Effects of Specialty Hospitals on the Financial Performance of General Hospitals, 1997—2004

Hospital specialization has become a controversial topic, culminating in a moratorium issued in 2003 by Congress directing the Centers for Medicare and Medicaid Services to cease payments to new physician-owned specialty hospitals for those Medicare and Medicaid patients referred by physicians with...

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Bibliographic Details
Published in:Inquiry (Chicago) 2007, Vol.44 (3), p.321-334
Main Authors: Schneider, John E., Ohsfeldt, Robert L., Morrisey, Michael A., Li, Pengxiang, Miller, Thomas R., Zelner, Bennet A.
Format: Article
Language:English
Subjects:
Centers for Medicare and Medicaid Services (U.S.) - economics
Competition
Economic Competition - economics
Economics, Hospital - trends
Financial margins
Financial performance
Health care costs
Hospital costs
Hospitals
Hospitals, General - economics
Hospitals, Special
Humans
Impact analysis
Joint ventures
Longitudinal Studies
Market entry
Medicaid
Medicare
Nonprofit hospitals
Operating costs
Patient care
Psychiatric hospitals
Revenue
Specialization
Studies
United States
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Summary:Hospital specialization has become a controversial topic, culminating in a moratorium issued in 2003 by Congress directing the Centers for Medicare and Medicaid Services to cease payments to new physician-owned specialty hospitals for those Medicare and Medicaid patients referred by physicians with a financial interest in the facility. This paper focuses on one important economic question: does the presence of specialty hospitals in a market affect general hospitals' financial performance? We estimate longitudinal fixed-effects models for a national panel of short-term acute care hospitals for the period 1997 though 2004; models are estimated for general hospital patient-care revenue, costs, and operating margins. We find that the presence of one or more new or established specialty hospitals in a market has a negative effect on general hospital costs and a positive effect on general hospital operating margins. Results, which were consistent across several different modeling approaches, imply that the presence of specialty hospitals encourages greater efficiency on the part of incumbent general hospitals, and the existence of profits attracts market entry. Our findings question the contention that competition from specialty hospitals harms general hospitals financially.
ISSN:0046-9580
1945-7243
DOI:10.5034/inquiryjrnl_44.3.321