General Hospitals Adapt to Specialty Competition

Cheryl Clark, for HealthLeaders Media , April 24, 2009

Although specialty hospitals have reportedly skimmed profitable patients, general hospitals have not cut back on their care to low-income patients, which is threatening general hospitals' ability to subsidize their care to the poor, according to a survey of three U.S. healthcare markets.

The Center for Studying Health System Change, a nonprofit research group based in Washington, D.C., studied the Indianapolis, Phoenix, and Little Rock markets, each of which has both specialty hospitals and general hospitals. Safety net hospitals, which have a higher percentage of uninsured or underinsured patients, also reported limited impact from specialty center competition, saying they were able to adapt to the competition.

"Concerns that specialty hospitals 'cream-skim' more profitable, less complicated, well-insured patients from general hospitals" prompted Congress in 2003 to mandate an 18-month Medicare moratorium on physician self-referrals to physician-owned specialty hospitals, which compete with general hospitals for profitable service lines, the report says. The fear was that general hospitals would cut expenses by reducing emergency room care, closing burn or psychiatric units, or providing less compensated care.

But in these three communities, that has not happened, the report said.

That is not to say that specialty hospitals—in these cities free-standing centers focusing on heart or orthopedic care—have not lured physicians and nurses away from general hospitals, the report says. Nor did it preclude general hospitals from facing new challenges, such as filling their required emergency room call panels.

General hospitals did note that they were treating more "financially vulnerable" patients, and some did attribute this to losing insured patients to specialty facilities. But mostly, the report said, the hospitals said their higher load of financially vulnerable patients was due to the overall increase of such patients in their markets.

"A few general hospitals reported losing significant numbers of cardiologists, orthopedists or other specialists who left to start their own hospitals or enter joint ventures with a corporate entity," the report said. Those physicians may prefer more predictable work schedules, easier access to operating rooms and diagnostic equipment, and the ability to focus and improve on one service line. If they are owners, they also would have more control, the report explained.

But the study's authors said that, in these three markets, some hospitals that lost physicians were able to "employ or aggressively align" with specialists through contractual arrangements, and tried to better accommodate their need for easier access to operating rooms.

Chris Van Gorder, CEO of the five-hospital Scripps Health system, which absorbs large numbers of uninsured from around San Diego County, vehemently disagrees with the study’s finding and says such specialty centers have definitely hurt his hospitals.

"It's absolutely illogical to believe that taking profitable patients away from community hospitals, while leaving the uninsured, underinsured, and indigent patients to the community hospitals, doesn't hurt those hospitals and their ability to serve the community," he says. "Somebody is spinning statistics to achieve their goal."

He mentions that physician-owned specialty centers focusing on imaging, radiation oncology, and orthopedics have drawn insured patients away from his hospitals, "leaving the underinsured and uninsured with us."

Additionally, Alwyn Cassil, spokeswoman for the Center, emphasizes that the study focused only on these three markets. "The conclusions are not nationally representative."

Rick Wade, spokesman for the American Hospital Association, echoes that point. He adds that the impact varies among communities and their demographics as well as the number of general hospitals competing in a market. "In some communities, the experience is similar to the center's observations, but in others the damage to the strength of the full service community hospital is real. And of course the study doesn't and can't look at the larger issue of self-referral and the inherent conflicts of interest," he said.

American Medical Association board member William Hazel, M.D., calls the report "good news for the communities that benefit from specialty hospital care, as it affirms government study findings that show general hospitals are not harmed by competition."

Hazel adds that government studies "have found fewer complications, like infections and hip fractures, at specialty hospitals, and that they provide more net community benefits through uncompensated care and taxes than general hospitals. As we work to reform the healthcare system, innovations such as physician-owned hospitals that provide patients with high-quality care should be embraced by policymakers."

Specialty hospitals in general do treat patients who have less acute illnesses, who are more likely to need non-emergent elective procedures and who are more likely to have generous insurance plans, the report said.

Whether general hospitals will continue to offer services at the same level in the current economic climate, however, is unclear, the report said. "General hospitals will likely experience an increased burden of uncompensated care as job losses in the worsening economy are accompanied by the loss of health insurance."

Additionally, if the market downturn continues, general hospitals may be more partial to granting staff privileges to physicians who bring less sick and better insured patients, a practice termed "economic credentialing." Also unclear is how severity adjusted payments, which favor hospitals that treat sicker patients, will affect the bottom line of either type of facility.

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