AE-9693
Preliminary Analysis of the Feasibility of an
Outpatient Rehabilitation Facility for
Tahlequah, Oklahoma
by
Gerald A. Doeksen - Extension Economist
Oklahoma State University, Stillwater OK
405-744-6081
Val Schott - Director
Oklahoma Office of Rural Health
405-820-9823
Diane Holmes - Chief of Staff
Oklahoma State Department of Health
405-271-6861
Henry Lamb - Consultant - Oklahoma City
405-749-2641
Jack Frye - Extension Rural Development Specialist
Ada - 405-332-4100
Chad Cross - Cherokee County Extension Director
Tahlequah - 918-456-6163
Rural Development
September 1996
Preliminary Analysis of the Feasibility
of an Outpatient Rehabilitation
Facility for Tahlequah, Oklahoma
An aging population and a high agricultural accident rate are some of the reasons why outpatient rehabilitation services are needed in Oklahoma. Furthermore, it would aid the local economy and be much more convenient if these facilities were located in rural counties close to the patients. The local dollars spent on rehabilitation services would aid the local economy and assist in maintaining a viable health sector. Also, local patients requiring habilitation would save time by not being forced to drive long distances for outpatient rehabilitation services. In addition, patients if treated in urban health facilities for major illnesses could return to the rural areas quicker if rehabilitation services were locally available.
The objective of this report is to provide a preliminary analysis of the feasibility of an outpatient rehabilitation facility for Tahlequah, Oklahoma. More specifically, the analysis will:
1.estimate visits to an outpatient rehabilitation facility;
2.discuss capital and operation costs of a facility; and
3.predict costs, revenue and profit for facility in Tahlequah.
IT MUST BE CAREFULLY NOTED THAT THIS A VERY PRELIMINARY ANALYSIS AND LOCAL DECISION MAKERS MUST NOW MODIFY THIS TO REFLECT LOCAL NEEDS AND COSTS.
Estimating Need
The first question to answer is how many visits to an outpatient rehabilitation center would a given health service area generate? National data indicate that there are 300 office visits per year per thousand population. To determine how rural Oklahoma compared to this usage coefficient, and outpatient rehabilitation facility in Oklahoma was interviewed. During the facility's second year of operation, they experienced about 240 visits per year per thousand residents in their service area. (Table 1).
Table 1
Estimated Number of Visits
to Outpatient Rehabilitation Facility
SourceVisits Per 1,000 Per Year
National Data300
Small Community in Oklahoma240
If these usage coefficients are applied to the Tahlequah service area, the range of annual visits would be from 8,904 to 11,130 (Table 2). The assumption is made that the service area for Tahlequah is Cherokee County which contains 37,100 residents. For planning purposes, it might be wise to use the low number and allow a facility to expand if usage equalled the upper range.
Table 2
Estimated Number of Visits
to Outpatient RehabilitationFacility in Tahlequah
SourceNumber of Visits
National Data300 X 37.1 = 11,130
Oklahoma Data240 X 37.1 = 8,904
Range8,904 -- 11,130
Estimating Capital and Operating Costs
Capital items include a building and equipment. A building could be rented and remodeled or a new building could be constructed. Since rental options and construction costs are specific to a local community, these were not estimated. Equipment costs were estimated at $200,000 (Table 3) and derived from the information provided by the Oklahoma outpatient rehabilitation facility.
Partial operating cost data are provided in Table 4. It is incomplete because time has not allowed the authors time to gather this data. It was extremely clear from discussions with national, state and local professions involved with outpatient rehabilitation facilities, that an experienced physical therapist is required. To get a quality physical therapist, a minimum salary of 50 to 60,000 would be required. The physical therapist will then utilize assistants to provide services. These will costs about $25,000 per year. In addition, technicians, receptionist, etc. will be needed to operate the facility.
Table 3
Capital Costs for Outpatient
Rehabilitation Facility
ItemCosts
BuildingLocal Data
Equipment$200,000
Table 4
Operating Costs for Outpatient
Rehabilitation Facility
ItemCost
Physical Therapist$50,000 - 60,000
Physical Therapist Assistant25,000
Technician14,000
Receptionist14,000
Equipment Maintenance
Supplies
Medical
Office
Utilities
Miscellaneous
Costs, Revenue and Profit for Facility
in Tahlequah
A preliminary analysis of costs, revenue and profit of a facility in Tahlequah is presented in Table 5. Most of the assumptions are conservative, as it is better to error on the low range. For this feasibility analysis, it was assumed there would be 8,000 annual office visits. Data from rural Oklahoma indicate that the average charge is $95 per visit. For planning purposes, 42% is assumed uncollectible. This occurs based on payments by medicare, medicaid, workman's compensation, private insurance, and uncompensated care. Again, most professionals felt this percentage was actually too high. Based on these assumptions, revenue collected was estimated at $441,000 or $52.12 per office visit.
Costs include an annual charge for depreciation of building or equipment. If the building were rented, it would be an operating expense. The equipment was assumed to have a 10 year life, thus straight line annual depreciation would be $20,000. Total depreciation costs were projected at $30,000. Annual operation costs are mainly personnel. For this analysis, it was assumed there was one physical therapist, two physical therapist assistants, one technician and one receptionist/bookkeeper. If a 30% benefit package is included, total labor costs would be $179,400. Since other operating costs data were limited, these were mainly educated guesses and thus inflated. The miscellaneous costs was large because of missing items such as malpractice insurance. It was felt for this analysis that we wished to error on the high side and thus chose a miscellaneous figure of $50,000. Total annual capital and operating costs were estimated at $279,400 or $34.92 per office visit. Thus, based on these assumptions an outpatient facility in Tahlequah should net about $161,600 annually.
Table 5
Annual Costs and Revenue for Outpatient
Rehabilitation Facility at Tahlequah
RevenueAmount
8,000 Office Visits X
$95 Charge Per Visit$760,000
Uncollectible Percentage (42%)$319,200
Revenue$441,000
Revenue Per Visit$55.12
Costs
Depreciation on Capital Items
Building$10,000
Equipment$20,000
Subtotal$30,000
Annual Operating Costs
Physical Therapist$60,000
Physical Therapist Assistants (2)50,000
Technician14,000
Receptionist and Bookkeeper14,000
Benefits (30%)41,000
Subtotal Labor$179,400
Supplies$10,000
Utilities10,000
Misc50,000
Subtotal$70,000
Total$279,400
Costs Per Visit$34.92
Summary
It must be emphasized that this is a very preliminary analysis. Local decision makers should gather specific local data and build this into the analysis and the feasibility study such that it actually reflects the health service areas' needs and costs. In addition, local decisionmakers must keep in mind that this analysis is based on current payment practices of medicare, medicaid, workman's compensation, and private insurance. If these programs change to a managed care delivery method, the payment policy may be changed. Thus, revenue projections will change.
If local decisionmakers desire additional information, they should feel free to call the authors.