Single Specialty Hospitals and Competition in the Hospital Industry
- Presenter:
Chair: Kathleen Carey Tue June 6, 2006 15:30-17:00 Room 313
OBJECTIVES. Single specialty hospitals (SSHs) are a small but rapidly growing genre among U.S. hospitals. These providers, the majority of which are owned by physicians who refer patients to them, have raised considerable controversy over whether they promote economic efficiency though specialization or engender unfair competition. We undertake a broad based approach to investigating several benchmarks that jointly assess whether physician-owned SSHs are enhancing the competitive process in the U.S. hospital industry. These include cost efficiency, economies of scale and scope, and pricing for private payers.
DATA AND MEASURES. The primary databases are the Medicare Cost Reports, the American Hospital Association Annual Survey, and state discharge abstracts for the three states in which physician-owned SSHs are most heavily concentrated: Texas, California and Arizona. We examine three specialties: cardiac, orthopedic, and surgical hospitals for the years 1998 through 2004. For comparison, we choose competitor hospitals defined as those offering the same services and located in the same markets (identified as Hospital Referral Regions in the Dartmouth Atlas of Health Care). Key variables include measures of hospital total cost, discharges, length of stay, outpatient visits, case-mix, severity, quality, input price, disproportionate share of poor patients, teaching, ownership, and system affiliation.
ANALYSES. The basic analytic structure is a multiple output hospital total variable cost function estimated using stochastic frontier regression techniques for longitudinal data. This method will allow us to produce hospital specific inefficiency measures. We develop several groupings by which we compare inefficiency differences among SSH and competitor hospitals using parametric and non-parametric test of significance, and taking into account for-profit status, and system membership. We also estimate the cost functions for SSH and competitors separately in order to calculate measures of scale and scope economies for each hospital type. Finally, we construct average SSH vs. competitor hospital price indexes based on prevalent DRGs, standardized to control for patient characteristics, case-mix, and severity. We perform several analyses of mean price differences across various hospital groupings using parametric and nonparametric tests of significance.
SIGNIFICANCE. As of December 2003, Congress has declared a moratorium on physician referrals of Medicare and Medicaid patients to SSHs. The hospital industry is strongly advocating that the moratorium be made permanent. Yet in a March 2005 Report to Congress in support of the moratorium, MedPAC explicitly stated that it does not want to put an end to development of SSHs before gaining a fuller understanding of their efficiency benefits. Yet to date, no one has established the knowledge base that would support a laissez-faire policy. This research offers the first solid evidence on this matter by informing Congress as well as hospitals, judges, and policy makers on the economic logic of organization of hospital services around single specialties.
