The Case for Medical Enterprise Zones

• Medicare rules require rural hospitals to maintain a staff of numerous professionals (whether needed or not), including a full-time director of food and dietary services.
• State licensing laws often require rural hospitals to have fully equipped operating rooms and a surgical staff - even if the hospital performs no surgery.
• Medicare requires hospitals to meet expensive fire and safety rules, including corridors of a minimum width - even if the rural hospital is greatly underused.
• To qualify as a Community Health Center (CHC), a facility must have a minimum number of patient encounters per physician, and administrative costs must not exceed a certain percent of total costs - standards that many rural CHCs cannot meet.
• Medicare and Medicaid regulations prevent hospital-physician joint ventures, physician ownership of hospitals and other arrangements that might induce more physicians to practice in rural areas.

Given the poor economic conditions in many rural areas, health care professionals should be permitted to own or have a financial interest in pharmacies, laboratories, hospitals and home health services. The professionals should be required to inform patients of their financial interest and inform them of other, competing facilities or services, but should not be inhibited in their patient referrals.

Finally, Medicare and Medicaid should reimburse MEZ providers at the same rates paid in other areas. The average Medicare payment was 9 percent greater for large city hospitals than for rural hospitals in 1989, and Medicare’s method of paying physicians relies on "customary, prevailing and reasonable charges" - which means that more expensive urban doctors tend to receive about 36 percent more for performing the same service.

Source:John C. Goodman and Gerald L. Musgrave, “National Health Insurance and Rural Health Care, - National Center for Policy Analysis, NCPA Policy Report No. 107, October 1991.