And Cost to Establish a Practice

Demand for Primary Care Physicians

and Cost to Establish a Practice –

Atoka County, Oklahoma

Oklahoma State Department of Health,

Office of Rural Health

Oklahoma Cooperative Extension Service,

Oklahoma State University

October 2000

AE-00105

An Analysis of the Demand for Primary Care Physicians

and of the Cost to Establish a Primary Care Physician Practice

for Atoka County, Oklahoma

Cheryl F. St. Clair - Assistant State Extension Specialist, OSU, Stillwater

(405) 744-6081

Gerald A. Doeksen - Extension Economist, OSU, Stillwater

(405) 744-6081

Jack Frye - Area Rural Development Specialist, Ada

(580) 332-4100

Jody R. House – Atoka County Extension Director, Atoka

(580) 889-7337

RURAL DEVELOPMENT

COOPERATIVE EXTENSION SERVICE

OKLAHOMA STATE UNIVERSITY

October 2000

An Analysis of the Demand for Primary Care Physicians

and of the Cost to Establish a Primary Care Physician Practice

in Atoka County, Oklahoma

Introduction

This report will examine the need for primary care physicians in Atoka County, Oklahoma, and will estimate the costs and revenues associated with establishing a primary care physician practice in Atoka County, Oklahoma. Specifically, the study will:

1.  Determine the need for primary care physicians

a.  Determine the medical service area and population;

b.  Estimate primary care physician office visits; and

c.  Estimate the total demand for primary care 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 physician services and in assessing the cost of establishing a new primary care physician practice.

Determine Need for Primary Care Physicians

in the Atoka County, Oklahoma, Medical Service Area

To determine an estimate of the number of visits to primary care physicians, the medical service area was delineated as shown in Figure 1. The medical service area includes places where persons are most likely to use a physician in Atoka County. As shown in Figure 1, this area includes Atoka, Caney, Stringtown, Tushka, Wardville, and the surrounding rural area in

1

1

1

Atoka County. Data from hospital admission records were used to help delineate the medical service area. The 1998 estimated population of the medical service area is shown in Table 1. The estimated 1998 population of the medical service area is 13,200. These estimates were made by using 1998 U. S. Census population estimates [4].

The number of physician office visits generated in the Atoka 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 2. For instance, for males under age 15, 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 40,325 total physician office visits (Table 2). Of these total physician office visits, 62.2 percent or 25,082 (40,325 x 62.2% = 25,082) will 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 3 for the Atoka County medical service area. If there is 85 percent usage of Atoka County primary care physicians by residents of the medical service area, an estimated 21,320 primary care physician office visits will be made annually in Atoka County. A primary care physician in Oklahoma has an average of 4,976 patient office visits [1] annually and, therefore, it is estimated that Atoka County needs an estimated 4.3 primary care physicians (21,320/4,976 = 4.3). Atoka County currently has three primary care physicians. Given the estimated annual visits, it appears that Atoka County can support approximately one additional full-time primary care physician. Higher usage levels would indicate more physicians could be supported and lower usage levels would indicate fewer physicians. All assumptions and local conditions must be taken into consideration by decision-makers before deciding if additional physicians could successfully locate in Atoka County.

Table 1
Estimated 1998 Population of Atoka County, Oklahoma,
Medical Service Area
Service Area / Population
Atoka County Medical Service Area
Atoka / 3,270
Caney / 190
Stringtown / 370
Tushka / 270
Wardville / 50
Remainder of county / 9,050
Total Medical Service Area Population / 13,200
Table 2
Total Annual Physician Office Visits and Total Annual Primary Care Physician Office Visits
Generated in the Atoka County Medical Service Area
TOTAL ANNUAL PHYSICIAN OFFICE VISITS
MALE / FEMALE / Total Annual
1998 / Visit / Total / 1998 / Visit / Total / Physician
Age / Population / Rate / Visits / Population / Rate / Visits / Office Visits
Under 15 / 1,408 / 2.4 / 3,379 / 1,257 / 2.2 / 2,765 / 6,144
15-24 / 1,029 / 1.0 / 1,029 / 820 / 2.4 / 1,968 / 2,997
25-44 / 2,071 / 1.6 / 3,314 / 1,553 / 3.3 / 5,125 / 8,439
45-64 / 1,607 / 3.0 / 4,821 / 1,506 / 4.0 / 6,024 / 10,845
65-74 / 465 / 5.2 / 2,418 / 579 / 5.8 / 3,358 / 5,776
75+ / 379 / 6.5 / 2,464 / 563 / 6.5 / 3,660 / 6,124
Total / 6,959 / 17,425 / 6,278 / 22,900 / 40,325
Total Annual Physician Office Visits = 40,325
62.2% of Total Annual Physician Office Visits (62.2% x 40,325)
Equals Total Annual Primary Care Physician Office Visits of 25,082

Table 3

Primary Care Physician Office Visits Given Usage
By Local Residents in Atoka County, Oklahoma
70% / 75% / 80% / 85% / 90% / 95% / 100%
Usage Level / 17,557 / 18,812 / 20,066 / 21,320 / 22,574 / 23,828 / 25,082
Number of Primary
Care Physicians / 3.5 / 3.8 / 4.0 / 4.3 / 4.5 / 4.8 / 5.0
If 85% usage level, then 21,320 total primary care physician office visits
for an estimated 4.3 Total Primary Care Physicians
Based on 4,976 average annual primary care office visits per physician practice in Oklahoma

Estimating the Costs and Revenues to Establish

a Primary Care Physician Practice

If a prospective primary care physician were to consider locating in Atoka 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 4) for the reception area, business office, examination/treatment rooms, laboratory, physician’s office, and conference room/staff lounge. Table 4 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 5 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.

Table 4
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)
Table 4 (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)
Table 4 (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)
Table 4 (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
Table 5
Estimated Capital Costs for a Primary Care Physician Practice in Atoka 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

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 6). 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.