Specialty hospitals no threat to general hospitals

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Despite initial challenges of recruiting staff and maintaining service volume and patient referrals, general hospitals were generally able to respond to the initial entry of specialty hospitals with few, if any, changes in the provision of care for financially vulnerable patients, according to a new study by the Center for Studying Health System Change (HSC).

In the past decade, the growth of specialty hospitals focused on profitable service lines, including cardiac and orthopedic care, has prompted concerns about general hospitals' ability to compete, according to the report. Critics contend specialty hospitals draw less-complicated, more-profitable patients, threatening general hospitals' ability to cross-subsidize less-profitable services and provide uncompensated care.

The report analyzed three markets with established specialty hospitals--Indianapolis, Phoenix and Little Rock, Ark.

While HSC acknowledges that the three markets are not nationally representative, and specialty hospitals represent a relatively limited share of the overall inpatient market in the three communities, their experiences are useful in illustrating general hospital responses to the market entry of specialty hospitals.

Survey respondents reported little, if any, change in patient acuity in general hospitals, and respondents more often attributed changes in payor mix to the rising rate of uninsured people in the market generally, rather than the loss of patient volume to specialty hospitals, the study found. General hospitals were more likely than safety net hospitals to feel the impact of competition from specialty hospitals.

The findings include:

  • Competition for Staff and Emergency Call Coverage: General hospitals responded to the increased competition for staff and call coverage in various ways. Some hospitals, particularly those that lost specialist physicians to specialty hospitals, employed specialists or aggressively aligned with specialists who practice at multiple facilities via contractual arrangements. The strategy also helped general hospitals rebound from initial losses in service volume to specialty hospitals.
  • Changes in Patient Acuity/Case-Mix Severity: General and safety net hospital respondents generally did not observe specialty hospitals as cream skimming less-complicated, lower-risk patients. General hospital respondents in Little Rock and Phoenix reported higher patient acuity since the entry of specialty hospitals but couldn't specifically attribute this to specialty hospitals.
  • Changes in Payor Mix: A few general and safety net hospitals noted serving more financially vulnerable patients. In some cases, hospitals attributed these changes in payor mix to a loss of insured patients to specialty hospitals. More often, however, safety net hospitals attributed changes in payor mix to an increase in the number of uninsured in their respective markets.

HSC researchers conducted 43 semi-structured interviews with representatives from hospitals, physician practices, community health centers, emergency medical services, medical societies, hospital associations and state regulatory agencies between March and June 2008.

A Robert Wood Johnson Foundation Physician Faculty Scholars Program grant funded the study.