The Economic Impact of a Rural Hospital to local Economy

Kang, Im Ok; Lee, Sun Hee; Kim, Han Joong

Abstract

Demand for high quality medical care has recently been increasing in step with high level of income and education. Patients prefer the use of large general hospitals to small community hospitals. Large hospitals, usually located at urban area, expand their capacities to cope with the increasing demand, therefore, they easily secure revenue necessary for growth and development of hospitals. However, small community hospitals are facing with serious financial difficulties caused from the reduction of patients in one hand and the inflation of cost in another. If small rural hospitals were closed, the closure would have negative impacts on local economies in addition to the decrease in access to medical care. Community leaders should have an insight on the contribution of community hospitals to local economies. They could make a rational decision on the hospital closure only with the understanding of hospital's contribution to the community. This study is designed to develop an economic model to estimate the contribution of rural hospital to local economies, and also to apply this model with a specific hospital. The contribution of a hospital to local economies consists of two elements, direct effect and multiplier effects. The direct impacts include hospital's local purchasing power, employee's local purchasing power, and the consumption of patients coming from outside the community. The direct impact induces multiplication effect in the local economy. The seed money invested to other industries grows through economic activities in the economy. The seed money invested to other industries grows through economic activities in the region. This study estimated the direct effect with the data of expenditure of the case hospital. The total effect was calculated by multiplied the direct effect with a multiplier. The multiplier was drown from the ratio of marginal propensity of income and expenditure. Beside the estimation of the total impacts, the economic effect from the external resources was also analyzed by the use of the ratio of patients coming outside the region. The results are as follows. 1. The direct economic contribution of the hospital to the local economy is 1,104 million won. 2. The value of multiplier in the region is 2.976. 3. The total economic effect is 3,286 million won, and the multiplication effect is 2,182 million won. 4. The economic contribution from the external resources is 245 million won which is 7.5% of the total economic effect.