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

1

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.

2

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

locate in Logan County.

3

Age

Groups

Under 18 4,826 2.4 11,534 4,435 2.3 10,245 21,77918–44 6,370 1.5 9,491 6,334 3.3 20,776 30,26745–54 2,234 2.5 5,606 2,292 4.0 9,143 14,74955–64 1,535 3.8 5,817 1,622 4.3 7,022 12,83965–74 913 5.4 4,911 1,125 6.0 6,691 11,60275 years 808 6.4 5,172 1,432 6.7 9,610 14,782

Total 16,685 42,531 17,239 63,487 106,018

Table 1

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

Total AnnualPhysicianTotal

Office Visits

MALE FEMALETotalVisits

2000Population

VisitRate

2000

4

70% 75% 80% 85% 90% 95% 100%

Usage Level 46,160 49,457 52,755 56,052 59,349 62,646 65,943

Number of Primary Care Physicians 9.3 9.9 10.6 11.3 11.9 12.6 13.3

Usage Rates

If 85% usage level, then 56,052 total primary care physician office visits

Based on 4,976 average annual primary care office visits per physician practice in Oklahoma

Table 2Estimated Demand for Primary Care PhysiciansBy Local Residents in Logan County, Oklahoma

for an estimated 11.3 Total Primary Care Physicians

5

Determine the need for OB-GYN Physicians

The medical service area and the population estimates will be the same as described in

the primary care physician section. The methodology for determining the number of office visits

and the number of OB-GYN physician office visits per 100 population was determined from the

U.S. Department of Health and Human Services, National Center of Health Statistics, B.K.

Cypress, “National Ambulatory Medical Care Survey”, 1991 Summary, Series 13, No. 116 [2].

The calculations are basically the same (Table 3). The average office visits per 100

population is multiplied times the number of females to arrive at the total female office visits of

3,659. It has been determined that the males visit OB-GYN physicians at the rate of 1% of the

female office visits, for a total male office visits to the OB-GYN physician of 37. The total OB-

GYN office visits is 3,696 (Table 3).

It has been determined that the average annual number of office visits per OB-GYN

physician is 3,288 [1]. By assuming the annual 85% usage rate of 3,142 OB-GYN office visits,

the total number of OB-GYN physicians needed to support the medical needs of the Logan

County area is approximately one OB-GYN physician (3,142/3,288=1.0) (Table 4). Since this

one OB-GYN physician number is included in the total primary care physicians’ number of 11.3

(85% usage rate from Table 2), the OB-GYN medical need may already be covered through

other primary care physicians or through OB-GYN physicians outside of the Logan County

service area. The need for the one OB-GYN physician is an estimate and much depends on the

mix of local and regional primary care providers and actual usage rates.

6

AgeGroups

<15 3,630 0.9 3315-24 2,643 35.4 93525-44 4,496 42.6 1,91545-64 3,913 14.8 57965-74 1,125 9.9 11175+ 1,432 6.0 86

TOTALS 17,239 3,659

Total Female Patient Office Visits 3,659Total Male Patient Office Visits (1%) 37

TOTAL OB-GYN ESTIMATED OFFICE VISITS 3,696

2000 TotalOB-GYN

Office Visits

Table 3Estimated Number of OB-GYN Office Visits

Generated in the Logan County Medical Service Area

FemalePopulation

Visit RatePer 100

Population

7

70% 75% 80% 85% 90% 95% 100%

Usage Level 2,587 2,772 2,957 3,142 3,326 3,511 3,696

Number of OB-GYN Physicians 0.8 0.8 0.9 1.0 1.0 1.1 1.1

Table 4Estimated Demand for OB-GYN Physicians

By Local Residents in Logan County, Oklahoma

Usage Rates

If 85% usage level, then 3,142 total OB-GYN office visits

Based on 3,288 average annual OB-GYN office visits per practice

for an estimated 1.0 Total OB-GYNs

8

Determine Need for Pediatricians

The medical service area and the population estimates will be the same as described in

the primary care physician section. The methodology for determining the number of office visits

and the number of pediatricians is the same as the primary care physician methodology. The

average annual number of pediatrician office visits per 100 population was determined from the

U.S. Department of Health and human Services, National Center of Health Statistics, “1992

National Ambulatory Medical Care Survey”, CD-Rom Series 13, No. 4, 1992 [3].

The calculations are basically the same once again (Table 5). The average office visits

per 100 population is multiplied times the 2000 population by age groups to arrive at the total

annual male office visits to pediatricians of 3,456 and the total annual female office visits of

4,828. The total annual pediatrician office visits is 8,284.

It has been determined that the average annual number of office visits per pediatrician is

5,163 [1]. Assuming the usage rate of 85% results in an estimated 7,041 pediatrician office visits

and yields an estimate of 1.4 pediatricians needed to support the medical needs of Logan County.

Since the pediatricians’ number of 1.4 is included in the total primary care physicians’ number of

11.3 (85% usage rate from Table 2), the pediatricians medical need may already be covered

through other primary care physicians or through pediatricians outside of the Logan County

service area. The need for the 1.4 pediatricians is an estimate and much depends on the mix of

local and regional primary care providers and actual usage rates.

9

AgeGroups

<1 233 332.41 774 239 466.65 1,113 1,8871 224 191.52 429 215 275.93 594 1,023

2-5 945 101.45 959 856 138.30 1,184 2,1436-10 1,300 53.07 690 1,253 76.91 964 1,65411-14 1,077 30.43 328 1,068 44.11 471 79915-20 2,125 10.02 213 1,822 17.51 319 53221+ 10,781 0.58 63 11,787 1.55 183 246

Totals 16,685 3,456 17,239 4,828 8,284

Table 5Total Estimated Pediatrician Physician Office Visits

Generated in the Logan County Medical Service Area

2000Population

TotalVisits

Total Annual Pediatrician Physician Office Visits = 8,284

MALE FEMALE Total AnnualPediatricianOffice Visits

TotalVisits

Visit RatePer 100

Visit RatePer 100

2000Population

10

70% 75% 80% 85% 90% 95% 100%

Usage Level 5,799 6,213 6,627 7,041 7,456 7,870 8,284

Number of Primary Care Physicians 1.1 1.2 1.3 1.4 1.4 1.5 1.6

Table 6 Estimated Demand for Pediatricians

By Local Residents in Logan County, Oklahoma

Usage Rates

If 85% usage level, then 7,041 total Pediatrician office visitsfor an estimated 1.4 Total Pediatricians

Based on 5,163 average annual Pediatrician office visits per practice

11

Estimating the Costs and Revenues to Establish a Primary Care Physician Practice

If a prospective primary care physician were to consider locating in Logan County, an

estimate of costs, revenues, and net income would be beneficial. Two alternative annual budgets for

a solo practice are presented. Cost data are taken from a study of rural Oklahoma physicians [1]

with price adjustments based on the consumer price index for medical care [5]. The first alternative

assumes that 2,750 visits are made annually and may be considered a first year budget. The second

alternative assumes 4,750 visits. (It will take 2-3 years for a new practice to reach this level of

business.) These could be considered first year (2,750 visits) and approximately second or third

year (4,750 visits) scenarios for a new primary care solo physician practice. In both alternatives, it

was assumed that a 1,500 square foot building was rented that would have three

examination/treatment rooms.

Alternative 1 (2,750 Visits)

Alternative 1 assumes that 2,750 visits will be made annually to the primary care physician

practice. Capital costs include equipment costs (Table 7) for the reception area, business office,

examination/treatment rooms, laboratory, physician’s office, and conference room/staff lounge.

Table 7 identifies the typical equipment found in a solo practice clinic, as determined from research

[1]. Equipment costs for the reception area are estimated to be $1,927, for the business office

$24,604, for three examination/treatment rooms $26,202, for the laboratory $4,894, for the

physician’s office $3,435, and for the conference room/staff lounge $1,442. The total cost of

equipment is estimated to be $62,505. Table 8 again shows the total capital equipment costs of

$62,505. The annual payments for capital equipment are estimated to be $10,172 (principal and

interest), assuming a 10-year loan at 10 percent interest.

12

Table 7 Typical Equipment Found in a Primary Care Physician Office

No. of Price Per Total

Equipment Items Unit Cost

Reception Area Single Chairs 13 $133 $1,729 Magazine Rack 1 $52 $52 Table 1 $146 $146 Total Reception Area $1,927

Business Office Calculators 2 $126 $253 Secretarial Chairs 2 $156 $311 Clock 1 $29 $29 Copy Machine 1 $3,282 $3,282 Desks 2 $775 $1,551 Dictaphone 1 $1,943 $1,943 Filing Cabinet 3 $254 $762 Medical Dictionary 1 $52 $52 Medical Record Filing System 1 $382 $382 Pegboard System 1 $624 $624 Rolodex 1 $27 $27 Telephone 2 $712 $1,423 Telephone Answering Machine 1 $150 $150 Typewriter 1 $974 $974 Waste Receptacle 3 $12 $36 Network Computer System 3 $3,325 $9,975 Printer 1 $1,330 $1,330 Other Miscellaneous 1 $1,500 $1,500 Total Business Office $24,604

(Continued)

13

Table 7 (Continued)

No. of Price Per Total Equipment Items Unit Cost

Examination/Treatment Rooms (3)

Blood Pressure Cuffs 3 $63 $188 Cabinets, Writing 2 $223 $447 Cabinets, Storage 3 $181 $543 Cabinets, Drugs 1 $113 $113 Chairs, Side 6 $110 $662 Clothes Rack/Hook 3 $25 $76 Examination Table 4 $1,100 $4,400 Lamps 3 $98 $295 Needle Disposal Unit 1 $11 $11 Privacy Curtain 4 $90 $362 Scales – Adult 1 $253 $253 Scales – Pediatric 1 $281 $281 Sink 3 $116 $347 Soap Dispenser 3 $7 $20 Stool 3 $166 $499 Towel Dispenser 3 $29 $88 Anoscope 1 $70 $70 Otoscope/Ophthalmoscope 3 $317 $950 Cast Cutters 1 $336 $336 Compressor – Suction 1 $267 $267 Electrocardiograph 1 $11,970 $11,970 Mayo instrument 1 $156 $156 Portable Oxygen Tank 1 $215 $215 Sigmoidoscope 1 $2,495 $2,495 Snellen Eye Chart 1 $15 $15 Trays – Eye 1 $80 $80 Trays – Ear 1 $299 $299 Trays – Surgical 1 $684 $684 Vaginal Speculum 1 $13 $13 Waste Receptacle 4 $17 $69 X-Ray View Box 1 $164 $164 Total Examination/Treatment Rooms (3) $26,202

(Continued)

14

Table 7 (Continued)

No. of Price Per Total

Equipment Items Unit Cost

Laboratory Autoclave 1 $1,371 $1,371 Centrifuge – Urine 1 $390 $390 Centrifuge – Blood 1 $299 $299 Incubator 1 $360 $360 Microscope 1 $1,270 $1,270 Refrigerator 1 $614 $614 Sinks 1 $399 $399 Soap Dispenser 1 $12 $12 Elevated Counter Stools 1 $106 $106 Towel Dispenser 1 $40 $40 Waste Receptacle 1 $32 $32 Total Laboratory $4,894

Physician's Office Book Case 1 $523 $523 Chairs 3 $346 $1,037 Clock 1 $67 $67 Credenza 1 $283 $283 Desk 1 $823 $823 File Cabinet 1 $335 $335 Telephone 1 $234 $234 Lamp 1 $133 $133 Total Physician's Office $3,435

Conference Room/Staff Lounge Cabinets 1 $333 $333 Chairs 2 $55 $109 Sofa 1 $266 $266 Fire Extinguisher 1 $80 $80 Microwave 1 $200 $200 Table 1 $158 $158 Vacuum Sweeper 1 $297 $297 Total Conference Room/Staff Lounge $1,442

(Continued)

15

Table 7 (Continued)

No. of Price Per Total

Equipment Items Unit Cost

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

16

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

17

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

18

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 -

2,750 Visits 4,750 Visits Cost Item (Alt. 1) (Alt. 2)

ESTIMATED ANNUAL CAPITAL COSTS

Equipment $10,172 $10,172

ESTIMATED ANNUAL OPERATING COSTS

Building Costs Rent $12,385 $12,385 Electricity and Gas $2,185 $2,185 Water, Sewer, Trash $497 $497

Maintenance $956 $956 Janitor $2,866 $2,866 Insurance - Equipment Only $313 $313 Other Miscellaneous $1,500 $1,500 Total Annual Building Costs $20,702 $20,702

Office Costs Telephone $3,022 $3,022 Office Supplies $2,200 $3,800 Office Equipment Maintenance $1,412 $1,412 Billings $1,183 $2,043 Fees for Professional Services $2,298 $2,298 Auto Expenses $3,949 $3,949 Conventions and Travel $2,389 $2,389 Professional Dues and Licenses $2,500 $2,500 Bonding $150 $150 Marketing $1,664 $1,664 Postage $1,383 $2,263 Total Annual Office Costs $22,150 $22,468

(Continued)

19

Table 9 (Continued)

Total Cost - Total Cost -

2,750 Visits 4,750 Visits Cost Item (Alt. 1) (Alt. 2)

Medical Costs

Equipment Maintenance $1,685 $1,685 Medical Supplies $5,230 $9,034 Malpractice Insurance $6,122 $6,122 Laboratory Fees $4,645 $8,023 Total Annual Medical Costs $17,682 $24,864

Personnel LPN $25,000 $25,000 Receptionist-Bookkeeper $14,098 $14,098 Medical Assistant $9,107 $18,214 Total Salary Costs $48,205 $57,312 Benefits $12,051 $14,328 Total Personnel Costs with Benefits $60,256 $71,640 TOTAL ANNUAL OPERATING EXPENSES $120,790 $139,674

TOTAL ANNUAL CAPITAL & OPERATING EXPENSES $130,963 $149,846

20

estimated at $1.69 per office visit or $4,645 for 2,750 visits. The total medical costs for Alternative

1 are estimated to be $17,682 annually.

Personnel costs are generally the largest expense for a physician practice. Many solo

practices employ a Licensed Practical Nurse (LPN), a receptionist/bookkeeper, and a medical

assistant (Table 9). The annual salary for a full-time LPN is estimated to be $25,000, for a full-

time receptionist/ bookkeeper $14,098, and for a half-time medical assistant $9,107. Benefits of 25

percent have been estimated for an annual benefits total of $12,051. The total cost for personnel

with benefits is estimated to be $60,256 for Alternative 1.

Total annual operating expenses for Alternative 1 are $120,790. Local costs should be used to

adjust these estimates if necessary. The total annual capital and operating expenses are estimated to

be $130,963 for Alternative 1.

Gross income can be estimated by using the number of visits to the primary care physician

and the average rate schedule. Previous research indicates the number of hospital, emergency room

and nursing home visits per office visit [1]. These are considerably lower for new physicians than

for more established physicians. In addition, the number of initial and routine office visits, and the

number of visits with additional charges can be estimated [1]. For example, initial office visits are

estimated to be 14.9% of the total office visits (2,750 x .149 = 410 initial office visits) (Table 10).

Routine office visits are 85.1% of total office visits or 2,340 routine office visits. Research also

indicates the percentage of visits with additional charges is approximately 47% of total office visits

or 1,293 visits with additional charges. The percentage of hospital visits is estimated at 8.6% of

total office visits or 237 hospital visits. Emergency room visits of 226 represent 8.2% of total office

visits and nursing home visits of 99 represent 3.6% of total office visits. Nursery visits of 47

represent 1.7% of total office visits and home visits of 116 represent 4.2% of total office visits. All

of these percentages were derived from research [1].

21

Table 10 Estimates of Primary Care Physician Office Visits and Revenues

by Type of Visit for 2,750 Visits (Alternative 1)

No. of 1999 Updated Revenues for Visits Rate Schedule 2,750 Visits (Alternative 1)

Type of Visits 2,750 High Average Low High Average Low $60.75 $24,908

Initial Office Visits 410 $40.64 $16,660 $27.00 $11,070 $47.52 $111,197

Routine Office Visits 2,340 $33.28 $77,869 $25.47 $59,610 $83.98 $108,591

Visits w/Add'l Charges 1,293 $30.69 $39,676 $11.48 $14,837 $55.50 $13,153

Hospital Visits 237 $46.18 $10,945 $34.76 $8,239 $135.00 $30,510

ER Visits 226 $76.68 $17,330 $40.50 $9,153 $65.49 $6,483

Nursing Home Visits 99 $41.18 $4,076 $24.75 $2,450 $189.00 $8,883

Nursery Visits 47 $118.22 $5,556 $67.50 $3,173 $101.25 $11,745

Home Visits 116 $54.70 $6,345 $35.86 $4,159

REVENUES - High Range $315,469 REVENUES - Average Range $178,459 REVENUES - Low Range $112,691

22

The average rates and ranges charged for each category of physician visit are shown in

Table 10. These are based on 1991 survey data [1], adjusted based on the consumer price index

[5]. These rates should be examined closely to determine if they reflect local conditions. Table 10

further shows the total estimated revenues (or total billings) for one physician with 2,750 office

visits using the high, average, and low rates indicated (Alternative 1). The rates are multiplied

times the estimated number of visits to equal the total estimated revenues. For example, using the

average rates for visits, total revenues equal $178,459 for one primary care physician with 2,750

office visits.

To show different collection possibilities, Table 12 shows the total revenues generated

assuming a 95%, 90%, 85%, 82.5%, 80%, 75%, or 70% collection rate. To illustrate Table 12, if

82.5% of the average total revenues were collected, total collections would be $147,229 for

Alternative 1. To show estimated bottom-line net income for Alternative 1, Table 13 shows that

net income would equal $16,266, based on the assumptions that 82.5 percent of the total average

revenues are collected ($147,229) and that total annual capital and operating costs are $130,963. As

illustrated in Table 13, the first year of practice may be difficult financially, given the assumptions

presented.

Alternative 2 (4,750 Visits)

Alternative 2 differs from Alternative 1 with the number of office visits increasing to 4,750.

Thus, only those operating costs (Table 9) based on the number of patients seen (office supplies,

billing and postage expenses, medical supplies, laboratory fees, and additional personnel and

benefits) will be higher than in Alternative 1. For 4,750 visits, office supplies will increase to

$3,800, billing costs to $2,043, and postage expenses to $2,263, bringing the total annual office

23

Table 11

Estimates of Primary Care Physician Office Visits and Revenues by Type of Visit for 4,750 Visits (Alternative 2)

No. of 1999 Updated Revenues for Visits Rate Schedule 4,750 Visits (Alternative 2)

Type of Visits 4,750 High Average Low High Average Low $60.75 $43,011

Initial Office Visits 708 $40.64 $28,770 $27.00 $19,116 $47.52 $192,076

Routine Office Visits 4,042 $33.28 $134,508 $25.47 $102,968 $83.98 $187,535

Visits w/Add'l Charges 2,233 $30.69 $68,521 $11.48 $25,624 $55.50 $22,699

Hospital Visits 409 $46.18 $18,889 $34.76 $14,218 $135.00 $52,650

ER Visits 390 $76.68 $29,905 $40.50 $15,795 $65.49 $11,199

Nursing Home Visits 171 $41.18 $7,041 $24.75 $4,231 $189.00 $15,309

Nursery Visits 81 $118.22 $9,576 $67.50 $5,468 $101.25 $20,250

Home Visits 200 $54.70 $10,940 $35.86 $7,171

REVENUES - High Range $544,728 REVENUES – Average Range $308,149 REVENUES - Low Range $194,591

24

Table 12

Estimated Total Collected Revenues for Scenarios with 2,750 Office Visits (Alternative 1) and 4,750 Office Visits (Alternative 2)

for Logan County, Oklahoma Revenues for 2,750 Visits (Alt. 1) Revenues for 4,750 Visits (Alt. 2)

Collection Rates High Average Low High Average Low

Total Revenues $315,469 $178,459 $112,691 $544,728 $308,149 $194,591

95% Collections $299,696 $169,536 $107,056 $517,492 $292,742 $184,861

90% Collections $283,923 $160,613 $101,422 $490,256 $277,334 $175,132

85% Collections $268,149 $151,690 $95,787 $463,019 $261,927 $165,402

82.5% Collections $260,262 $147,229 $92,970 $449,401 $254,223 $160,537 80% Collections $252,376 $142,767 $90,153 $435,783 $246,519 $155,673

75% Collections $236,602 $133,844 $84,518 $408,546 $231,112 $145,943

70% Collections $220,829 $124,922 $78,884 $381,310 $215,705 $136,213

25

Table 13

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

26

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.