The contribution of rural hospitals to local economies

Under discussion here are estimates of the contribution hospitals make to rural community incomes, as well as the implications of these estimates for recent health policy initiatives. The analysis of these estimates was motivated by the range of problems that presently confront rural hospitals. Average annual salary income generated by rural hospitals in the study sample approached $600,000. Total community income stimulated directly and indirectly by hospital spending was in the range of $700,000-$1,000,000, depending on value of the income multiplier used in the analysis. The relative importance of these figures was assessed using a number of variables. There were positive correlations between per capita and percentage measures of hospital contributions to county income and the proportion of hospital revenues that were not patient related. This suggests that the hospitals that made the largest relative economic contributions to their communities also received the greatest relative amounts of support through tax revenues and voluntary contributors. One interpretation of this finding is that these hospitals were in weak financial positions. It also appeared that rural hospitals exempt from the efficiency-related criteria of the National Health Planning guidelines (by virtue of their distance from similar facilities) contributed more on average to community income than nonexempt hospitals. Furthermore, hospitals that failed both the efficiency criteria and the minimum distance guideline generally contributed relatively large amounts to community income, when compared to exempt hospitals that satisfied at least one of the efficiency criteria. The statistical significance of these results is not consistent for the two relative income measures. In addition, the sample size is small, suggesting that further research would be desirable. Although the analysis contains an estimate of an average short-run income loss from a hospital closure, it should be cautioned that the estimate is extremely crude. Nonetheless, one could construct an equally plausible scenario resulting in an entirely different outcome. The closed hospital could be converted to a long-term care facility that employed former hospital personnel. To determine which scenario has occurred most frequently in the past, a careful longitudinal analysis of rural communities that have experienced a hospital closure would be necessary, and certainly desirable for policymaking purposes.