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Rural health care: good for the economy?

Saving a rural hospital or building a health center in small towns brings more than health care to a community. It's "economic development."

The early '80s were bleak for Southern Illinois. Factories closed, unemployment burgeoned, property values plummeted and there weren't enough doctors for rural residents. Today, however, the area enjoys a strong economy and there's better health care for everyone. What happened?

The turnaround can be credited, in part, to a small group of community members who got together with two goals: bring desperately needed physicians to the area and beef up the economy.

The town of Centerville, population 10,000, had a hospital and a health department, but neither provided basic services like checkups, immunizations or treatments for colds. Residents traveled to another town to see a doctor or went to the local hospital emergency room, an expensive and inefficient place to have minor ailments treated. In 1985, the local health department provided the space for the first community health center and a state public health service grant supplied the operating funds.

Since that first clinic opened its doors with one doctor and a nurse, the Southern Illinois Healthcare Foundation has been developed and has built another 14 clinics that provide a wide variety of primary medical services, including well-baby checks and physicals. Doctors, nurses and other traditional health care providers work at the centers, but so do nutritionists and social workers, who help people become and remain healthy.

"As an elderly woman, it's very important for me to have a doctor close to my home," says Mary Wilkerson. "The foundation has clinics all over the area so that people like me don't have to travel long distances." She has been a patient of the Centerville clinic for more than three years, and is "very pleased" with the health care she receives. The clinics also provide transportation for elderly patients who can't get around by themselves and young mothers who need extra help.

Today, the foundation employs 39 doctors and nurses and 550 people from area communities. The centers directly and indirectly support 679 full-time jobs, and those employees handled 81,000 patient visits in 1997.


Every health care dollar spent in a rural area recycles through that community at least one and a half times. One rural physician generates more than five full-time jobs and $233,000 in local economic activity, according to the Federal Office of Rural Health Policy. Statistics show that the health care industry provides up to 20 percent of the payroll and employs up to 15 percent of the people in rural communities.

Through their activities, the Southern Illinois Healthcare Foundation centers generated $53 million in local revenue in 1997. The indirect effect of that economic activity on household incomes was almost $27 million.

"Community health centers make dramatic contributions to the health and well being of their communities and to the economic output of the United States while operating under a very small budget," says Dan Hawkins, vice president of the National Association of Community Health Centers.

Yolanda Smoot, a registered medical technician at the Quick Care Clinic in Centerville agrees. "My job at the foundation has not only been a way for me to bring home a paycheck and take care of my 3-year-old daughter, it has allowed me to be a part of the community and to give something back."


The entry-level jobs created by expanding a health care system can piggyback nicely with states' welfare-to-work efforts. Most community and rural health centers are willing to hire and train low income residents. Yolanda accepted the job at the clinic so that she could be closer to home. "Having my job in the area makes it easier for me to go back and forth to get my daughter from day care," she says.

The Southern Illinois Healthcare Foundation has been a successful partner in the welfare-to-work movement. Over 70 percent of the clinic's employees are single mothers. A majority are former welfare recipients. "The biggest health problem in southern Illinois is unemployment," says Robert Klutts, executive director of the foundation.

"Unemployed people are less healthy and usually have no access to transportation or health insurance," he continues. The foundation not only provides health care to the community, it also offers job training for a variety of health-related vocations like medical assistants and medical receptionists, along with benefits including reimbursement for tuition. A former welfare mother can find a receptionist job with sufficient pay and benefits to keep her off welfare while contributing to the local economy by spending her paychecks there. Yolanda worked at a grocery store while she was training to be a medical technician, but she didn't receive benefits like health insurance for herself or her daughter. It wasn't until she began working at the clinic that she was able to provide regular medical care for her family.


According to the National Rural Health Association of Kansas City, Mo., a quarter of the U.S. population lives in rural areas, and they are often poor, lack insurance and, on average, are older than city dwellers. Their health is often worse than that of people in urban areas. They make inappropriate and expensive emergency room visits more frequently because they have no health insurance. Residents of these remote areas feel that the care they do receive is of lower quality. A recent study found that 48 percent of rural residents believe that urban health care is better.

Even though health care spending represents 14 percent of the nation's economic activity, most occurs in cities. Few doctors are willing to live and practice in remote areas, especially for extended periods of time.

Compounding the problem in many parts of the country is the movement to managed care. Many rural hospitals have been forced to close - more than 400 since 1980. A large number of the surviving hospitals have been purchased by large, urban-based managed care networks, resulting in even more money flowing out of town. Even if residents have insurance and make their premium and cost-sharing payments, the money does not stay in the rural community if clients travel to cities for health care.

"If an HMO has enrolled all the patients in an area, and the doctors that live and work in the area don't have a contract with the HMO, the patients can't use the existing health care services in their town," says Texas Senator David Sibley, chair of the Senate Economic Development Committee. In response, Texas has developed a new statewide health maintenance organization that allows all rural communities in the state to participate in the insurance market. "When you have a large HMO wanting to do business in a small town with one hospital, the hospital can feel intimidated into signing a contract with the managed care organization," says Sibley. Overall, 32 rural organizations in 13 states are developing their own insurance programs in order to participate in the managed care environment.


"Economic expansion, coupled with improved access to health care, makes investments in community health centers one of the most productive uses of capital," says Steve Tribuzzi of the Illinois Primary Health Care Association.

State lawmakers have been encouraging the development of health systems in rural areas in a variety of ways:

* A law in Minnesota requires the commissioner of health to provide technical assistance to rural communities to coordinate local health care services and recruit new providers.

* An Arkansas law provides grants for medical clinics through a Rural Medical Clinic Revolving Loan Fund. Washington state is looking at legislation this session that would set up a similar fund.

* Oregon gives physicians, nurse practitioners, dentists and podiatrists who practice in rural health areas tax credits of up to $5,000 a year for 10 years.

* State-funded repayment programs in Idaho and numerous other states help doctors and other health care providers pay off their medical school loans in exchange for working in small towns.

* Nebraska's health professional loan repayment program is funded through a community match program that combines state and local resources.

* Virginia and Tennessee recruit elementary, middle and high school students to health care professions in rural areas. A physician shortage program at Jefferson Medical College in Pennsylvania selectively recruits young people from rural areas who are committed to returning to their hometowns to practice medicine.

* Florida's Rural Development Council provides training and employment for rural residents in health-related fields and coordinates welfare, food stamps and Medicaid services.

* Arizona encourages managed care plans to contract with existing rural health centers through a successful expansion of its Medicaid managed care program to rural areas.

* Oklahoma's SoonerCare program offers incentives for urban managed care plans to work with rural providers and health centers.

* Legislatures in North Dakota and Utah have called for studies to look at possible effects of managed health care on rural health.

Other ideas states are exploring:

* Helping communities identify potential local, state and federal funding sources and obtaining matching funds to establish clinics.

* Encouraging collaboration between public and private groups by changing laws and regulations so that small communities can be creative in their plans.

* Promoting pilot and demonstration programs.

* Offering financial incentives to help stimulate local employment and improve the economy.

* Granting tax exemptions and abatements to organizations that invest in the construction or improvement of health care sites.

* Exempting rural health systems from existing certificate of need laws.

* Creating state enterprise zones that provide financial incentives to businesses, like health systems, that move into communities with depressed economies.

There are other good programs around the country. For example, South Carolina, Massachusetts and Mississippi have developed profitable community health centers that provide employment and bring not only health care but economic relief to smaller towns and cities.

"Community health centers are proven investments. They pay dividends. They provide employment and improve the community's health, which brings business in," says Lathran Woodard of South Carolina's Primary Health Care Association.

"You've all heard of the Little Engine That Could. Well, I like to think of community health centers as the' Little Engine That Did.' They are the success story in the health industry of the last 20 years," says Jim Hunt, director of the Massachusetts League of Community Health Centers.


Rural entrepreneurs do not pay higher interest rates than urban borrowers, according to a recent United States Department of Agriculture (USDA) study, but obtaining capital is more difficult.

Due to regional disparities in education and wealth, rural borrowers are often considered less credit worthy than their urban counterparts. This fact combined with the small number of commercial banks serving rural communities, commonly two or fewer, creates a lack of capital for rural entrepreneurs.

So states are developing new finance programs that specifically target rural businesses. In the forefront are California, Florida, Kentucky, Minnesota, North Carolina, North Dakota, New Mexico and Wisconsin.

Some of the key approaches are to:

* Target private entrepreneurs in towns with populations ranging from 6,000 to 50,000.

* Offer low-interest loans to both new and expanding businesses.

* Tie loans to the potential to create or retain jobs for low income people.

* Offer funds for developing essential infrastructure in rural areas.

North Carolina has an interesting program funded by the USDA and the North Carolina Technological Development Authority. It provides loans to emerging companies and incubator projects. Loans range from $25,000 to $187,000, and interest rates vary according to the risk. Incubator loans go to businesses in communities with less than 25,000 people or unincorporated parts of an urban county. Applicants are evaluated on their ability to create new, permanent jobs. The Emerging Company Loan is designed to serve as a source of working capital or for the purchase of machinery or equipment.

Kentucky has a well-known job creation program (adopted in 1988) that offers state income tax credits as a way to attract new manufacturing businesses to rural areas. The Kentucky Rural Economic Development Act targets counties that have had unemployment rates above the state average in each of the five preceding years. In addition to the tax credit, the business may also claim a job assessment fee of 4 percent of the gross wages of each new employee hired. Since 1989, the 400 businesses applying for the credits have provided some 45,000 new jobs. The program works equally well for large corporations and small more and pop businesses, says Steve Jones, director of tax incentives.

- Kim Shilling, NCSL


There's federal help available for communities that want to expand health care services in rural areas. The Medicare Rural Hospital Flexibility Program in the federal balanced budget act of 1997 was modeled after a successful demonstration project in Montana that allowed hospitals in rural areas to offer fewer services and still qualify for the higher cost-based Medicare reimbursement rate. Previously, rural hospitals that received Medicare reimbursements had to provide a wide variety of acute care services in order to receive the higher reimbursement payments.

The federal program allows struggling rural facilities to reduce their scope of services and tailor the remaining services, including emergency and primary health care, to the population they serve. For example, a critical access hospital can provide emergency and outpatient services, such as treating an asthma attack, but is not required to treat patients in the hospital for longer than three or four days in order to receive higher Medicare rates. Patients needing to stay in a hospital longer are stabilized at the critical access hospital and then transferred to a larger one.

In 1998, 43 states expressed interest in developing a critical access hospital program and could qualify for some $25 million in grants.

Gretchen Flanders tracks rural health issues for NCSL. For details on community health centers involved in economic development activities contact Colleen Meiman at the Bureau of Primary Health Care (301) 594-4486.
COPYRIGHT 1999 National Conference of State Legislatures
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Title Annotation:includes related articles on special loans for rural businesses and on federal health incentives
Author:Flanders, Gretchen
Publication:State Legislatures
Date:Jun 1, 1999
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