Benefits and operational concerns of rural health clinics

Healthcare Financial Management, Nov, 1994 by Lawrence A. Fogel, Cindy MacQuarrie

AMBULATORY CARE

In 1977, Congress enacted the Rural Health Clinic Act in an effort to make healthcare more accessible in underserved rural areas. Changes in the regulations affecting these-clinics, such as offering incentives to start and staff the facilities, have been., enacted in a series of Omnibus Budget Reconciliation Acts beginning in 1987. As a result, the last few years have seen the number of clinics double.

In this article, authors Lawrence A. Fogel and Cindy MacQuarrie examine the advantages offered by rural health clinics and review the operational issues involved in setting up and running them.

Congress passed the Rural Health Clinic Act in 1977 with the hope of providing improved healthcare services for underserved rural areas. For some time, the healthcare industry's response in establishing these facilities has been rather slow and deliberate.

The number of active rural health clinics today still falls far short of the Federal government's stated goal of 2,000 clinics by 1990, but the rate of growth in the number of rural health clinics has been significant, particularly over the past three years. As of August 1993, rural health clinics numbered 1,137, about double the 581 clinics reported in October 1990, according to a U.S. Department of Health and Human Services survey. This growth is due in part to healthcare providers becoming more aware of the advantages that rural health clinics provide. These advantages include:

* Financial incentives to recruit physicians to rural communities and retain them,

* Offensive strategies to attract new admissions and additional outpatient volume to the hospital,

* Defensive strategies to prevent competitors from invading the hospital service area,

* Opportunities to allocate fixed overhead costs to a cost-based program, and

* Financial and regulatory incentives from the federal government.

Examining each of these advantages individually illustrates how they have contributed to the increasing number of rural health clinics in operation.

Recruitment incentives

Many providers have recognized that the Rural Health Clinic Act is one of the best Federal programs created to provide healthcare services in medically underserved communities, communities that face a deficit estimated at 100,000 primary care physicians.

A 1988 U.S. Department of Health and Human Services survey found that only one primary care physician was available for every 2,857 individuals in rural communities, compared to one physician for every 614 individuals nationally. Furthermore, 111 rural counties in 22 states had no physicians whatsoever. The survey also indicated that 26 percent of rural physicians might leave their communities within five years. These statistics emphasize the fact that many rural communities desperately need either a physician or mid-level healthcare practitioner to provide primary medical services.

Rural health clinics have offered hospitals an excellent tool for recruiting new physicians or midlevel practitioners to provide healthcare services in underserved areas. Recruiting a physician to a rural area may involve subsidizing that physician during the first two to three years of practice, which creates costs above and beyond normal recruiting and relocation expenses. In many cases, this subsidy can result in the hospital investing thousands of dollars in the physician's private practice. No reimbursement is received for that subsidy. The costs of recruiting an employee physician for a rural health clinic service, however, can be reimbursed--an advantage to the healthcare provider.

Both Medicare and Medicaid reimburse healthcare providers on a reasonable cost basis, including the cost of rural health clinic services and employee recruitment activities. This reimbursement for physician recruitment and remuneration expenses allows providers to reduce the economic risks of establishing clinics to improve rural healthcare services.

Increased volume

Rural health clinics also offer hospitals the opportunity to generate new admissions from the population of their surrounding geographic area. Patients in such areas may not have used a hospital prior to the opening of a rural health clinic near their homes. These new admissions can represent significant incremental revenue for the hospital. Rural health clinics also can generate additional outpatient volume for a hospital, again creating the opportunity for additional revenue. New patients also represent financial opportunities for physicians.

Hospitals considering rural health clinics should review internal patient origin information and analyze patient origin data from competing hospitals. This information will help hospitals assess potential new business opportunities in communities where clinics could be located. Often, talking to community leaders early in the evaluation process provides valuable insight into the needs of the community and the degree of cooperation a community will extend in supporting a rural health clinic.

Defensive strategies