specialty hospitals: focused factories or cream skimmers? presented to the hsc specialty hospitals...
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SPECIALTY HOSPITALS: FOCUSED FACTORIES OR CREAM SKIMMERS?Presented to the
HSC Specialty Hospitals Conference
April 15, 2003
Kelly J. Devers, Ph.D.
Objectives
Prevalence and Characteristics
Drivers of Development
Vital Signs to Monitor
Policy Implications
Number of Specialty Hospitals Increasing Rapidly
Since 1997, 11 freestanding specialty hospitals have opened or are planned in the 12 CTS site visit communities
Cardiac and orthopedic procedures are the most common focus
Over 50 specialty hospitals are estimated to exist nationally and more are underway
Key Characteristics
Ownership arrangements are diverse» National for-profit firms, general hospitals,
physicians, or combinations of these groups» Partial physician ownership is common
Scope of services provided varies» Emergency department» Other services
Drivers of Development
Relatively high reimbursement for some procedures
Physicians’ desire to increase control over decisions affecting their work environment
Physicians’ desire to increase their income» Higher productivity increases income from
professional fees» Facility fees can add additional income
Indianapolis: A Case Study
In the last two years, 5 specialty hospitals have been opened or planned
Building boom began when specialists threatened to partner with MedCath» 2 joint ventures; 2 solely owned by general
hospitals; and 1 solely owned by physicians
All add some new bed capacity
General Hospitals’ Response
Aggressively compete» Establish own specialty hospital to avoid or
counter physician defection
Fight back» Economic credentialing of physicians» Discourage plans from contracting with
competing specialty hospitals
Joint venture with physicians» Keep at least “half a loaf”
Focused Factories’ Promise
Improve quality and reduce costs by:
» Performing a high volume of select procedures
» Building optimal facilities for delivering these select procedures
» Selecting the best staff and motivating physicians through ownership
» Innovating and continuously improving care delivery
Concerns about Cream-Skimming
Specialty facilities might succeed primarily by selecting:
» Better paying services
» Better paying patients
» Relatively healthy patients
Will Demand Increase Enough to Fill Additional Capacity?
Proponents say yes» If not in local market, they can draw patients
from other markets
Critics say no» Specialty hospitals will have to take patient
volume from general hospitals
Vital Signs to Monitor
Quality
Cost and price
Access
Quality
Specialty hospitals can use focused-factory techniques to improve quality
Yet specialty hospitals may lead to similar or poorer quality by:» Spreading the same volume over more facilities» Inappropriate utilization of services» Not providing a full range of services
Per-Case Costs
Specialty hospitals can use the same focused factory techniques to achieve lower per-case costs
Critics contend specialty hospitals may lead to similar or higher per-case costs by:» Spreading the same volume over more facilities» Creating excess capacity (i.e.,empty beds)
Total Costs
Total costs may stay the same or fall because:» Per-case costs could decline enough to offset
any utilization increases
Yet specialty hospitals may increase total costs by:» Creating excess capacity» Over-utilization of services» General hospitals increasing prices for
other services
Price
More competitors and capacity will spur greater price competition
But price competition may be constrained by:» Large, general hospital systems’ negotiating rates
for owned specialty facilities and...» …discouraging plans from contracting with
competing facilities
Access
Improved access to specialty services, particularly for some types of patients
But general hospitals risk losing ability to provide less-profitable but essential services» Some services may be closed or scaled back» May have greater impact on Medicaid and
uninsured patients
Policy Challenge
Allow competition and innovation, while guarding against potential problems
Policy Options
Revise Medicare payment policy
Develop new ways to preserve access to essential services besides cross-subsidies
Regulate specialty hospitals» E.g., Stark, certificate-of-need, quality and
patient-safety standards
HSC, FUNDED EXCLUSIVELY BY THE ROBERT WOOD JOHNSON FOUNDATION, IS AFFILIATED WITH MATHEMATICA POLICY RESEARCH, INC.
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