McDowell, George R.

English

Research Papers in Economics

THE STATE OF THE RURAL HEALTH CARE
SYSTEM
George R. McDowell
Virginia Polytechnic Institute and State University
As one examines  the health care system  in the United States  and
in rural America,  it is very easy to make seemingly outrageous state-
ments and use expletives that may subsequently  need to be deleted.
That is because the U.S. health care system is  simply outrageous.  It
is outrageous in the way that those with vested interests promulgate
a set of myths about it.  It is outrageous  in what it costs us as Ameri-
cans by comparison  to health care systems in many other  countries.
It is also outrageous  in the amount  of waste,  and in the excessive
cost of administering the system.
In examining  health care available  to rural Americans  it is  a little
hard to know just how one should approach the question.  There is a
problem in  deciding just  how  we  should frame  the  public  policy
question being examined. For example,  is the issue to be discussed a
question of the disparity  between the  health care available  to rural
people, as compared  to the rest  of the society?  In this  context we
might examine alternatives for rural people that would seek to bring
the services  available  to them more  into line  with what  is the norm
for the rest of the society.
Alternatively,  is the issue  one  in which  the care available  to rural
citizens  is simply  further  evidence  of dysfunction  within the  entire
system? Under this framing of the question, the care in rural areas is
simply  additional variance within the system and the promising
alternatives for rural people may be the same as for everyone  else in
a system needing massive system-wide  change.
If I can refine our understanding  of the rural health problem in
just this limited way, I may have helped.
There  are those  who  feel it important  to distinguish  between the
health insurance system and the health care delivery system.  Since I
believe they interact  considerably,  I think we  need to  deal with the
total. Further,  since  the means by  which people  gain or lose  access
to health care is through the means whereby their care is financed, I
believe  it is important to consider the rights or lack of rights to medi-
cal insurance  as a part of the social infrastructure with respect to
health care.  The analogous point could be made with respect to edu-
130cation and educational finance. Whether or not, in a particular state,
access to some minimum minimorum of education  is stated or im-
plied as a constitutional right is a part of the social infrastructure
with respect to education.  Let's proceed  and see where we  come
out.
The State of the American Health Care System
Without going into all of the gory details,  it is useful to get  some
kind of an idea of where we stand as a nation on our health care sys-
tem. Consider the following:
* According  to the July,  1992,  Consumer Reports, we  will spend
about $817  billion on heath care in 1992-about  12 percent of our
GNP.
* Of that amount,  Consumer Reports estimates that $200 billion are
wasted  on  "overpriced,  useless,  even  harmful  treatments,  and
on  a bloated bureaucracy."  Canada's  system,  serving  25  million
people,  employs  fewer administrative  staff than does Massachu-
setts'  Blue Cross and Blue Shield, which serves 2.7 million.
* Of the  $817  billion,  $163  billion  goes for administrative  costs  ac-
cording to Consumer Reports.
* Consumer Reports states that only a fraction of 1 percent of the
total is spent on research.
* Malpractice  insurance consumes  3.7 percent  of physicians'  prac-
tice receipts, though this  amount is clearly higher for some high-
risk  and high  paid  specialties.  Malpractice  costs  are less than  1
percent of the total in health care costs. Malpractice  as the culprit
in driving  up health care costs is a  straw man according to Con-
sumer Reports.
* The  1987  rank of the United  States among  "selected"  countries
in infant  mortality  was  24th,  with Spain,  Hong  Kong  and
Singapore,  among  others,  ahead  of us (National  Center for
Health Statistics).  Note:  Remember that infant mortality is the
statistic that basically tells us what kind of prenatal care is widely
available  to pregnant women in a society.
* Life expectancy  at birth,  a measure  of our overall health system
performance,  was 23rd for men and 16th  for women.  One would
be better off being born a male in Hong Kong, Spain,  Costa Rica
or Cuba  than in the United  States,  and better  off being  born
female in Puerto Rico,  Spain or Hong Kong (National Center for
Health Statistics).
The July,  1992,  Consumer Reports suggests some  widespread
myths about the American health care system that are worth sharing
with you.
131Myth:  Although some 35  million people are not covered by in-
surance, the rest of us are getting  very high-quality care.
Fact:  Some  of the  rest of us are  doing  well.  Many others are
victims of a system that traffics  in superfluous equipment,
unnecessary  and potential harmful surgery,  over-medica-
tion  and  questionable  procedures.  Consumers  end  up
paying the ever-escalating  bill  for all  that, either  directly
or, when employers cut back on coverage,  indirectly.
Myth:  Our country cannot afford to spend much more  on health
care.
Fact:  It does  not have to.  The  Consumers  Union  estimates the
combination  of  waste  and  excessive  administrative  costs
amounts to $200 billion-enough to provide quality care to
all Americans without additional government spending.
Myth:  Our system gives us the best medical care in the world.
Fact:  Our system puts us near the bottom among industrialized
countries  in infant mortality, the  availability of high-quali-
ty  primary  care and  public  satisfaction  (Consumer Re-
ports, July,  1992,  p. 411).
Who  Are the Least Well  Served?
Clearly the least well served by the United  States health care  sys-
tem are those  citizens who  have  no  medical  insurance  coverage.
There  are,  according to the  Employee  Benefits  Research  Institute,
36.0 million Americans  with no health insurance.  By  all accounts
they are the working  poor-those not  poor enough  to qualify  for
Medicaid-the  self-employed,  and the employees  of small busi-
nesses. These clearly are many of the folks of rural America and, in-
deed,  are  found  in  disproportionate  numbers  there.  Of  the
nonelderly  population  without insurance,  17.4  percent are  in rural
areas  as against  16.3  percent  in urban  areas,  according to the  Em-
ployee Benefits Research Institute (EBRI).
The next  least well-served  group in the  national health care  sys-
tem are those  citizens  covered  by  Medicaid.  This  is  so because  the
Medicaid  coverage  is generally considered  to be less than adequate
to  provide  for even primary care  services.  There are  24.2  millon
"covered"  by Medicaid.  Again there are proportionately  more of the
nonelderly  persons covered  by Medicaid  in rural  areas than in ur-
ban,  10.3 percent as compared to 9.3 percent (EBRI).
In an effort to better describe  the numbers  of Americans  who are
medically underserved,  the National Association  of Community
Health Centers  (NACHC) counted the people who have  inadequate
access to primary health care because of their economic situation,
their existing health status or geographic  proximity to sources of pri-
132mary care.  Described  as "at  risk"  for underservice  are  the  low in-
come uninsured,  the nonelderly  "covered"  by Medicaid,  and low in-
come persons covered  by Medicare.  More than 50  million,  or 20.5
percent, of our citizens  fit the at-risk category.
NACHC describes  as "underserved"  those of the  at-risk  group
that are  already  in communities  exhibiting poor  health  status  or
measures  of inadequate  well-being,  or who  are in communities  ex-
hibiting physician shortages.  They find  17.2 percent,  or almost  43
million, of our people to be medically underserved.
Whether  we  count the  60.2  million  Americans  without  any insur-
ance  or on  Medicaid,  or whether  we consider  the  43  million identi-
fied as medically underserved,  we are not doing very well.
What Drives  the U.S.  Health Care System?
According  to  Consumers  Union,  "  ..  . the  system  is  geared to
providing  the services that can earn  physicians and hospitals  the
most money-not the ones that will do the public the  most good  ....
During the  1980's,  while American  hospitals were  falling all  over
themselves to add costly,  high-tech neonatal  intensive care units, the
number of mothers  unable to get basic prenatal  care climbed,  as did
the  incidence  of premature  births."  (Consumer Reports, July,  1992,
p. 447).
Because  the  basic  design  of the medical insurance  system  was
aimed at securing a  steady cash  flow for hospitals  rather than in in-
suring individuals  against  disaster,  the  medical  finance  system  has
been  easily manipulated to increase the incomes of both hospitals
and doctors.  In economic  terms, hospital insurance was designed to
solve an  option  demand  problem  that  hospitals  have.  "Hospital  in-
surance"  would provide services  up to some maximum,  based  on
prepayments.  When that program  is administered  for them by Blue
Cross and Blue  Shield, the hospitals have an interest in pricing their
services  as high as possible,  since they do not worry about the indi-
vidual's limits.
Similarly,  when the same scheme was applied to doctors' services,
it was in the interests  of both hospitals  and doctors  to employ prac-
tices  and techniques that captured as much,  and as quickly as possi-
ble,  all  of the "insurance"  coverage  available.  Further,  unlike auto
insurance,  medical insurance  does not "indemnify"  you against a
loss,  giving you the choice  between  getting the car repaired  or
pocketing the money and taking the bus.  You only  get the benefit if
you are in the hospital.  Thus hospitals  need doctors to  prescribe
"hospitalization."
When  "flat rating"-that's  what auto dealers  do  on specific  re-
pairs-$85.50 for labor to replace  a water  pump regardless  of the
amount of time-was  employed  by insurance  companies  to  bring
133medical  costs into line,  doctors  and hospitals went for new  high-tech
medicine  as  a  way to  beat the  system.  Induced  demand  for new
techniques meant a new chance to establish  a new, high price struc-
ture, and to continue to pump the system.
There  is,  for example,  evidence that hospital occupancy rates are
similar in communities  with very different numbers  of hospital beds
per thousand population.  Thus,  it  is not wrong  to conclude  that the
use of hospitals is a function of the numbers  of available beds,  not of
the medical need  for hospitalization.  Similar  evidence  of Say's
Law-supply creates its own demand-run  rampant exists in the use
of all manner of medical practice from open heart surgery to the use
of CAT  Scans  and MRI  Scans.  When that evidence  is coupled  with
knowledge  that the  use of expensive,  high-technology  diagnostic
testing  by  physicians  is strongly  influenced  by  whether  or not they
have an ownership interest in the laboratory  or facility providing the
service,  it is very hard not to become  very cynical about the  whole
system.
Rural Health Care
The findings  of the study on the medically underserved  by  Na-
tional  Association  of  Community  Health  Centers  provides  some  in-
sight to the character and problem  of health care  and access  to
health care  in rural America.  To  determine the number of under-
served  Americans,  an index was created  that included  poor per-
formance  in health status,  limited access  to primary care physicians,
or socioeconomic  characteristics.  The  citizens in the communities  in
the lowest quartile  were then considered to be underserved.
Of the total of 2,147  counties identified  as underserved  by primary
care  medical  services,  74  percent of the counties  were  rural,  al-
though the urban counties accounted for many more underserved
people.  The  majority  of the counties designated  as underserved  (73
percent),  were  so designated  because  of depressed  health  status
rather than access  to physicians.  In rural counties,  access  to  physi-
cians was much more significant  in determining underservice than in
urban counties,  although  more than two-thirds  of all rural counties
were determined  to be underserved  by  reason of depressed health
status alone.
There was,  indeed,  considerable  variation  in regions  of the  coun-
try in the determinants  of medical  underservice.  For example,  in
North Dakota,  Nebraska,  Tennessee,  Missouri,  Utah and Vermont,
physician shortage  was a key role  in determining medical underser-
vice.  Other  areas  were designated  as underserved  because  of
reduced  health  status  from causes  treatable  by  primary  care facili-
ties.  This suggests  that the approaches  to ameliorate problems  in
rural health care will vary from community  to community or state to
state.  For example,  where the problem of underservice is associated
134with poor health status resulting from ignorance  as much  as access,
then vigorous  educational programs  may contribute  significantly.
Conceivably  both the health care problems  associated  with high in-
fant mortality  rates and morbidity  from immunizable diseases  could
be partially addressed in this way.  Conversely,  where the problem is
clearly  one  of access to primary care  facilities or physicians,  the ap-
proach will be much different.
Interestingly,  though not reported,  the results of the NACHC
study indicate that  18 percent of urban (metro) people  are medically
underserved  as compared to over  15 percent  of rural people.  I have
had no opportunity to seriously evaluate the method  of determining
medical underservice.  However,  it would  appear  that,  while  there
are proportionately more uninsured persons and more persons  at
risk for underservice  in rural America,  rural Americans  at risk fare
somewhat better than do those in urban areas.
Conclusions
When I started to prepare  this paper,  I was planning to talk about
quite different things.
It is  true and  important  that Medicare  reimburses  rural hospitals
at a lower rate than urban hospitals,  and that is making life very dif-
ficult  for many of those rural hospitals.
I  was going to address the notion that maybe some of those  hospi-
tals should, indeed,  go out of business or be consolidated with others
on the grounds  that a  good outpatient  clinic  with good  communica-
tions with  an urban hospital would  be better than a mediocre rural
hospital with inpatient services.
I  was going  to  talk  about the  role  of emergency  medical services
(EMS) provided  by volunteers,  and  the increasing possibilities
offered  rural  communities  by  telemedicine,  including  teleradiology
and other improvements  in communications.
I was going to talk about the potential and the problems  of institu-
tionalizing  home  care  for the elderly or  others with  needs for long-
term care.
All of those concepts  are relevant  to a viable  social  infrastructure
to serve our rural communities health care needs.
However,  I think the most telling fact of all is the one indicating
that rural Americans,  more at risk for underservice,  are doing better
than their urban brothers and sisters.
It is  clear that the remoteness,  the isolation  for physicians,  the
poverty and lack of health insurance,  and the limited health facilities
result in a  health care  system that  is substantially  different  in rural
America than  that available  in  urban America.  However,  it  may
very well be that the reduced system available  in rural America  is
135still  more  effective  than all  of the fancy  high-tech approaches  avail-
able in the cities.
One  can  imagine  that a  community  like Brandon,  Vermont,  with
thirty-five  trained volunteer  members  of the  EMS  program provid-
ing a community  of about 6,000 people  with around the clock am-
bulance and emergency medical coverage,  may indeed  have a high-
er level of medical  and health  consciousness,  than is  the case  in
many urban communities.
Finally, the degree to which rural people  are denied  access to the
larger national health system, may be the degree  to which they have
been saved from  a  fate that,  indeed,  includes  death  for many  of
those who seek help, but are malserved by that system.
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THE STATE OF THE RURAL HEALTH CARE SYSTEM

THE STATE OF THE RURAL HEALTH CARE SYSTEM

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