General Hospitals, Speciality Hospitals and Financially Vulnerable Patients

Study Examines Impact of Specialty Hospitals in Indianapolis, Phoenix and Little Rock, Ark.

Research Brief No. 11
April 23, 2009

FURTHER INFORMATION, CONTACT:
Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON, DC—Despite initial challenges 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) of three markets with established specialty hospitals—Indianapolis, Phoenix and Little Rock, Ark.

While 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 the range of general hospital responses to the market entry of specialty hospitals.

In the past decade, the rapid growth of specialty hospitals focused on profitable service lines, including cardiac and orthopedic care, has prompted concerns about general hospitals’ ability to compete. Critics contend specialty hospitals actively draw less-complicated, more-profitable patients with Medicare and private insurance away from general hospitals, threatening general hospitals’ ability to cross-subsidize less-profitable services and provide uncompensated care.

Study respondents identified several ways that specialty hospital competition affected the financial well-being of general and safety net hospitals through competition for physicians and other staff, new challenges in providing emergency department (ED) on-call coverage and decreases in service volume, according to the study funded by a Robert Wood Johnson Foundation Physician Faculty Scholars Program grant to Peter Cram, M.D., of the University of Iowa.

Respondents reported little, if any, change in patient acuity in general hospitals, and respondents more often attributed changes in payer 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 study’s findings are detailed in a new HSC Research Brief—General Hospitals, Specialty Hospitals and Financially Vulnerable Patients—available here. The study was coauthored by Cram; former HSC Health Researcher Ann Tynan, M.P.H.; HSC Health Research Analyst Elizabeth November, J.D.; HSC Health Research Assistant Johanna Lauer; and HSC Senior Researcher Hoangmai H. Pham, M.D. 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.

Key study 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, encouraging them to concentrate their practice at a particular hospital. This 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 Payer Mix—A few general and safety net hospitals noted serving more financially vulnerable patients. In some cases, hospitals attributed these changes in payer mix to a loss of insured patients to specialty hospitals. More often, however, respondents, particularly safety net hospitals, attributed changes in payer mix to an overall increase in the number of uninsured in their respective markets.

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by the Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.