development Specialist, E. Oklahoma, OSU, Ada, OK Gena L. Alexander, Interim County Extension Director, Marshall County Extension Office, OSU, Madill, OK Corie Kaiser, Regional Health Consultant, Oklahoma Rural Health Policy and Research Center, Oklahoma Office of Rural Health, OSU, Oklahoma City, OK Val Schott, Director Oklahoma Office of Rural Health, OSU, Oklahoma City & Tulsa, OK

© 2006 Oklahoma State University OF REPORT OBJECTIVE OF REPORT 1.Review economic trends of the health sector for the U.S. and Marshall County; 2.Identify the Marshall Memorial Hospital medical service area; 3.Summarize the direct economic activities of Marshall Memorial Hospital; 4.Review concepts of community economics and multipliers; and 5.Estimate the secondary impacts of Marshall Memorial Hospital on the economy of Marshall County. Report Includes The Following:

© 2006 Oklahoma State University MARSHALL CO. TRENDS IN HEALTH CARE

© 2006 Oklahoma State University MARSHALL CO. TRENDS IN HEALTH CARE

© 2006 Oklahoma State University MARSHALL CO. TRENDS IN HEALTH CARE

© 2006 Oklahoma State University MARSHALL MEMORIAL HOSPITAL MEDICAL SERVICE AREA

© 2006 Oklahoma State University MARSHALL MEMORIAL HOSPITAL DIRECT ECONOMIC ACTIVTIES

© 2006 Oklahoma State University OVERVIEW OF COMMUNITY ECONOMIC SYSTEM Households Industry Basic Services Goods & $ Inputs Products Inputs $$ $ $ Services $$ Labor

© 2006 Oklahoma State University MARSHALL CO. EMPLOYMENT, INCOME, & RETAIL SALES IMPACT

© 2006 Oklahoma State University

Cheryl F. St. Clair - Assistant State Extension Specialist, OSU, Stillwater (405) Gerald A. Doeksen - Extension Economist, OSU, Stillwater (405) Jack Frye - Area Rural Development Specialist, Ada (580) Jody R. House – Atoka County Extension Director, Atoka (580) RURAL DEVELOPMENT COOPERATIVE EXTENSION SERVICE OKLAHOMA STATE UNIVERSITY January 2003 COOPERATIVE EXTENSION POINT OF CONTACTS

© 2006 Oklahoma State University  To examine the need for primary care physicians inAtoka, Oklahoma  To estimate the costs and revenues associated with establishing a primary care physician practice in Atoka, Oklahoma. OBJECTIVES:

© 2006 Oklahoma State University  Determine the need for primary care physicians  Determine medical service area and populations;  Estimate primary care physician office visits; and  Estimate the total demand for primary care physicians in the medical service area. PURPOSE OF STUDY

© 2006 Oklahoma State University  Estimate the costs and revenues to establish a primary care physician practice  Estimate capital costs;  Estimate annual capital costs, annual operating costs and total costs;  Estimate revenues based on type of visit;  Estimate alternate collection rates; and  Determine estimated net income. PURPOSE OF STUDY

© 2006 Oklahoma State University  Determine the need for primary care physicians  Determine medical service area and populations PURPOSE OF STUDY

© 2006 Oklahoma State University

Service AreaPopulation Atoka 2,988 Caney 199 Stringtown 396 Tushka 345 Wardville N/A Remainder of county 9,951 Total Medical Service Area Population 13,879 Estimated 2000 Population Table 1 Atoka County, Oklahoma, Medical Service Area

© 2006 Oklahoma State University Specifically, the study will:  Determine the need for primary care physicians  Estimate primary care physician office visits PURPOSE OF STUDY

© 2006 Oklahoma State University Table 2 Total Annual Physician and Primary Care Physician Office Visits Generated in the Atoka County Medical Service Area MALE FEMALE Total 2000 Visit Total 2000 Visit Total Physician Age Population Rate Visits Population Rate Visits Visits Under 15 1, ,423 1, ,876 6, , , ,694 2, , ,969 1, ,071 9, , ,369 1, ,563 11, , ,312 6, , ,964 6,282 Total 7,506 19,214 6,373 23,480 42,694 Annual Primary Care Physician Office Visits = 26,555 Based on 62.2% of Total Physician Office Visits = Primary Care Physician Office Visits ANNUAL PHYSICIAN OFFICE VISITS

© 2006 Oklahoma State University  Determine the need for primary care physicians  Estimate the total demand for primary care physicians in the medical service area PURPOSE OF STUDY

© 2006 Oklahoma State University Table 3 Primary Care Physician Office Visits Given Usage By Local Residents in Atoka County, Oklahoma, Medical Service Area Usage 70% 75% 80% 85% 90% 95% 100% Number of Primary Care Visits at Different Usage Levels 18,589 19,916 21,244 22,572 23,900 25,227 26,555 Number of Primary Care Physicians If 85% usage level, then 22,572 total primary care physician office visits for an estimated 4.5 Total Primary Care Physicians Based on 4,976 average primary care office visits/ physician practice/year in Oklahoma PRIMARY CARE PHYSICIAN VISITS

© 2006 Oklahoma State University  Estimate the costs and revenues to establish a primary care physician practice  Estimate capital costs PURPOSE OF STUDY

© 2006 Oklahoma State University Illustrate 2 Budget Alternatives  Alternative 1. Assume 2,750 primary care physician office visits  Alternative 2. Assume 4,750 primary care physician office visits ESTIMATE CAPITAL COSTS

© 2006 Oklahoma State University  Capital Costs are the total of all capital equipment items Assume a 1,500 Sq. Ft. Building will be rented for both Alternatives with 3 Examination/Treatment Rooms ESTIMATE CAPITAL COSTS

© 2006 Oklahoma State University Both Alternatives 1 and 2 Table 4 Typical Equipment Found in Primary Care Physician Office 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 Total Equipment Costs are the SAME for BOTH Alternatives ESTIMATE CAPITAL COSTS

© 2006 Oklahoma State University  Estimate the costs and revenues to establish a primary care physician practice  Estimate annual capital costs, annual operating costs and total costs PURPOSE OF STUDY

© 2006 Oklahoma State University Both Alternatives 1 and 2 Table 5 Estimated Capital Costs for a Primary Care Physician Practice in Atoka Cost ItemTotal Cost ESTIMATED CAPITAL COSTS Equipment Estimated Total Equipment Costs $62,505 ESTIMATED TOTAL CAPITAL COSTS $62,505 ESTIMATED ANNUAL CAPITAL COSTS Equipment (Based on a 10 year 10% interest) $10,172 ESTIMATED TOTAL ANNUAL CAPITAL COSTS $10,172 Total Capital Costs and Total Annual Capital Costs are the SAME for BOTH Alternatives ESTIMATED CAPITAL COSTS

© 2006 Oklahoma State University Both Alternatives 1 and 2 Table 6 Estimated Annual Capital & Operating Costs for a Primary Care Physician Practice in Atoka Costs for Costs for 2,750 Visits 4,750 Visits ESTIMATED ANNUAL CAPITAL COSTS $10,172 $10,172 ESTIMATED ANNUAL OPERATING COSTS Total Annual Building Costs $20,702 $20,702 Total Annual Office Costs $22,150 $22,468 Total Annual Medical Costs $17,682 $24,854 Total Personnel Costs with Benefits $60,256 $71,640 TOTAL OPERATING EXPENSES $120,790 $139,674 TOTAL CAPITAL& OPERATING EXPENSES $130,963 $149,846 ESTIMATED CAPITAL & OPERATING COSTS

© 2006 Oklahoma State University  Estimate the costs and revenues to establish a primary care physician practice  Estimate revenues based on type of visit PURPOSE OF STUDY

© 2006 Oklahoma State University Estimate revenues based on type of visit Type of Office Visits are estimated based on research: 14.9% Initial Office Visits 85.1% Routine Office Visits 47.0% Visits with Additional Charges 8.6% Hospital Visits 8.2% Emergency Room Visits 3.6% Nursing Home Visits 1.7% Nursery Visits 4.2% Home Visits ESTIMATE REVENUES

© 2006 Oklahoma State University Alternative 1 Number ofPercent of VisitsTotal Visits Type of Visits 2,750 Initial Office Visits % Routine Office Visits 2, % Visits w/ Add’l Charges 1, % Hospital Visits % ER Visits % Nursing Home Visits % Nursery Visits % Home Visits % Table 7 Estimates of Primary Care Physician Office Visits and Revenues By Type of Visit for 2,750 Visits ESTIMATES OF OFFICE VISITS

© 2006 Oklahoma State University No. of 1999 Updated VisitsRate Schedule Revenues Type of Visits 2,750 High Average Low High Average Low Initial Office Visits 410 $60.75 $40.64 $27.00 $24,908 $16,660 $11,070 Routine Office Visits 2,340 $47.52 $33.28 $25.47 $111,197 $77,869 $59,610 Visits w/ Add’l Charges 1,293 $83.98 $30.69 $11.48 $108,591 $39,676 $14,837 Hospital Visits 237 $55.50 $46.18 $34.76 $13,153 $10,945 $8,239 ER Visits 226 $ $76.68 $40.50 $30,510 $17,330 $9,153 Nursing Home Visits 99 $65.49 $41.18 $24.75 $6,483 $4,076 $2,450 Nursery Visits 47 $ $ $67.50 $8,883 $5,556 $3,173 Home Visits 116 $ $54.70 $35.86 $11,745 $6,345 $4,159 REVENUES –High Range$315,469 REVENUES – Average Range$178,459 REVENUES – Low Range$112,691 Alternative 1Table 7 Estimates of Primary Care Physician Office Visits by Type of Visit ESTIMATES OF OFFICE VISITS

© 2006 Oklahoma State University ESTIMATES OF OFFICE VISITS Alternative 2Table 8 Estimates of Primary Care Physician Office Visits by Type of Visit No. of 1999 Updated Visits Rate Schedule Revenues Type of Visits 4,750 High Average Low High Average Low Initial Office Visits 708 $60.75 $40.64 $27.00 $43,011 $28,770 $19,116 Routine Office Visits 4,042 $47.52 $33.28 $25.47 $192,076 $134,508 $102,968 Visits w/ Add’l Charges 2,233 $83.98 $30.69 $11.48 $187,535 $68,521 $25,624 Hospital Visits 409 $55.50 $46.18 $34.76 $22,699 $18,889 $14,218 ER Visits 390 $ $76.68 $40.50 $52,650 $29,905 $15,795 Nursing Home Visits 171 $65.49 $41.18 $24.75 $11,199 $7,041 $4,231 Nursery Visits 81 $ $ $67.50 $15,309 $9,576 $5,468 Home Visits 200 $ $54.70 $35.86 $20,250 $10,940 $7,171 REVENUES –High Range$544,728 REVENUES – Average Range$308,149 REVENUES – Low Range$194,591

© 2006 Oklahoma State University  Estimate the costs and revenues to establish a primary care physician practice  Estimate alternate collection rates PURPOSE OF STUDY

© 2006 Oklahoma State University Alternative 1 Table 9a Estimated Collected Revenues (2,750 Visits) Revenues for 2,750 Visits Collection Rates High Average Low Total Revenues $315,469 $178,459 $112,691 95% Collections $299,696 $169,536 $107,056 90% Collections $283,923 $160,613 $101,422 85% Collections $268,149 $151,690 $95, % Collections $260,262 $147,229 $92,970 80% Collections $252,376 $142,767 $90,153 75% Collections $236,602 $133,844 $84,518 70% Collections $220,829 $124,922 $78,884 ESTIMATED COLLECTED REVENUES

© 2006 Oklahoma State University Alternative 2 Table 9b Estimated Collected Revenues (4,750 Visits) Revenues for 4,750 Visits Collection Rates High Average Low Total Revenues $544,728 $308,149 $194,591 95% Collections $517,492 $292,741 $184,861 90% Collections $490,256 $277,334 $175,132 85% Collections $463,019 $261,927$165, % Collections $449,401 $254,223$160,537 80% Collections $435,783 $246,519$155,673 75% Collections $408,546 $231,112$145,943 70% Collections $381,310 $215,705$136,213 ESTIMATED COLLECTED REVENUES

© 2006 Oklahoma State University  Estimate the costs and revenues to establish a primary care physician practice  Determine estimated net income PURPOSE OF STUDY

© 2006 Oklahoma State University COMPARISON OF ALTERNATIVES 1 & 2 Table 10 Estimated Net income for a Primary Care Physician Practice Scenario for 2,750 Visits Scenario for 4,750 Visits High Average Low High Average 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

© 2006 Oklahoma State University REFERENCES Bureau of Labor Statistics Bureau of Economic Analysis Centers for Medicare & Medicaid Services National Health Expenditures and National Health Expenditure Projections U.S. Census, County Business Patterns; National Ambulatory Medical Care Survey, 2004, Nation Center for Health Statistics 2006 Regional Economic Information System, Bureau of Economic Analysis 2006 Local Employment and Income Data for Marshall County, Oklahoma U.S. Census Bureau; 1980, 1990 & 2000 Census; 2004 Census Estimate Populations; 2010 and 2020 Census Population Projections 2006 Oklahoma Department of Commerce Population Projections for the State, Metropolitan Areas and Counties:

© 2006 Oklahoma State University Scope of Rural Health