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

A key trend in health care delivery during the past two decades has been the growth of specialization in the hospital industry. This specialization has manifest itself in the creation of focused service-lines within diversifed hospitals (e.g., dedicated cardiovascular or cancer centers) as well as free-standing, single-specialty hospitals (SSHs). Despite the prevalence of this specialization and the attention paid to it by policy makers, the empirical evidence concerning the impact of hospital specialization on the cost and quality of care remains muddled.

Determining the impact of hospital specialization requires a balanced assesment of its costs and benefits. On the one hand, SSHs and the specialized units of diversified hospitals (collectively, specialized facilities) are examples of "focused factories" and thereby offer the theoretical potential to provide more efficient care (i.e., higher quality per unit of cost). Further, specialized facilities may also encourage competing hospitals to become more productive through competitive spillovers. On the other hand, specialized facilities may simply enter the most-profitable markets and skim healthier (i.e., lower cost) patients, leaving general hospitals without the profit necessary to subsidize less-profitable, but socially beneficial, types of care. Further, some suggest that specialty competition increases the overall volume of procedures performed in a market (Nallamothu et al., 2007), an outcome that may lead to higher-than-optimal levels of utilization.

One of the primary hurdles to overcome in assessing the impact of specialty competition on market outcomes has been the endogenity of entry. Specialty providers do not select markets, patients, service lines and other strategic variables at random. As such simply comparing markets and/or providers affected and unaffected by specialty competition or comparing specialty hospitals to general hospitals produces biased estimates. This session includes three papers that acknowledge this empirical issue and rely on a variety of econometric methods to consistently estimate the impact of service-line specialization and specialty competition.