Economics of Health Care

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

2. Scope of Rural Health

3. NATIONAL TRENDS IN HEALTHCARE Table 1 United States Health Expenditures and Employment Data 1970-2004; Projected for 2005, 2010 & 2015

4. NATIONAL TRENDS IN HEALTH CARE • Health care services as a share of the national gross domestic product (GDP) • 1970 7.2 % • 2004 16.0 % • Per capita health expenditures • 1970 $357 • 2004 $6,280 • Employment in the health sector • Increased 250 percent from 1970 to 2002

5. NATIONAL TRENDS IN HEALTH CARE – PROJECTIONS • Health care expenditures as % of GDP • 2010 18.0% • 2015 20.0% • Per capita health care expenditures • 2010 $9,148 • 2015 $12,320 • Total health expenditures • Increase to over $4 trillion in 2015

6. NATIONAL HEALTH CARE EXPENDITURES

8. MARSHALL MEMORIAL HOSPITALMEDICAL SERVICE AREA

9. ECONOMIC IMPACT OF MARSHALL MEMORIAL HOSPITAL Website: www.okruralhealthworks.org Cheryl St. Clair, Associate State Extension Specialist, OSU, Stillwater, OK 405-744-6083; Email: cheryl@okstate.edu Gerald A. Doeksen, Extension Economist, OSU, Stillwater, OK 405-744-6083 Jack Frye, Rural Development Specialist, E. Oklahoma, OSU, Ada, OK 580-332-4100 Gena L. Alexander, Interim County Extension Director, Marshall County Extension Office, OSU, Madill, OK 580-795-3563 Corie Kaiser, Regional Health Consultant, Oklahoma Rural Health Policy and Research Center, Oklahoma Office of Rural Health, OSU, Oklahoma City, OK 405-945-9197 Val Schott, Director Oklahoma Office of Rural Health, OSU, Oklahoma City & Tulsa, OK 405-945-9197

10. OBJECTIVE OF REPORT ReportIncludes The Following: • Review economic trends of the health sector for the U.S. and Marshall County; • Identify the Marshall Memorial Hospital medical service area; • Summarize the direct economic activities of Marshall Memorial Hospital; • Review concepts of community economics and multipliers; and • Estimate the secondary impacts of Marshall Memorial Hospital on the economy of Marshall County.

11. MARSHALL CO. TRENDS IN HEALTH CARE

12. MARSHALL CO. TRENDS IN HEALTH CARE

13. MARSHALL CO. TRENDS IN HEALTH CARE

14. MARSHALL MEMORIAL HOSPITALMEDICAL SERVICE AREA

15. MARSHALL MEMORIAL HOSPITALDIRECT ECONOMIC ACTIVTIES

16. OVERVIEW OF COMMUNITYECONOMIC SYSTEM Inputs $ Products $ Basic Industry $ $ Labor Inputs Goods & Services Households Services $ $ $

17. MARSHALL CO. EMPLOYMENT, INCOME,& RETAIL SALES IMPACT

19. COOPERATIVE EXTENSION POINT OF CONTACTS Cheryl F. St. Clair - Assistant State Extension Specialist, OSU, Stillwater (405) 744-6081 Gerald A. Doeksen - Extension Economist, OSU, Stillwater (405) 744-6081 Jack Frye - Area Rural Development Specialist, Ada (580) 332-4100 Jody R. House – Atoka County Extension Director, Atoka (580) 889-7337 RURAL DEVELOPMENT COOPERATIVE EXTENSION SERVICE OKLAHOMA STATE UNIVERSITY January 2003

20. OBJECTIVES: • To examine the need for primary care physicians in Atoka, Oklahoma • To estimate the costs and revenues associated with establishing a primary care physician practice in Atoka, Oklahoma.

21. PURPOSE OF STUDY • 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.

22. PURPOSE OF STUDY • 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.

23. PURPOSE OF STUDY • Determine the need for primary care physicians • Determine medical service area and populations

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

26. PURPOSE OF STUDY • Specifically, the study will: • Determine the need for primary care physicians • Estimate primary care physician office visits

27. ANNUAL PHYSICIAN OFFICE VISITS 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 1,400 2.4 3,423 1,266 2.3 2,876 6,299 15-24 1,018 1.2 1,200 731 2.3 1,694 2,894 25-44 2,414 1.6 3,969 1,621 3.1 5,071 9,039 45-64 1,783 3.0 5,369 1,596 4.1 6,563 11,931 65-74 545 5.4 2,936 544 6.1 3,312 6,248 75+ 346 6.7 2,317615 6.4 3,9646,282 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

28. PURPOSE OF STUDY • Determine the need for primary care physicians • Estimate the total demand for primary care physicians in the medical service area

29. PRIMARY CARE PHYSICIAN VISITS 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 3.7 4.0 4.3 4.5 4.8 5.1 5.3 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

30. PURPOSE OF STUDY • Estimate the costs and revenues to establish a primary care physician practice • Estimate capital costs

31. ESTIMATE CAPITAL COSTS • Illustrate 2 Budget Alternatives • Alternative 1. • Assume 2,750 primary care physician office visits • Alternative 2. • Assume 4,750 primary care physician office visits

32. ESTIMATE CAPITAL COSTS • 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

33. ESTIMATE CAPITAL COSTS 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

34. PURPOSE OF STUDY • Estimate the costs and revenues to establish a primary care physician practice • Estimate annual capital costs, annual operating costs and total costs

35. ESTIMATED CAPITAL COSTS Both Alternatives 1 and 2 Table 5 Estimated Capital Costs for a Primary Care Physician Practice in Atoka Cost Item Total 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 loan @ 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

36. ESTIMATED CAPITAL & OPERATING COSTS 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

37. PURPOSE OF STUDY • Estimate the costs and revenues to establish a primary care physician practice • Estimate revenues based on type of visit

38. ESTIMATE REVENUES • 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

39. ESTIMATES OF OFFICE VISITS Alternative 1 Table 7 Estimates of Primary Care Physician Office Visits and Revenues By Type of Visit for 2,750 Visits Number of Percent of Visits Total Visits Type of Visits 2,750 Initial Office 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% Home Visits 116 4.2%

40. ESTIMATES OF OFFICE VISITS Alternative 1 Table 7 Estimates of Primary Care Physician Office Visits by Type of Visit No. of 1999 Updated Visits Rate 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 $135.00 $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 $189.00 $118.22 $67.50 $8,883 $5,556 $3,173 Home Visits 116 $101.25 $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

41. ESTIMATES OF OFFICE VISITS Alternative 2 Table 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 $135.00 $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 $189.00 $118.22 $67.50 $15,309 $9,576 $5,468 Home Visits 200 $101.25 $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

42. PURPOSE OF STUDY • Estimate the costs and revenues to establish a primary care physician practice • Estimate alternate collection rates

43. ESTIMATED COLLECTED REVENUES 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 $95,787 82.5% 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

44. ESTIMATED COLLECTED REVENUES 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 $165,402 82.5% 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

45. PURPOSE OF STUDY • Estimate the costs and revenues to establish a primary care physician practice • Determine estimated net income

46. 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

47. REFERENCES Bureau of Labor Statistics Bureau of Economic Analysis Centers for Medicare & Medicaid Services National Health Expenditures 1970-2004 and National Health Expenditure Projections 2005-2015 U.S. Census, County Business Patterns; 1988-1997 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: 2000-2020

48. Scope of Rural Health