Evaluating Locations for Outpatient Medical Care Facilities

Abstract

The distance from patient to provider has always been recognized as an important factor to consider when locating medical facilities. Past locational studies have focused on minimizing aggregate patient-provider distance and/or including travel cost estimates when designing cost-minimizing systems of medical facilities.' Recently Acton has pioneered the use of distance (or some variant based on distance) as a in the estimation of the demand for outpatient medical services.2 Acton's empirical results indicate that the time price faced by a patient can be a significant factor in his decision to purchase medical care. Furthermore, he suggests that his approach to estimating consumer demand may have policymaking implications for locating outpatient medical care facilities.3 In this paper, demand relationships based on a time price similar to Acton's are employed to estimate consumer willingness-to-pay for several different facility sites.4 It is hypothesized that aggregate willingness-to-pay for a particular outpatient facility location is based on the following factors: (1) Travel cost; since part of the total of a visit to a medical facility is the consumer's travel cost, economic theory and Acton's empirical results predict that a reduction in travel cost leads to an increase in the quantity of visits purchased by the consumer. To obtain a new medical facility at a given site, the consumer would potentially be willing to pay an amount equal to the net value he places on his additional visits. This net value can be approximated using estimated demand curves for medical services. (2) Option value; since the existence of some medical problems is highly uncertain, the demand for their treatment is also uncertain. However, each potential consumer may be willing to pay to guarantee the presence of a physician in the event of medical emergency.s The exact amount depends on an individual's