An Analysis of the Demand for Primary Care, Pediatric, and OB-GYN Physicians and of the Cost to Establish a Primary Care Physician Practice for Logan County, Oklahoma Oklahoma State Department of Health Office of Rural Health Oklahoma Cooperative Extension Service Oklahoma State University November 2001
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An Analysis of the Demand for Primary Care, Pediatric, and OB-GYN Physicians and of the Cost to Establish a Primary Care Physician
Practice for Logan County, Oklahoma
Oklahoma State Department of Health Office of Rural Health
Oklahoma Cooperative Extension Service Oklahoma State University
November 2001
AE-011183
An Analysis of the Demand for Primary Care, Pediatric, and OB-GYN Physicians
and of the Cost to Establish a Primary Care Physician Practice for Logan County, Oklahoma
R. David Shelton - Assistant Extension Specialist, OSU, Stillwater 405-744-6081
Gerald A. Doeksen - Extension Economist, OSU, Stillwater
405-744-6081
Stan Ralstin - Area Rural Development Specialist, Enid 580-233-5295
David Williams - Logan County Extension Director, Guthrie
405-282-3331
RURAL DEVELOPMENT COOPERATIVE EXTENSION SERVICE
OKLAHOMA STATE UNIVERSITY
November 2001
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An Analysis of the Demand for Primary Care, Pediatric, and OB-GYN Physicians and of the Cost to Establish a Primary Care Physician Practice
for Logan County, Oklahoma
Introduction
This report will examine the need for primary care, pediatric, and OB-GYN physicians in
Logan County, Oklahoma, and will estimate the costs and revenues associated with establishing
a primary care physician practice in Logan County, Oklahoma. Specifically, the study will:
1. Determine the need for primary care, pediatric, and OB-GYN physicians
a. Determine the medical service area and population;
b. Estimate office visits for primary care, pediatric, and OB-GYN physicians; and
c. Estimate the total demand for primary care, pediatric, and OB-GYN physicians in
the medical service area.
2. Estimate the costs and revenues to establish a primary care physician practice
a. Estimate capital costs;
b. Estimate annual capital costs, annual operating costs, and total costs;
c. Estimate revenues based on type of visit;
d. Estimate alternate collection rates; and
e. Determine estimated net income.
No recommendations will be made. The information included in this report is designed to assist
local decision-makers in assessing the need and potential for primary care, pediatric, and OB-
GYN physician services and in assessing the cost of establishing a new primary care physician
practice.
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Determine the Need for Primary Care Physicians
To determine an estimate of the number of visits to primary care physicians, the medical
service area is considered all of Logan County. The 2000 population of Logan County is 33,924,
based on the 2000 U.S. Census.
The number of physician office visits generated in the Logan County service area is
estimated by using the service area population data and the data from state and national research
[1,2,3]. Research shows the number of annual physician office visits for the specified age group
breakdowns shown in Table 1. For instance, for males under age 18, the average number of
physician office visits is 2.4 visits per year [1,3]. This average annual visit rate is applied to the
populations for each gender and age group. Residents in the medical service area are estimated
to make 106,018 total physician office visits (Table 1). Of the total physician office visits, 62.2
percent or 65,943 office visits (106,018 x 62.2% = 65,943) are estimated to be made to
physicians active in primary patient care while the remainder will be made to specialists [1].
The total number of primary care physician office visits given various usage rates is
presented in Table 2 for the Logan County medical service area. If, for instance, there is 85
percent usage of Logan County primary care physicians by residents of the medical service area,
an estimated 56,052 primary care physician office visits will be made annually in Logan County.
A primary care physician in Oklahoma has an average of 4,976 patient office visits [1] annually
and, therefore, it is estimated that Logan County needs 11.3 primary care physicians
(56,052/4,976 = 11.3). The 85% usage level is an example only and Logan County decision
makers should determine the actual usage levels. Higher usage levels would indicate more
physicians could be supported and lower usage levels would indicate fewer physicians. The
number of primary care physicians includes OB-GYN and pediatrician physicians that will be
described in the next two sections. All assumptions and local conditions must be taken into
consideration by decision-makers before deciding if additional physicians could successfully
Total Annual Physician Office Visits = 106,01862.2% of Total Annual Physician Office Visits (62.2% x 106,018)Equals Total Annual Primary Care Physician Office Visits of 65,943
VisitsVisitRatePopulation
Total Annual Physician Office Visits and Total Annual Primary Care Physician Office Visits Generated in the Logan County Medical Service Area
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
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Table 8
Estimated Capital Costs for a Primary Care Physician Practice in Logan County
Cost Item Total Cost
TOTAL ESTIMATED CAPITAL COSTS
Equipment Estimated Total Equipment Costs $62,505
ESTIMATED TOTAL CAPITAL COSTS $62,505
TOTAL ESTIMATED ANNUAL CAPITAL COSTS
Equipment (Based on a 10 year loan @ 10% interest) $10,172
ESTIMATED TOTAL ANNUAL CAPITAL COSTS $10,172
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Operating costs for the practice are based on research in Oklahoma [1]. Building
expenses include rent, utilities, general maintenance, janitorial services, insurance on equipment,
and other miscellaneous costs (Table 9). For Alternative 1, rent totals $12,385 annually and the
cost of utilities (electricity, gas, water, sewer, and trash) is estimated to total $2,682 per year.
Maintenance is estimated at $956 per year and annual janitorial services are estimated to cost
$2,866. Insurance on the equipment is estimated to be $313 per year and a miscellaneous
category of $1,500 is included to cover any additional expenses. The total annual building costs
are estimated to be $20,702.
Office costs include items such as telephone, supplies, office equipment maintenance and
billings (Table 9). Telephone costs are estimated at $3,022. The cost of office supplies depends
on the number of office visits and is estimated at about $0.80 per office visit for an annual total
of $2,200. Office equipment maintenance is estimated at $1,412. Billings are estimated based
on approximately $0.43 per office visit for an annual total of $1,183. In addition, fees for
professional services are budgeted at $2,298, auto expenses at $3,949, conventions and travel at
$2,389, and professional dues and licenses at $2,500. Allowances are also made for bonding
($150), marketing ($1,664), and postage ($1,383). Total annual office costs are $22,150 for
Alternative 1.
Medical costs are listed next in Table 9. Maintenance of medical equipment is estimated to
cost $1,685 annually for Alternative 1. Costs of medical supplies are estimated at $1.90 per office
visit and vary with the number of patients seen. For 2,750 visits, they are estimated at $5,230.
Malpractice insurance is budgeted at $6,122. This cost should be examined closely by a prospective
physician due to rapidly changing insurance rates. The costs for outside laboratory fees are
estimated at $4,645 annually. Laboratory supplies vary by the number of patients seen and are
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Table 9 Estimated Annual Capital & Operating Costs
for a Primary Care Physician Practice in Logan County for Alternatives 1 and 2 Total Cost - Total Cost -
Estimated Net Income for a Primary Care Physician Practice for Alternative 1 (2,750 Office Visits) and for Alternative 2 (4,750 Office Visits)
in Logan County, Oklahoma Scenario for 2,750 Visits (Alt. 1) Scenario for 4,750 Visits (Alt. 2)
High Average Low High Average Low
Revenues Based on 82.5% Collection Rate $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
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costs up to $22,468. For 4,750 visits, medical supplies cost will increase to $9,034 and
laboratory supplies to $8,023; the total annual medical costs will increase to $24,864. Due to the
increased number of office visits, additional personnel will be needed. It is assumed that a full-
time, rather than a half-time medical assistant will be employed at an annual salary cost of
$18,214 under Alternative 2. The estimated total personnel costs increase to $57,312 and the
subsequent cost of benefits increases to $14,328. The total of personnel costs and benefits is
estimated to be $71,640. Total annual operating costs for Alternative 2 are estimated at
$139,674. The total capital costs and the annual capital costs remain the same as Alternative 1
(Tables 7, 8, and 9). The total annual capital and operating costs are estimated to be $149,846 for
Alternative 2. Local costs should be used to adjust these estimates if necessary.
The percentage of office visits for the specified type of visit is the same as Alternative 1;
however, these percentages are applied to the higher number of estimated office visits of 4,750
(Table 11). The estimated revenues or billings are calculated the same as in the first alternative.
The average total revenues generated are estimated at $308,149. Assuming an 82.5% collection
rate, the average collected revenues would be $254,223 (Table 12). To show the bottom-line net
income, Table 13 shows a net income of $104,377, based on the assumptions that 82.5 percent of
the total average revenues of 254,223 are collected and that total annual capital and operating costs
are $149,846. Alternative 2 is based on the scenario of 4,750 physician office visits and this
scenario is realistically probably 2 to 3 years into a new primary care physician practice.
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Summary
The data and information provided in this report are estimates of the number of primary
care, OB-GYN, and pediatric physicians needed to support the medical needs of Logan County.
The estimates of 11.3 primary care physicians, one OB-GYN physician, and 1.4 pediatric
physicians are based on many assumptions including the 85% usage rate. The number of OB-GYN
and pediatric physicians are included in the total number of primary care physicians. The actual
mix of local and regional primary care physicians, the proximity to metropolitan service markets,
and patient utilization of OB-GYN and pediatric primary care all greatly affect the need for and the
type of primary care physicians within a specific community. For instance, as the number of family
practice physicians increases in a community, the number of visits to pediatricians decreases.
Other assumptions include items that may change, such as service area delineation, type of
practice, capital equipment, number of office visits, and rate schedule. For example, the service
area depicted here may change due to the exit or entry of physicians from nearby communities.
Should this occur, revised estimates of physician office visits should be made.
The assumptions should be clearly evaluated by local decision makers and additional local
information must be utilized to supplement this report when any decisions are made. No
recommendations are made in this report. If further analysis is needed, contact your County
Extension office listed on the title page.
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References [1] “Family Medicine – A Systematic Approach to the Planning and Development of a
Community Practice,” Doeksen, G., Miller, K.A., Shelton, P.J., and Miller, D.A., University of Oklahoma Health Sciences Center, 1990.
[2] "Internal Medicine - A Systematic Approach to the Planning and Development of a
Community Practice - A Step-by-Step Guide," Miller, K.A., Doeksen, G., Miller, D., Campbell, J., and Shelton, P.J., University of Oklahoma Health Sciences Center, 1993.
[3] U.S. Department of Health and Human Services, Centers for Disease Control and
Prevention, National Center of Health Statistics, "National Ambulatory Medical Care Survey: 1997 Summary," No. 305, May 20, 1999.
[4] U.S. Census of Population, Population Estimates Branch, 1998. [5] U.S. Congress, Joint Economic Committee, Economic Indicators, April 1998, p. 23.