Specialty services create medical turf war

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The rise of specialty centers is creating a turf war as hospitals and physicians develop market profitable specialty-service lines, according to a study by Center for Studying Health System Change (HSC) researchers published Tuesday by Health Affairs.

Because of this trend, hospitals and physicians are increasingly in competition for patients as physicians add diagnostic and treatment capabilities to their practices that at one time were only found at hospitals, the study found.

“The jury is still out on whether this new competition will lead to better clinical quality, but it’s clear that one prime motivation driving specialty-service line development is a desire to attract profitable patients,” said Hoangmai H. Pham, MD, MPH, study coauthor and senior researcher at HSC, a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

“Typically, hospitals and physicians will declare their own service line to be a ‘center of excellence,’ whether or not health plans or other third parties have bestowed such a designation….For most specialized services, there is a paucity of validated quality data to help consumers verify hospitals’ claims of expertise,” the article states.

In each market, hospitals and physicians were all developing single-specialty services, the top being heart (33), followed by cancer (24), and orthopedic (18) care, according to the authors.

A new type of competition has emerged due to this change and “by 2000, nonprice competition was becoming increasingly important,” the article states, and hospitals tried to lure physicians who refer patients and to go after patients directly.

Hospitals also turned to strategies that could be viewed as counterproductive as well, such as trying to increase the inflow of patients which ends up being “a form of competition tending to increase, rather than reduce costs,” according to the article.

Thus concerns rose in each market regarding hospital financial health and rising healthcare costs. Additionally, health plans and purchasers in the 12 communities “believe that modest reductions in prices as a result of increased competition over particular service lines are offset by increased volume of those services as a result of (1) aggressive marketing by providers directly to consumers; and (2) and specialist physicians’ ability to induce demand for services,” the article states.

Another complexity is physician self-referrals – which federal law tries to prohibit – but which continue via loopholes that allow for self-referral in instances within a physician’s practice for special services, the study said.

“Unless Congress is willing to limit internal referrals, other policy tools will be needed to moderate the escalating medical arms race,” the article states. Additionally, “Medicare and private plans’ payment policies have an opportunity to narrow the payment gap between relatively profitable and unprofitable services, a gap that distorts providers’ behavior and fuels the medical arms race.”

The data are based on HSC’s 2005 site visits to 12 metropolitan communities—Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y.