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Rural Health System Resources

BY RURAL PEOPLE FOR RURAL PEOPLE

The Economic Impact of Hospitals in Rural Communities

Authors

Richard E. McDermott, Gary C. Cornia, Robert J. Parsons

Description

This article presents how to assess the economic impact of a hospital on a rural community. The economic impact is identified by assessing the direct, induced, and indirect impacts that result because of the presence of a hospital in a rural community. The methodology utilizes survey data and estimation procedures for four rural hospitals. The economic impact estimates are based on microdata. Income multipliers are estimated for each of the rural communities. The research demonstrates that rural hospitals do make significant economic contributions to the communities they serve. Community leaders can use the model presented to evaluate the economic impact of their local hospital.

Why is this useful for rural and remote people?

Having a rural hospital, or primary care clinic, has obvious benefits in terms of local health and wellbeing in rural and remote towns. However, health care and social assistance services also play other roles in the local economy of rural and remote towns as business investors and employers. In most rural and remote towns in Australia, health and social assistance is the latest or second largest employer in town. This produces flow-on benefits in terms of money coming into a rural and remote town in the form of health worker salaries to spend on housing and at local stores. There are also induced benefits - for example, the ability to attract local teachers, police or paramedics to work in a rural or remote town is often dependent on their ability to access local health care when they need it. The loss of local health services has a cascade impact on towns in terms of health care access and equity, local employment and economic activity, and the ability to attract and retain an essential service workforce. This in turn means that governments are forced to pay incentives to attract and retain essential workers, and fund social welfare and unemployment benefits, as well as dealing with the costs of increasing rates of chronic disease that result from lack of adequate access to primary health care in particular. It is argued by some that closing local hospitals and health services deliver cost savings to health departments that are better invested in centralised services in the cities, but these 'savings' re-appear as new costs for other parts of governments (e.g. reduction in access to health care shifts costs to the provision of incentives for teachers and police to work rurally; increased rates of chronic disease shifts costs from primary care (low cost) to deal with accelerating rates of avoidable hospitalisations (high cost); reductions in health employment shifts costs to social welfare for unemployment of staff that would have worked in the health system, and due to people dropping out of the workforce due to the growth in the rate of unemployment). It is important for rural and remote communities to demonstrate the local flow-on impact of the withdrawal of health and hospital care in rural and remote towns, and to identify how this leads to greater costs on other parts of government, in advocating for a fair distribution of health resources to rural and remote communities.

Suggested Citation

Richard E. McDermott, Gary C. Cornia, Robert J. Parsons (1991) The Economic Impact of Hospitals in Rural Communities, J Rural Health 7:2, 117

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