OSU Center for Rural Health 1111 W. 17 th Street Tulsa, OK (918) Economics of Health Care Oklahoma State University Center for Health Sciences Center for Rural Health Tulsa, Oklahoma Val Schott, MPH Director, Rural Health Policy & Advocacy Director, Oklahoma Office of Rural Health OSU Center for Rural Health

© 2008 Oklahoma State University

 Trends in Health Care  Economic Impact of a Rural Hospital  Estimate Need for a Primary Care Physician  Estimating Cost & Revenue For A Rural Primary Care Physician Presentation Overview

© 2008 Oklahoma State University Trends in Health Care

© 2008 Oklahoma State University Health care expenditures for the year 2006 were ____ per capita in the United States. a)$4,790 b)$7,026 c)$12,782

© 2008 Oklahoma State University Health care expenditures for the year 2006 amounted to___ percent of gross domestic production. a)16.0 % b)19.6 % c)13.8 %

© 2008 Oklahoma State University National Trends in Health Care United States Health Expenditures and Employment Data ; Projected for 2008, 2012 & 2016 Year Total Health Expenditures (billions) Per Capita Health Expenditures Health Expenditures as % of GDP Health Sector Employment (000) 1970$75.1$3577.2%3, $714.0$2, %7, $1,353.6$4, %10, $1,603.4$5, %11, $1,852.3$6, %12, $2,105.5$7, %12,602 Projections 2008$2,420.0$7, % $3,173.4$10, % $4,136.9$12, %--

© 2008 Oklahoma State University In 2004, payment for physicians services was ______ percent of health care expenditures. a)21% b)30% c)84%

© 2008 Oklahoma State University National Health Care Expenditures National Gross Domestic Product Type of Health Service

© 2008 Oklahoma State University Economic Impact of A Rural Hospital: Marshall Memorial Hospital

© 2008 Oklahoma State University Critical Access Hospitals may be located in _______________________. a)a physical location designated as a Medically Underserved Area (MUA) or Health Professional Shortage Area (HPSA) as that type of hospital is intended to provide service to underserved populations. b)a rural community where the hospital is 35 miles by primary road or 15 miles by secondary road from another hospital. c)Both (a) and (b) are correct.

© 2008 Oklahoma State University Since Critical Access Hospitals are limited to no more than 25 beds and an average length of stay of no more than 96 hours, they are too small to provide any significant economic impact for their rural community, thus the acceptance by the Centers for Medicare and Medicaid (CMS) of this type of facility. 1.True 2.False

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MARSHALL MEMORIAL HOSPITAL MEDICAL SERVICE AREA

© 2008 Oklahoma State University 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.Estimate the secondary impacts of Marshall Memorial Hospital on the economy of Marshall County. Objective of the Report

© 2008 Oklahoma State University Marshall County Trends in Health Care Employment and Payroll for Marshall County, Oklahoma EMPLOYMENTPAYROLL (100s) Year Health Services % of Total Total Health Services % of Total Total %1, %$24,878 Based on SIC %2, %$28, %2, %$30, %2, %$36, %2, %$40, %2, %$45, %2, %$50, %3, %$53, %2, %$49, %3, %$60,612 % Change %n/a64.4%427.6%n/a143.6% Based on NAICS %3, %$64, %3, %$69, %3, %$71, %3, %$73, %3, %$71, %3, %$83, %3, %$88,271 % Change %n/a10.5%75.4n/a37.6%

© 2008 Oklahoma State University Marshall Memorial Hospital Medical Service Area Census Population & Population Estimates & Projections for City of Madill & Marshall County, Oklahoma, City of Madill Marshall County State of Oklahoma 1980 Census3,18710,5503,025, Census3,06910,8293,145, Census3,41013,1843,450, Estimates3,57213,9523,523, Projections4,37016,9003,591, Projections5,38020,8003,735,690 % Change %25.0%14.1% % Change %21.7%9.7% % Change %5.8%2.1% % Change % 4.1% % Change %49.1%6.0%

© 2008 Oklahoma State University Marshall Memorial Hospital Direct Economic Activities Direct Economic Activities of the Marshall Memorial Hospital Component Estimated Jobs Estimated Income Marshall Memorial Hospital143$5,569,000 Source: 2006 Local employment and income data

© 2008 Oklahoma State University Marshall County Employment, Income, & Retail Sales Impact Total Employment, Income, and Retail Sales Impact of the Marshall Memorial Hospital on Marshall County Employment Total full-time & part-time employees143 Hospital employment multiplier1.52 Secondary Employment Impact74 Total Employment Impact217 Income Total payroll plus benefits$5,569,00 Hospital income multiplier1.35 Secondary income impact$1,949,150 Total income impact$7,518,150 Retail Sales & Sales Tax Estimated county impact on retail sales$2,420,092 Estimated Marshall County sales tax (1%)$24,201 Estimated city impact on retail sales$2,536,624 Estimated City of Madill sales tax$76,099

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Timetable to set up primary care physician practice (From American Academy of Family Physicians) Estimate the costs and revenues associated with establishing a rural primary care physician practice Starting A Practice: Critical Economic Decisions

© 2008 Oklahoma State University One year before opening a practice 1.Establish personal and professional goals. 2.Select a location. 3.Evaluate possibilities for recruitment assistance from hospitals. Timetable to Establish Primary Care Physician Practice

© 2008 Oklahoma State University Six months before opening a practice 1.Decide on office location and start lease negotiations. 2.Select professional advisors. 3.Decide on mode of practice. 4.Begin obtaining required federal and state licenses. 5.Seek sources of funding. 6.Determine deadlines for Yellow Pages and other advertising outlets. 7.Approach third-party payors to become a participating physician. Timetable to Establish Primary Care Physician Practice

© 2008 Oklahoma State University Three to six months before opening a practice 1.Apply for hospital staff privileges. 2.Begin to recruit office staff. 3.Begin to establish professional contacts. 4.Purchase or lease office furniture and equipment. 5.Select bank and professional liability insurer. 6.Develop fee schedule and establish a billing system. 7.Select a computer system. Timetable to Establish Primary Care Physician Practice

© 2008 Oklahoma State University One to three months before opening a practice 1.Finalize office staff. 2.Create an official policy manual. 3.Finalize required licenses and permits. 4.Advertise in your local area. 5.Purchase needed office and clinical supplies. 6.Establish scheduling and patient recall systems. 7.Attempt to establish coverage-sharing arrangements. 8.Continue to establish professional contacts. Timetable to Establish Primary Care Physician Practice

© 2008 Oklahoma State University Need to evaluate the feasibility of choosing a particular location such as: Estimate potential visits, Estimate practice revenues, and Estimate capital and operating costs. Determine Location Feasibility

© 2008 Oklahoma State University Estimating Potential Local Physician Office Visits Based on National Ambulatory Medical Care Survey, 2006 Summary, No. 3, August 6, AgeVisit Rate 1 MaleFemale <

© 2008 Oklahoma State University Applying to a typical rural community with 9,151 population PRIMARY MEDICAL SERVICE AREA MaleFemale Age 2006 Population Visit RateVisits 2006 Population Visit RateVisitsTotal Visits < , ,4004, ,8222, , ,9971, ,6725, , ,0361, ,1577, , ,9743, , ,5383,735 Total4,52711,4024,62416,38327,785 Local Primary Care Physician Office Visits: (58.3%)*16,199 *Data from U. S. DHHS estimate that 58.3% of total physician office visits are made to physicians or midlevel practitioners in primary patient care

© 2008 Oklahoma State University Survey of primary care physicians in Oklahoma – Physician Office Visits TypeLowHigh Average Total Visits3,5507,720 5,640 Total Office Visits3,1507,200 5,104 Percent Initial Office Visits5%35% 15% Percent Routine Office Visits65%95% 85% Percent Hospital & Nursing Home10%

© 2008 Oklahoma State University Survey of primary care physicians in Oklahoma – Fees per Visit TypeLowHighAverage Collection Rate Average Collected Office Visit$50$121 $8476%$64 Initial Office Visit$75$160$111 73%$81 Routine Office Visit$50$105 $7977%$61 Hospital Visit$70$124 $10362%$64 Nursing Home Visit$50$200$93 75%$70

© 2008 Oklahoma State University Survey of primary care physicians in Oklahoma – Fees by Payor Source SourceLowHighAverage Collection Rate Average Collected Medicare Total Fees per Visit$65$160$101 68%$69 % of Total Visits18%55%31% Medicaid Total Fees per Visit$42$105 $8665%$56 % of Total Visits 0%50%22% Private Pay Total Fees per Visit$65$155 $9770%$68 % of Total Visits20%50%33% Uninsured Total Fees per Visit$50$140 $7872%$56 % of Total Visits5%36%14%

© 2008 Oklahoma State University Survey of primary care physicians in Oklahoma – Average Capital Costs for Solo Rural PCP Clinic Type Costs Construction Costs per sq. ft. ($150-$250) $200 Square Feet Utilized (900-2,500) 1,500 Total Construction Costs $300,000 Equipment Costs $15,000 Computer Costs $10,000 Total Equipment & Computer Costs $25,000 Annual Capital Costs Construction Costs (20 year 7%) $27,911 Equipment & Computer Costs (5 year 8%) $6,083

© 2008 Oklahoma State University Survey of primary care physicians in Oklahoma – Average Capital Costs for 2-PCP Rural Clinic Type Costs Construction Costs per sq. ft. ($150-$250) $200 Square Feet Utilized (1,600-5,000) 3,000 Total Construction Costs $600,000 Equipment Costs $20,000 Computer Costs $20,000 Total Equipment & Computer Costs $40,000 Annual Capital Costs Construction Costs (20 year 7%) $55,821 Equipment & Computer Costs (5 8%) $9,733

© 2008 Oklahoma State University Survey of primary care physicians in Oklahoma – Average Annual Salaries of PCP Office Staff TypeLowHigh Average Physician Assistant$70,000$99,000 $80,000 Nurse Practitioner$75,000 Registered Nurse--- $50,000 Licensed Practical Nurse$14,400$40,000 $31,500 Medical Assistant$14,875$37,500 $24,700 Laboratory Technician--- $31,400 Billing Clerk$14,560$20,000 $17,000 Office Manager$17,000$40,000 $38,500 Receptionist$14,400$25,000 $24,000

© 2008 Oklahoma State University Survey of primary care physicians in Oklahoma – Average Operating Costs of Solo PCP Clinic TypeLowHigh Average Property Costs Utilities$2,800$5,800 $4,500 Maintenance$1,000$7,000 $3,800 Janitor and Laundry$3,000$6,000 $5,100 Insurance$1,200$4,000 $2,800 Property Tax (owned)$1,500$3,000 $2,500 Total Property Costs $18,700 Communication$1,000$7,200 $3,700 Supplies$12,000$39,000 $21,500 Malpractice Insurance$8,000$13,000 $11,500 Continuing Education$1000$6,000 $3,000 TOTAL Operating Costs $58,400 Sq. Ft of building\Med. Prof.5003,000 Annual Lease$6,000$23,500

© 2008 Oklahoma State University Example Budget for Solo Rural PCP Clinic - Revenues Revenue Office Initial Office Visits766 Average Initial Fees Collected/Visit$81 Total Initial Office Fees Collected$62,046 Routine Office Visits4,338 Average Routine Office Fees Collected/Visit$61 Total Routine Office Fees Collected$264,618 Additional Total Hospital and Nursing Home Visits536 Average Fee/Visit$67 Total Hospital and Nursing Home Fees Collected$35,912 TOTAL Revenue$362,576

© 2008 Oklahoma State University Example Budget for Solo Rural PCP Clinic – Annual Costs and INCOME (first 1-3 years) Annual Costs Building Costs (if purchased)27,911 Equipment$6,083 Labor LPN$31,500 Office Manager$38,500 Receptionist$24,000 Total Wages$94,000 Benefits (25%) Total Labor Costs$117,500 Total Operating Costs$58,400 TOTAL Annual Costs$209,894 Income (Revenues less Costs)$152,682

© 2008 Oklahoma State University Example Budget for Solo Rural PCP Clinic – Annual Costs and INCOME (after 3 – 5 years) Costs remain basically the same; revenues increase 10 to 15% after first 3 to 5 years First 1-3 Yrs. After 3 to 5 Yrs 10%15% Increase Annual Revenues$362,576$398,834$416,963 Annual Costs$209,894 Income (Total Revenues less Total Costs) $152,682$188,940$207,069

© 2008 Oklahoma State University Questions?

© 2008 Oklahoma State University

Acknowledgments  Rural Development - OSU Cooperative Extension Service  OSU Center for Rural Health  OSU Center for Health Sciences

© 2008 Oklahoma State University Tulsa Office OSU Center for Health Sciences 1111 West 17 th Street Tulsa, OK Phone: Fax: Oklahoma City Office 5500 North Western Suite 278 Oklahoma City, OK Phone: Fax: For Additional Information…

© 2008 Oklahoma State University Staff Contact Information William Pettit, D.O. Associate Dean & Associate Professor of Family Medicine Val Schott, M.P.H. Director, Rural Policy & Advocacy (p) (f) C. Michael Ogle, D.O. Director, OSU Physicians Rural Clinic Svcs Jeff Hackler, M.B.A., J.D. Director, Rural Grants and Research Vicky Pace, M.Ed. Director, Rural Medical Education Richard Perry, M.A. Director, OkAHEC Dennis Carter, D.O. Endowed Rural Health Professor (Poteau) Denna Wheeler, Ph.D. Data Analyst Chad Landgraf, M.S. GIS Specialist Corie Kaiser, M.S. Asst. Director, State Office of Rural Health Toni Hart Program Coordinator Morgan Farquharson Clinical Coordinator Matt Janey Program Coordinator Rod Hargrave FLEX Program Coordinator Jan Barber Admin. Coordinator Sherry Eastman Program Specialist Stacy Huckaby Administrative Assistant Billie Bowman Administrative Assistant Debra Black Administrative Assistant Kelly Davie Northwest Rural Coordinator (Enid) Augelica Burrell, M.H.R Southwest Rural Coordinator (Lawton) Alexandra Bryant Northeast Rural Coordinator (Tahlequah) Kelby Owens Southeast Rural Coordinator (Durant)