Productive efficiency of rural health clinics: the Midwest experience

This article identifies the characteristics of efficient and inefficient rural clinics in the Midwest, using 1994 Medicare cost reports. Rural health clinics are compared on the basis of productive efficiency by estimating a nonparametric frontier. Six inputs and five output categories were employed to estimate an efficient frontier. The results show that an efficient clinic, on average, employs approximately 1.5 more physicians than an inefficient clinic and incurs capital expenses more than twice those of the inefficient clinic. Future rural clinics are expected to be larger, employing more capital and labor to take advantage of scale economies. However, given the steady (or decreasing) population of rural communities, the expansion of relatively small rural clinics could involve forming rural health care systems and/or networks in close proximity to create synergies from scale economies, staff recruitment, easier access to capital, shared information systems, improved mobility of physicians among several clinics and savings from management costs.