Specialty Hospitals: Information on National Market Share, Physician Ownership, and Patients Served

Correspondence issued by the General Accounting Office with an abstract that begins "Specialty hospitals represent a small but growing segment of the health care industry. These hospitals specialize in providing care for certain conditions, such as cardiac care, or performing certain procedures, such as orthopedic surgery. Specialty hospitals are not an entirely new phenomenon, as children's and other types of specialty hospitals have existed for decades. Consequently, it is challenging to distinguish between the old and new types of specialty hospitals. One aspect that sets apart the newer genre of specialty hospitals is that many are owned, in part, by the physicians who work in them. Advocates contend that, because of their focused mission, specialty hospitals can provide high-quality specialty services more efficiently than general hospitals. Because specialty hospitals can tailor their facilities and resources to best fit the needs of certain types of patients, individuals treated in such hospitals may enjoy relatively greater convenience and comfort. Specialty hospitals may also offer physicians financial and work environment advantages. Advocates have stated that the focused mission and dedicated resources of specialty hospitals allow physicians to treat more patients than they could in general hospitals. Physicians may gain financially from this increased productivity. If they are part owners, physicians may also share in the financial gains that accrue to the hospital. Physicians in specialty hospitals may also have more control over patient scheduling and the purchasing of desired equipment. However, concerns have been raised by general hospitals and others in the health care community that specialty hospitals are siphoning off the most financially rewarding portions of general hospitals' business. Representatives of general hospitals contend that specialty hospitals concentrate on the most profitable procedures and serve patients that have fewer complicating conditions--leaving general hospitals with a sicker, higher-cost patient population. Part of the concern is that physician ownership in specialty hospitals creates incentives to concentrate on patients who are less sick than other patients with the same diagnosis, as a hospital is typically paid a fixed, lump-sum amount for treating someone with a given diagnosis. Hospitals can benefit financially by treating a disproportionate share of less ill patients because the payment amounts for these patients are not reduced to reflect the fact that fewer services are needed. Critics contend that this practice of drawing away a more favorable selection of patients makes it more financially difficult for general hospitals to fulfill their broad mission to serve all of a community's needs, including charity care, emergency services, and stand-by capacity to respond to community-wide disasters. In light of these concerns, Congress asked us to provide information on the prevalence of specialty hospitals, their characteristics in terms of ownership and patients treated, and the effect specialty hospitals have on the greater hospital communities in which they operate. We are preparing a comprehensive report to be issued later this year that will address these issues. This report provides available information on the (1) share of the national hospital market comprising specialty hospitals, (2) extent to which physicians have ownership interests in specialty hospitals, and (3) patients served by specialty hospitals compared with those served by general hospitals, in terms of illness severity."