The growth of specialty hospitals across the country has proven to be a cash cow for many physicians but may put community hospitals in financial jeopardy, officials said last week at government hearings on healthcare competition.
The hearings were the second in a series held by the U.S. Justice Department and the Federal Trade Commission that will continue through October, examining the role of providers, health plans and other healthcare industry players in the healthcare market (March 3, p. 6).
While the first hearings, held in February, took a broad look at how competition in healthcare affects cost, access and quality, last week's proceedings looked specifically at hospitals.
Officials began the hearings a month ago saying that no single event had prompted them. But a panel on the poor track record of federal agencies in prosecuting hospital merger cases suggested last week that the government may be re-evaluating its antitrust strategy.
Judges who may be wary of federal interference in local healthcare matters, the charitable image of not-for-profit hospitals involved in mergers and a lack of resistance by local business leaders to the mergers work against federal prosecutors, experts at the hearing said.
In the case of specialty hospitals, though, general hospitals already are feeling the effect of added competition.
According to testimony from industry executives and researchers, the growth of such hospitals can be accounted for in a number of ways. First, as providers and consumers revolted against managed care, patients gained greater access to certain services, creating an environment in which specialty hospitals could increase providers' revenue. And because reimbursements for certain procedures such as cardiac care and orthopedic services have been historically higher than payments for other services, providers saw specialty hospitals that offer only these services as a financial opportunity.
As specialty hospitals began popping up all over the country, general hospitals reacted in "predatory and exclusionary" ways, said panelist John Rex-Waller, chairman and president of National Surgical Hospitals in Chicago.
Some hospitals have excluded from health plan contracts those doctors who work in their facilities and also work in specialty hospitals. Other hospitals have withdrawn the staff privileges, or threatened to do so, of doctors working in the specialty facilities. Some also have used the regulatory process to tie up building plans for such facilities through abuse of the certificate-of-need process.
Hospital executives, however, countered that specialty hospitals serve no purpose other than to line the pockets of their operators and do little for the communities they serve. At the very least, specialty facilities that are owned by doctors pose serious conflict-of-interest issues if the doctors also work in general hospitals because the physicians have an incentive to refer patients for certain services to the specialty facility, said David Morehead, chief medical officer for OhioHealth, a healthcare system based in Columbus.
George Lynn, president and chief executive officer of AtlantiCare, a healthcare system in Atlantic City, N.J., said that because specialty facilities typically offer services that receive higher reimbursements from health plans and serve a population with higher incomes, they siphon important financial resources from community facilities.
"For antitrust agencies to truly assess the effect of specialty-care providers, they need to take into account their effect on the medical safety net for a community and whether the needs of the entire community are served by their presence and their growth," Lynn said, speaking on behalf of the American Hospital Association.