With Specialty Hospitals, Society Suffers
Physician ownership of specialty hospitals is complex, breeds contentiousness and is ethically challenging. While I do not believe that physician-owned hospitals serve the best interests of society or of neurosurgeons, the impetus for their development is not hard to understand. The leaders of large academic and community hospitals frequently have been unresponsive to physicians and their concerns, unfair in their dealings and resistant to change. They often dislike our new ideas and have different concepts of efficiency. They resist aligning incentives and increasingly appear obsessed with profit. They will not hesitate to compete with physicians if they believe that doing so is in their interest.
Nevertheless, one can reasonably question whether the unfavorable actions of some hospital administrators toward physicians are sufficient justification for physicians to compete with and in some cases bring down large general hospitals. Motivation alone is not an acceptable rationale for action, and it is unlikely that physicians are justified in believing that what is good for them is good for society.
A fair number of articles and editorials have been published about physician-owned specialty hospitals. The authors primarily are lawyers, academic and governmental healthcare experts and agents of hospitals; they are physicians less frequently. The literature lacks compelling data and it is dull, redundant, and politically correct. Most conclusions are unsurprising and intuitive. Reports from the Medicare Payment Advisory Commission and the Centers for Medicare and Medicaid Services, generated at the request of Congress, have been constrained by lack of time and data and employ an unclear methodology. They gloss over some really important aspects—for example, the effect of specialty hospitals’ upon critical problems such as emergency services and on-call issues. There are some agreed upon facts; however, like politics, most hospital situations are local and what is true for some physician- owned specialty hospitals may not be true for all.
Three factors primarily influence physicians to create specialty hospitals: (1) the desire of physicians to control management decisions that affect their productivity and the quality of care delivered to patients; (2) the high reimbursement for certain procedures; and (3) the desire of physicians to increase their income in the face of declining reimbursement and increasing financial attack.
Proponents of physician-owned specialty hospitals have their points: Patients are offered a highly trained staff and greater efficiency. There is most likely decreased waiting time and convenient parking. For physicians, there is greater control over the workplace including the operating room schedule, and support staff is trained for individual needs resulting in increased productivity. Patients have better insurance and physicians have more input into decision-making. Clearly, another attraction is the generous return on physicians’ capital.
Granting that there are benefits for physicians and their selected patients, an important question is why can’t these benefits be made available to all without physician ownership of a hospital and the attendant problems?
What’s Wrong With Physician-Owned Specialty Hospitals? Some FactsPhysician-owned specialty hospitals do not provide lower cost care. Overall they handle less severe, healthier, and more profitable cases, cases which they siphon off from community hospitals. Specialty hospitals cherry pick patients. Most of their revenue is from private payers, and in areas where specialty hospitals have emerged there has been a trend toward an increased per capita surgical rate for specific profitable diagnosis related groups and an increased use of ancillary services. Physician investors do very well and some have made millions from their investments.
Specialty hospitals provide far less charity care than community hospitals and deliver less care to Medicaid patients, in fact, 94 percent less; clearly, they are not contributing their fair share to society in this respect.
Physician-owned specialty hospitals do not provide appropriate emergency services and in many areas they exacerbate problems of emergency care delivery. Many specialty hospitals do not have emergency rooms; some states mandate that they must, but even those emergency facilities are not full service. In fact, when calling the emergency line of some specialty hospitals, the recorded response is to inform the patient that the call should be directed to a full-service hospital. Many specialty hospitals are unable to manage all complications. As pointed out in the April 2 New York Times, some specialty hospitals have managed postoperative, in-house complications—in some cases with fatal consequences—by calling 911 and transferring patients to community hospitals. However, the ability of some of these community hospitals to respond to neurosurgical and other emergencies may have been adversely affected by proximity of a specialty hospital. This is because when physicians such as neurosurgeons shift their practices to specialty hospitals, they may opt out of taking emergency call, a trend which threatens the American public and the specialty of neurosurgery.
Neurosurgery’s critics claim that our specialty has abdicated its responsibility to deliver trauma care. The specialty faces significant challenges from so-called trauma surgeons who would like not only to step into a perceived trauma vacuum, but also to replace us in the delivery of more traditional neurosurgical care. The decreased pool of emergency providers, exacerbated by the emergence of specialty hospitals, may adversely affect a hospital’s ability to provide level 2 trauma coverage. This has been demonstrated to have the potential to overwhelm level 1 trauma centers.
The lack of neurosurgeons and other surgical specialists taking call at level 2 facilities led to a crisis at the University of Oklahoma’s level 1 trauma center. At one point, the university hospital was left to care for more than 80 percent of all trauma cases in the Oklahoma City metropolitan area. This crisis only abated after a $5.7 million state bailout and a successful appeal to the neurosurgeons in the community to rotate level 2 emergency call among some community hospitals. Although this call rotation somewhat alleviated the problem, some elements of this taxpayer-funded bailout represent a cost shift from the taxpayer’s pocket to profits of specialty hospitals. This taxpayer subsidy certainly is not in society’s best interest.
As healthier, better-insured elective surgical patients are shifted away from community hospitals, there is an impact on the community hospitals’ financial health. The way these affected hospitals will stay afloat and make money is by providing less care to indigent patients as well as fewer services that lose money, such as burn units, neonatal intensive care units, mental health clinics, and disaster response facilities. I suspect that some welcome the excuse to discontinue these services. The community is ill-served when this happens as well as when a specialty hospital duplicates services offered at a community hospital, leading to overcapacity in the community for some services and subsequent competition for volume. When too many facilities with a limited number of personnel who have experience in complex surgical procedures are trying to deliver specialized care, the potential for quality care actually decreases.
Many proponents of specialty hospitals cite increased competition as a benefit. However, I am not sure that increased competition is of great benefit to neurosurgeons and their patients. I have seen competition in my community. It leads to patient dumping and sensational, cheesy advertising. It also leads to competition for staff and cannibalization of community resources. As specialists leave community hospitals for their specialty hospitals, the community hospitals recruit more specialists and reimbursement wars ensue. Competition leads to physicians acting poorly toward each other. At best, it’s unbecoming.
One of the increased risks for our profession that may result from the financial success of the specialty hospital is the government response that can be expected. Congress has asked the CMS to look at restructuring reimbursement by diagnosis-related group to minimize the profits of specialty hospitals. We know that the CMS is incentivized to shift reimbursement from those it considers historically overpriced to those it perceives as underpaid. If costs rise and are shifted to the taxpayers while the profits for specialty hospitals continue, the incentive for the CMS to push for changes in reimbursement by diagnosis-related group will increase.
More problematic is that ownership of specialty hospitals can excite the profit incentive for surgeons, leading to a change in practice patterns. In fact, a study of utilization at specialty cardiac hospitals by Barro and colleagues has shown a lower threshold for cardiac bypass surgery in these facilities.
Some of the critical points I have made fall to the eye of the beholder, and I expect that not everyone would agree that the effect upon community hospitals, the substantial increase in per capita surgical rate, increased competition, windfall profits, favored investors, the opportunity for physicians to triple dip by collecting fees for their own professional services, sharing in the profit generated by the facility and then growth in investment, and the greater margins seen in specialty hospitals compared to community hospitals, are bad things. Since specialty hospitals, however, are not rushing to enter into unprofitable areas, there is simply no evidence that society is particularly well-served by these factors.
The Bottom Line: Professionalism vs. Commercialism
What does all this boil down to? I believe that the core issue is that of
conflict of interest. Physician ownership, self-referral and triple dipping
are just that. Most of society—federal, state and local government, scientific
and educational institutions, businesses and neurosurgical societies—believes
that conflict of interest is not a good thing. Most people are well aware of
the overt and subtle changes of behavior that are occasioned by such conflicts.
Small clouds over judgment can have serious consequences.
Another important issue, however, involves a basic fairness and lack of vindictiveness. Taking the most profitable services down the block and away from Our Lady of Perpetual Misery Hospital might be good for me, but it is not good for Our Lady of Perpetual Misery.
Even if specialty hospitals are better able than general hospitals to focus on providing the most profitable treatments, this is contrary to society’s interests overall as they do not care for patients with all types of illnesses. Patients with increased severity of illness are more costly to treat. Seeking out healthier patients to treat may be a good business strategy, but how well does this serve society? There is evidence that specialty hospitals choose to enter markets with healthier patients and provide additional intensive treatment of questionable cost effectiveness; a reasonable person can assume that both of these activities would reduce social welfare.
Physicians are justly concerned that their income is under attack. Clearly, an appropriate policy would be to address physicians’ income concerns directly and ensure that fees reflect the fair cost and value of the services provided. Hospitals and Congress must do more to align financial success and quality of care and operational incentives for physicians. However, I do not believe that sanctioning of a business model that perpetuates conflict of interest, increases utilization, and is reliant upon legal loopholes with subsequent weakening of community hospitals will not harm community healthcare.
If the current trends continue, what could emerge is a hospital system that looks like the airline industry. As reported in Shactman, health policy analyst Stuart Altman told the Council on Health Care Economics and Policy: “A lot of frequent flyers like the efficient, low-cost airlines like Southwest and Jet Blue, but many full-service carriers have faced bankruptcy and have stopped providing services to some regions. We don’t feel all that bad for the bond- and stockholders or even the airline pilots, but if community hospitals close, access to local health services will be reduced, and it is apt to be the poor and uninsured who lose services.”
In a letter to the editor in the New England Journal of Medicine, Donald A. Barr, MD, recounts that more than 50 years ago sociologist Talcott Parsons thus described the conflict of professionalism and commercialism: “The ‘ideology’ of the profession lays great emphasis on the obligation of the doctor to put the ‘welfare of the patient’ above his personal interests, and regards ‘commercialism’ as the most serious and insidious evil with which it has to contend.” Barr goes on to cite commentary in 1995 by George Lundberg, then editor of the Journal of the American Medical Association: “The fundamental purpose of a business is to make money…On the other hand, the fundamental purpose of a profession is to provide a service that reflects commitment to a worthy cause that transcends self-interest.” Barr concludes that “specialty hospitals, boutique care at a price, and a range of other practices threaten the core of trust on which our profession stands … [and] that commercialism has no place in the profession of medicine.”
Robert A. Ratcheson, MD, is professor of neurological surgery at Case Western Reserve University School of Medicine, where he was chair of the department from 1981 to 2005. He is the 2004–2005 AANS president.
For Further Information
■ Barr DA: Letter to the Editor. N Engl J Med 356(6):639, 2007
■ Barro JR, Huckman RS, Kessler DP: The effects of cardiac specialty hospitals on the cost and quality of medical care. J Health Econ 25:720–721, 2006
■ Shactman D: Specialty hospitals, ambulatory surgery centers, and general hospitals: charting a wise public policy course. Health Aff 24(3):868–873, 2005