How Rural Health Services Build Local Economies:

Indiana Examples

February 21, 2003Indiana Rural Health Association

Public Policy Forum Indianapolis, Indiana

Paul E. McNamara, PhD, MPPUniversity of Illinois at Urbana—Champaign

Department of Agricultural and Consumer Economics and University of Illinois Extension

www.ace.uiuc.edu/ruralhealth and mcnamar1@uiuc.edu

Outline of Presentation

• Rural Health Challenges: Background• Randolph and Marshall Counties,

Indiana Health Care Impact Results• Economic Developers and Health Care• Competition and Value Perspectives• Conclusions and Discussion

Challenges Facing Rural Health Care Providers

Competition for health care dollars

• Many rural counties are losing health care dollars as residents go out-of-county for their health care services

• 48% of rural residents believe urban health services are better

• Health care business is lost to other counties if local services close down

Changes in health care affect provision of local rural health

care services• Movement to managed care• Purchase of rural health services by

large urban networks• Public funding squeeze – Medicare and

Medicaid reimbursement pressures– Rural providers often serve a

disproportionate share of the elderly, low-income, and un/underinsured

Why is economic impact information important?

• Rural residents have little idea of how important the health sector is to the local economy and how it contributes to employment, income, and retail sales

• Analysis shows the interconnectedness of economic activity

How Is A Health Sector Economic Impact Analysis

Conducted?

• Thorough Examination of the County’s Economic Make-Up

• Understanding the Roles of the Health Sector

• Understanding the Interdependence of Economies

• Using IMPLAN to Illuminate the True Depth of Health Care’s Influence

IMPLAN

• A computer program that uses economic data to produce the economic multipliers

• Uses Data from 528 Industrial Sectors• Conducts Input – Output Analysis• Builds Transaction Tables • Produces income and employment

multipliers– Multipliers are mathematical ratios that

describe the different rounds of spending that occur within the economy

Marshall and Randolph County Background

• Socio-economic comparison– income, employment, poverty

• Health care sector comparison– physicians, Medicare payments

Health Care Flow of Funds

Public Medical Payments

0

10000

20000

30000

40000

50000

60000

1996 1997 1998 1999 2000

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san

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of

Do

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Marshall Medicalpayments

Marshall Medicarepayments

Randolph Medicalpayments

Randolph Medicarepayments

Employment by Sector Top Ten Employers in Marshall County, IN and Randolph County, IN

Marshall RandolphIndustry Output* Jobs Jobs Industry Output* Jobs Jobs Total 2702.78 26,146 100% Total 1,076.71 11,772 100%Retail Trade 135.35 4,022 15.4% Retail Trade 50.42 1,600 13.6%Rubber products 443.31 2,901 11.1% Farms 66.63 1,130 9.6%Construction 147.73 1,407 5.4% Govt. - Education 28.33 758 6.4%Govt. - Education 49.39 1,304 5.0% Construction 72.05 709 6.0%Farms 67.67 1,188 4.5% Govt. non-ed 25.32 612 5.2%Health services 71.00 1,095 4.2% Transp. Equip. 123.54 591 5.0%Transp. Equip. 234.67 1,081 4.1% Health services 29.55 523 4.4%Industrial machinery 141.91 1,071 4.1% Miscellaneous mfg 57.59 462 3.9%Education services 26.43 933 3.6% Wholesale Trade 29.91 426 3.6%Wholesale Trade 65.25 781 3.0% Wood products 46.14 425 3.6%Source: IMPLAN, 2000*Millions of dollars

Health Care’s Employment Impact

Sector Name Employed SAM Total Employed SAM TotalMultiplier Impact Multiplier Impact

Doctors and Dentists 296 1.65 490 62 1.54 96Nursing and Protective Care 300 1.24 373 193 1.19 229Hospitals 457 1.42 647 213 1.33 283Other Medical and Health Serv. 42 1.33 56 55 1.23 67TOTAL 1095 1566 523 675

M arshall County Randolph County

Health Care as a percentage of total Employment

• Health care accounts for 4.2% of all jobs within Marshall County– Including secondary impacts, health care

accounts for 6.0% of employment

• Health care accounts for 4.4% of all jobs within Randolph County– Including secondary impacts, health care

accounts for 5.7% of employment

Health Care’s Income Impact

Earnings

Type SAM Income Multiplier Total Income

Randolph County, INDoctors and Dentists $3,476,000 1.23 $4,282,953Nursing and Protective Care $4,680,000 1.16 $5,442,873Hospitals $8,576,000 1.19 $10,174,138Other Medical and Health Services $1,105,000 1.22 $1,350,406Total $17,837,000 $21,250,370Marshall County, IN Doctors and Dentists $16,593,000 1.28 $21,310,606Nursing and Protective Care $7,275,000 1.23 $8,934,195Hospitals $18,401,000 1.25 $22,930,719Other Medical and Health Services $1,052,000 1.34 $1,404,944Total $43,321,000 $54,580,463

Economic impact increases as

• The amount of services exported increases

• The amount of “leakages” decreases– “leakages” lower our multipliers

• The local purchase of inputs (labor, supplies, and other factors of production) increases– work force training issues?

Indirect Impact of Health Care

• Attract/retain residents, retirees, and businesses– quality of life

• Generate investment funds• Contribute to local leadership

Why Should Economic Developers Pay Attention to the

Health Care Industry?

•Less volatility than other sectors •Health care as a “growth” industry

– Aging population– Steady growth in health care spending

Economic Development’s Role in the Health Care Industry

• Collaboration With Existing Industries– Example: Health Insurance – are they

sending people out of area? • Advocacy for health care issues

– Example: Proposed Medicaid Cuts• Grant Assistance

– Data collection

Health Care’s Role In Economic Development Efforts

• Board positions• Committee Assignments• Continued investments in local

health care delivery• Workforce training programs and

partnerships with educational institutions

Health Care, Strategic Planning, and Partnering

• Health care can play a role in community economic strategic planning efforts

• Health care and economic development can partner to benefit the community

Market Structure

• Herfindahl Index – sum of squared market shares, ranges from 0 to 10,000

• Zip code basis, quintiles• IHCCCC 2001 Discharge

data – all Illinois discharges

• White areas most competitive, dark areas least competitive

• Does not account for cross-state border migration

What is the Value of a Rural Hospital?

• Why bother? – Evidence-Based Public Health and Health Care Policy

• Travel Cost Economic Framework • Applied in rural health research

– Clarke (valuing provision of mobile mammography services in rural Australia)

– Christianson and Bender (valuing the provision of rural hospital services in Montana)

Motivation

“…federal scrutiny of critical access hospitals has raised concerns about ‘inappropriate designation,’ and over-proliferation of critical access hospitals. MedPAC, in particular, has raised questions about the Flex program, but the GAO has also expressed concerns.”

Sent to rural health researchers April 2001

Conclusions

• Significant economic impact of health care in Randolph and Marshall Counties, Indiana

• Opportunities for health care’s impact in smaller and rural communities to be expanded

• For more information:– www.ace.uiuc.edu/ruralhealth– copies of slides from this presentation– flyer on Illinois Rural Health Workshop