Duke 2008 | ASHE | Equity and Efficiency in Health and Healthcare

Rationale and Aims: Single specialty hospitals (SSHs) that provide cardiac, orthopedic, and/or surgical care, are a relatively new and rapidly growing sub-industry among U.S. hospitals. These providers, the majority of which are owned by physicians who refer patients to them, have stirred considerable controversy over whether they promote economic efficiency leading to a new competitive benchmark or whether they support unfair competition. Community hospitals that are in competition with SSHs claim that the strong financial incentive of SSHs to select more profitable services and patients is injuring them financially. However, previous research suggests that community hospitals are achieving levels of profitability that are in line with national averages. If community hospitals are in fact able to maintain their operating margins, the question that arises is how they manage to do so in the face of increasing competition from highly profitable SSHs. This paper explores the question of whether community hospitals respond to competitive pressure from SSHs within local markets by reducing their provision of uncompensated care or of service to Medicaid patients. Methods: Methods comprise quantitative analysis of state and national level administrative data for two key states in which the SSH sub-industry is geographically concentrated and growing: Texas and California. Data was obtained directly from the states of TX and CA, supplemented by the American Hospital Association Annual Survey Database and the Area Resource File for the years 1997 through 2004. The research plan entails identification of hospital markets that have experienced entry of physician-owned SSHs in recent years in the three states. Market areas are Hospital Referral Regions as defined in the Dartmouth Atlas of Health Care. The analytic plan is to examine changes in the provision of uncompenstated care, charity care, and Medicaid inpatient days by competitor hospitals before and after entry of the SSHs, and to compare them with changes in provision of these services over the same time period in hospitals located in markets where there are no physician-owned SSHs. Regression estimates use longitudinal panel data models with hospital fixed effects, which allow for changes to accrue over time following entry of SSHs that occur during different time periods and in different markets. The regressions control for payer mix, severity-adjusted case-mix, occupancy rates, ownership type, bed size, the presence of an emergency department, as well as local demographic and economic condition variables.

Long-Term Objective: The long-term objective is to assess the dynamic market consequences associated with entry of physician-owned SSHs into local markets. Knowledge of how SSHs affect the provision of care to indigent and uninsured populations in markets where they operate will contribute to future policy evaluation of the following question: Does the organization of hospital care around single specialties enhance the capability of the U.S. hospital sector in providing high-quality value-driven service?