Community hospitals have complained for years that for-profit niche facilities specializing in high-margin services like cardiac care and orthopedics are making buckets of money and robbing them of a rich source of revenue.
But a new study of specialized services at acute-care hospitals appears to show that an increased emphasis on these two service lines does not necessarily correlate to higher profit margins, at least in terms of Medicare reimbursements. That finding tends to chip away at arguments by groups like the American Hospital Association that competition from specialty facilities is causing a drain on the financial resources of community hospitals, researchers contend.
The study by Cost Report Data Resources, a Louisville, Ky.-based company that provides detailed online financial information about U.S. hospitals, analyzed information from about half of the nation's acute-care hospitals. It did not attempt to separate out the approximately 100 facilities that are for-profit specialty facilities, although they were included in the data. The study was based on inpatient claims data from the CMS for the 12 months ended Sept. 30, 2003.
"You would think that the more a hospital specialized, the more it would enjoy economies of scale and the more profitable it would become," said Paul Shoemaker, president and chief executive officer of Cost Report Data Resources. "But the best data we have doesn't bear this out."
In an analysis of about 1,850 hospitals that offer cardiovascular services, the study determined that facilities whose cardiovascular admissions were 30% or more of total admissions had lower gross profit margins on Medicare cases than facilities that saw a smaller percentage of cardiovascular patients. On a per-case basis, hospitals with higher percentages of orthopedic services trailed those with lower percentages in the profitability of orthopedic cases.
Shoemaker said his company is not aligned with either community hospitals or the specialty hospital industry. He said the survey bore out a recent conclusion by the Medicare Payment Advisory Commission that facilities that specialize in these services do not necessarily hurt the bottom lines of acute-care hospitals because they're not necessarily bringing in more money.
"Specializing does not necessarily mean you're going to be more profitable," he said.
But the AHA, which has argued that specialty hospitals cherry-pick patients with the best insurance and lowest acuity, countered that the survey really doesn't mean much because all hospitals receive the same Medicare payments for the same services. It is often the selection of patients and what kinds of insurance they have, among other factors, that determines how much a hospital earns. Caroline Steinberg, the AHA's vice president of trends analysis, said the study shows that specialty hospitals are less efficient than their acute-care counterparts because they appear to be making less money on the same types of services. "Specialization in itself does not lead to greater efficiency," she said.
The study, which is to be released May 3, represents the latest source of contention in the battle between physician-owned specialty facilities and acute-care hospitals.
Two months ago, the American Surgical Hospital Association, which represents about 70 niche facilities, released a report saying there is no evidence that acute-care hospitals have been harmed financially by competition between the two types of facilities.
But that conclusion has been contested by the AHA, which lobbied successfully for an 18-month moratorium on physician referrals to specialty hospitals in which they have an ownership stake. While that ban is scheduled to end in early June, MedPAC has recommended the moratorium be extended through Jan. 1, 2007. In a study released in February, the AHA said physician-owned "limited-service" hospitals in four communities enjoyed operating margins as high as 44%, while acute-care competitors eked out an average operating margin of 3.3%. The discrepancy, officials said, was based largely on the payer mix at these hospitals.