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The economic effect of a physician assistant or nurse practitioner in rural America

Eilrich, Fred C. MS

Journal of the American Academy of PAs: October 2016 - Volume 29 - Issue 10 - p 44–48
doi: 10.1097/01.JAA.0000496956.02958.dd
Original Research

ABSTRACT Revenues generated by physician assistants (PAs) and NPs in clinics and hospitals create employment opportunities and wages, salaries, and benefits for staff, which in turn are circulated throughout the local economy. An input-output model was used to estimate the direct and secondary effects of a rural primary care PA or NP on the community and surrounding area. This type of model explains how input/output from one sector of industry can be the output/input for another sector. Given two example scenarios, a rural PA or NP can have an employment effect of 4.4 local jobs and labor income of $280,476 from the clinic. The total effect to a community with a hospital increases to 18.5 local jobs and $940,892 of labor income.

Fred C. Eilrich is a project analyst for the National Center for Rural Health Works at Oklahoma State University in Stillwater, Okla. The author discloses that this research was funded by a grant from the US Department of Health and Human Services' Health Resources and Services Administration, Federal Office of Rural Health Policy.

The contribution of physician assistants (PAs) and NPs in rural America has emerged as an indispensable asset at a time of diminishing physician resources.1,2 Workforce statistics from the federal Agency for Healthcare Research and Quality (AHRQ) showed that proportionately, PAs and NPs, particularly those in primary care, were more likely to practice in rural areas than physicians.3 In addition to providing healthcare, PAs and NPs make economic contributions to rural communities: The increased patient volume from expanded use of PAs or NPs in a rural clinic increases revenue. The increased revenue creates full- and part-time employment opportunities and wages, salaries, and benefits (labor income) for additional clinical staff.

Although undocumented, some factors could affect the volume and type of patients seen by a PA or NP, such as authorization as a primary care provider and hospital admissions. Furthermore, public and private payer-specific laws and policies determine which services can be billed, payment rates, whether PAs and NPs have provider status with assigned patient panels, and whether they can be paid directly.4 Many payers set fee schedules lower for PAs and NPs. For example, the national PA and NP fee schedule from Medicare is 85% of the physician fee schedule amount.5

The total economic effect of a PA or NP can be greater when the community has a hospital. The community hospital is not only an integral part of the local healthcare system, but a major provider of jobs and labor income in the community and surrounding medical service area. Additional hospital effects occur when a PA or NP contributes to the local hospital's inpatient admissions and outpatient visits. The increased revenue creates more jobs and labor income for the local economy.

The primary care clinic and local hospital generate direct jobs and labor income from their revenues. In turn, secondary effects occur when the new income is circulated throughout the local economy: Additional jobs and labor income are created as the clinic and clinic employees buy goods and services within the local economy. In some small communities, the addition of just one clinician can have a substantial income multiplier effect.6

The importance of a PA or NP and the medical contribution to the community can be measured with quality improvements in residents' health. However, the economic contribution often is not considered or quantified. A report was designed to estimate the total (direct and secondary) economic effects to full- and part-time employment and labor income that rural PAs or NPs have upon the clinic/hospital and ultimately the community they serve.7 The results are intended to provide local leaders a model they can apply local data to in order to estimate the economic effect of a PA or NP.

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Multipliers from an input-output (I/O) model were used to measure the economic importance of a PA or NP to a rural economy. The multiplier measures the interdependence among various producing and consuming sectors of the economy. Any change in economic activity is referred to as the secondary effect. The multipliers measure the total economic activity in the community, including business and employee spending from the clinic and hospital and additional spending from supported industries such as grocery stores, pharmacies, and restaurants. The secondary effects for a PA or NP were calculated with data and software from IMPLAN. The multipliers were medical service area-specific due to differences in locally available goods and services across different states, counties, and ZIP codes.

A number of considerations were noted to make assumptions for this study:

  • The PA or NP is part of the patient-care team in a primary care physician (PCP) clinic. A previous study estimated the economic effect of a rural full-time equivalent (FTE) PCP.6 The same methodology can be used to estimate the economic effect of a PA or NP with the relative percentage of FTE PCP patient volume.
  • The Centers for Medicare and Medicaid Services (CMS) FTE productivity standard for a PA or NP is 50% of annual patient visits for a physician (2,100 versus 4,200).8 This percentage is used to determine reimbursement for rural health clinics and federally qualified health centers.
  • The US Department of Health and Human Services' Health Resources and Services Administration (HRSA), Bureau of Health Professionals, applied a 0.75 FTE weight to a PA or NP relative to a PCP for its supply and demand projections through 2020.9
  • Although the roles of physician-PA or physician-NP teams continue to evolve in response to physician shortages, the above conservative assumptions will be used throughout.
  • The productivity estimates assume equal time by physician and PA or NP spent annually attending patients.
  • The study does not reflect the costs associated with possible reduced patient visits by a supervising physician. A PA or NP could have a similar number of annual patient visits when the supervising PCP has fewer patient days per week.10
  • The approach estimated the effects of a rural PA or NP by applying productivity percentages to the results of an earlier physician effect study with updated 2013 BLS labor income estimates.
  • The direct economic effects included the employees (full- and part-time) and labor income at the clinic and when appropriate, the proportionate share of the hospital employees (full- and part-time) and their labor income.
  • Average annual incomes based on BLS data are used throughout (although they could vary in rural areas; data are unavailable).
  • PA or NP productivity estimates at the clinic and hospital are based on CMS and HRSA valuations of patient visits.

The underlying methodology estimated the economic effect for two case scenarios to characterize alternative conditions. The methodology could be applied to represent any local scenario. Once constructed, I/O multipliers related the direct economic activity to the total effect by measuring the secondary effects.11

Scenario 1 represented a PA or NP working in a rural PCP clinic or a satellite clinic with a local hospital. Patient activity from both the clinic and hospital was defined as 75% of a FTE PCP.

Scenario 2 represented a PA or NP working directly in a rural PCP clinic or a satellite clinic without a local hospital. Patient activity in the clinic was defined as 75% of a FTE PCP. This scenario assumed no local hospital and therefore did not include hospital effects.

As noted, the methodology for estimating the economic effects of a PA or NP to employment and labor income was compared with a previous physician effect study by adjusting clinician salaries and patient volumes. The details and results of the previous physician effect study are summarized below.

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The size and type of rural primary care clinic can vary (for example, physician, rural health clinic, federally qualified health clinic, urgent care) and affect clinic staffing mix. For estimation purposes, the physician effect study assumed three full-time support staff per physician, for a clinic direct employment of four jobs. Wage and salary estimates were from the BLS 2012 national occupational employment and wage estimates. Labor income included benefits calculated using estimates from the BLS Employer Costs for Employee Compensation, May 2012. The estimated direct effects of the primary care clinic are presented in Table 1.



Hospitals allocate a significant portion of their revenues to employee compensation costs.12 The physician study assumed that total hospital employee compensation could be allocated to the primary care providers practicing in the hospital medical service area. Allocated hospital employment and income data from 31 rural (predominantly critical access) hospitals in 13 states were averaged to estimate the direct effects of each physician to the hospital. The hospitals represented all four US census regions. The direct effect from hospital activities is presented in Table 1.

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Direct effects of a rural PA or NP

The 2013 BLS national combined average wage for a PA and NP in a physician office was $94,605. Benefit costs were added at 40% for a total average annual income for a PA or NP of $132,447.13,14 Using the same method, the labor income estimates for the medical staff were $54,964 for a licensed practical nurse, $43,232 for a medical assistant, and $39,466 for a receptionist/information clerk.

Table 2 presents the direct effect results of the two scenarios. A PA or NP managing 75% of the patient volume of a FTE PCP was assumed to require 75% of the staffing requirements and contribute 75% of the hospital employment and income compared with a FTE PCP. Equating staffing with patient volume was considered valid for estimation purposes. The minimum staffing requirements and/or existing staff capacity can affect the actual staffing requirements. Available local conditions can improve the value of the estimates. This approach could be applied to any proportion that best fits the actual situation.



Scenario 2 represents a PA or NP operating a primary care clinic without a local hospital and therefore, the direct effects are only generated at the clinic. Total direct employment for the two scenarios ranged from 3.3 jobs to 13.4 jobs. The total direct labor income ranged from $235,694 to $764,027.

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Total effects of a rural PA or NP

The clinic employment multiplier of 1.33 estimated that if one job was created by the clinic, then an additional 0.33 jobs were created in other businesses due to the clinic's and clinic employees' spending (Table 2). Similarly, the labor income multiplier of 1.19 estimated that every $1 of income generated at the clinic created another 19 cents in labor income throughout the other sectors of the local economy.

In Scenario 1, the total employment from the clinic was 4.4 jobs. The same methodology used for the hospital employment yielded combined employment effect of 18.5 jobs for the clinic and hospital. The direct labor income estimates created a total labor income effect of $940,892. Scenario 2 reflected the economic effects at the clinic only.

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PAs and NPs can increase access to primary care services in rural nonmetropolitan areas designated as healthcare professional shortage areas. Their economic contribution to the local community is now quantified in terms of productivity and multiplier effect. Before this study, the economic effect studies on PAs and NPs were limited. These results show that the economic effect of a PA or NP should be considered as important as the medical contribution to a rural community. The lack of sufficient physicians in many rural areas makes it imperative to increase use of PAs and NPs and the benefits to a rural community can be considered nearly the same as a physician.

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States can exert some authority over hospital admitting privileges for PAs and NPs; however, nearly all states defer to individual hospitals to set their own policies.15 The BLS reported that 22% of PAs and 26% of NPs were employed by a hospital in 2013.13 Hospital-employed PAs and NPs may have more liberal hospital admitting policies than those employed at clinics. However, most times, collaboration with a physician is required for hospital admitting privileges. According to an American Academy of Nurse Practitioners (AANP) survey, 43% of NPs in the United States self-report they had hospital privileges and just over half of those had admitting privileges.16 Comparable numbers for PAs are unknown.

Several assumptions were necessary when available data were limited. The two scenarios represented the same productivity levels (75%) for PAs and NPs. The daily patient volume of a PA or NP can be affected by factors such as state regulations, clinical training, experience, and the relationship with the supervising PCP. Estimates based on historical federal assumptions are conservative in many cases. The economic effect of a new PA or NP will increase over time and could be greater than 75%. Understanding the actual productivity of PAs and NPs in rural communities remains for further development.

These estimates represent economic effects on jobs and labor income only. They do not characterize effect of total revenues and therefore, do not account for any additional costs to the physician or hospital associated with administering a PA or NP. The assessment also underestimated the total value as the economic effect from other sectors (such as pharmacy and long-term-care facilities) was not included.

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The increase in Americans gaining access to healthcare through the expansion of coverage under Patient Protection and Affordable Care Act (ACA) is increasing the demand for primary care services.17 The ACA supports the expanded use of PAs and NPs in primary care through education and training grants, support of new efforts to increase enrollment in PA and NP programs, and enhanced healthcare workforce education and training. The act also encourages the use of PAs and NPs in rural areas to provide primary care and care for the disadvantaged and high-risk populations.18 As demand for primary care services increases and aging physicians retire from rural practices, PAs and NPs can increase access to quality healthcare and reduce the effect of physician shortages.

PAs and NPs also have an economic effect on the local community. This study clearly demonstrates new tools that can assist PCPs and local leaders interested in estimating the economic effect of a rural PA or NP. These results can assist policymakers and local decisionmakers as the discussions continue that focus on recruitment of primary care providers to increase access to quality rural healthcare.

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physician assistant; NP; rural healthcare; workforce; economic impact; multiplier effect

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