Estimating the economic contribution of rural hospitals

Hospital closures and concerns about access to health care frequently appear as rural topics in the news. Shrinking populations in some rural communities and reimbursement rates from public insurance associated with older populations (Medicare, although this may be supplemented by private insurance) and relatively low incomes (Medicaid and lack of any insurance) create financial pressure for rural hospitals. A Sheps Center study noted that Texas ranked fifth nationally in the number of hospitals (15) at high risk of financial distress, which was most prevalent across the Midwest and South (Maxwell et al, 2020).

At the same time, studies have documented rural residents bypassing local hospitals to obtain care elsewhere (Weigel et al., 2017). Sometimes there is simply a perception of better care in larger, urban healthcare centers nearby. Other times, patients are accessing care for specialties not offered locally; obstetricians are often one of the first services rural health systems close to remain financially solvent. However, as patients begin to establish specialty care relationships elsewhere, other types of care may also migrate to larger systems.

Rural hospitals, which are often taxpayer supported, are under intense pressure to show their relevance to their communities and economies. Many seek help measuring their economic contributions and identifying ways to strengthen their economic linkages to their local economies. Even during the COVID-19 pandemic, hospitals reached out to begin or update economic contribution studies. Of course, each hospital system and community are different, but we have identifying a common template to guide rural hospital studies based on best practices guided by the applied and health economics literatures (see Rural Health Works for examples).

A standardized template guides financial officers in providing the cost and revenue information needed for the study. This information includes the number and wages of staff both overall and residing locally, local purchases; revenue from patients, insurance, other third party payers, taxpayers, and other sources; and the value of adjustments and indigent care. The template is flexible enough to handle construction and planned new operations. For example, a recent client included an analysis of a nursing facility currently under consideration as part of a planned expansion.

Determining a hospital’s “sales” value is difficult due to the complexity of hospital reimbursements from public and private insurers. “Sales” also fail to capture the value of charity care. Healthcare studies typically rely on hospital’s spending patterns, specifically employee compensation and local purchases, to estimate economic contributions. Many items and services used by WTH are specialty healthcare products not produced or sold in the county. Items ranging from medicines and suture materials to x-ray and MRI machines must be imported from outside the county, constituting leakages from the local economy. However, the hospital purchases many goods and services locally, and they tend to want recognition for buying local when they can. Our methodology focuses primarily on wages but incorporates local purchases as well as one-time phenomenon like construction. We also provide calculations of direct return to taxpayer investment.

Our team works closely with hospital leadership to understand their financial reality and provide meaningful information. Visit our economic impacts web page or reach out to us to determine if a contribution study is a good fit for your rural hospital.

Rebekka Dudensing and Gouthami Nandhyala

For more information:

Maxwell AW, Howard HA, Pink GH. Rural Hospitals with Long-term Unprofitability Classification, NC Rural Health Research Program, Sheps Center for Health Services Research, UNC-Chapel Hill. April 2020.

Weigel, Paula A.M., Fred Ullrich, Chance N. Finegan, and Marcia M. Ward. 2017. Rural Bypass for Elective Surgeries. The Journal of Rural Health 33: 135-145.

Rural Health Works: https://ruralhealthworks.org/

Sheps Center: https://www.shepscenter.unc.edu/

 

About Rebekka Dudensing

Dr. Rebekka Dudensing is an Associate Professor and Extension Economist - Community Economic Development with Texas AgriLife Extension and Research in the Department of Agricultural Economics at Texas A&M. Her research interests include the evaluation of economic development opportunities, taxation and public/private goods issues, entrepreneurship, and regional economic cooperation.
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