The Effects of Specialty Hospitals on General Hospital Operating Margins, 1997-2003
- Presenter:
Chair: Kathleen Carey; Discussant: Ginger Jin Tue June 6, 2006 15:30-17:00 Room 313
Authors: John E. Schneider (1,2) (john-schneider@uiowa.edu); Robert L. Ohsfeldt (3); Michael A. Morrisey (4); Pengxiang Li (1); Bennet A. Zelner (5); and Thomas R. Miller (1). [(1) Department of Health Management and Policy, University of Iowa; (2) Center for Research in the Implementation of Innovative Strategies in Practice (152) Iowa City VA Medical Center; (3) Department of Health Policy and Management, School of Rural Public Health, Texas A&M Health Science Center; (4) Department of Health Care Organization and Policy, and Lister Hill Center for Health Policy, University of Alabama Birmingham; (5) Haas School of Business, University of California Berkeley]
Title: The Effects of Specialty Hospitals on General Hospital Operating Margins, 1997-2003
Rationale: A recently expired moratorium on Medicare payments to new specialty hospitals was predicated in part on concern that the financial stability of general hospitals was being eroded by competition from specialty hospitals, thereby impairing their ability to cross-subsidize indigent care. If this were the case, general hospital operating margins in markets with specialty hospitals are expected to be lower, controlling for other factors affecting operating margins.
Objectives: Using a database of U.S. general hospitals and a sample of specialty hospitals from 1997 to 2003, we conduct econometric analyses of general hospital operating margins in markets with and without specialty hospitals.
Methodology: Data is from Medicare HCRIS Cost Reports, the American Hospital Association, a survey of specialty hospitals, and the Area Resource File. These sources were combined to form a panel data set of approximately 3000 hospitals over the seven year time period 1997 to 2003. Four different model specifications were compared: (1) exogenous entry with hospital random effects; (2) exogenous entry with hospital fixed effects; (3) endogenous entry with hospital fixed effects, where lagged mean county-level general hospital profit margin and certificate of need (CON) status serve as the instruments; and (4) endogenous entry with hospital fixed effects, using only CON status as an instrument.
Results: Counties with at least one specialty hospital consistently had higher mean operating margins than counties without specialty hospitals (p ≤ 0.05). In all four models, including the endogenous entry models, the presence of one or more specialty hospitals in the market was associated with higher general hospital profit margins (p ≤ 0.05).
Conclusions: Contrary to the conjecture that entry by specialty hospitals erodes the overall operating profits of general hospitals, general hospitals residing in markets with at least one specialty hospital have higher profit margins than those that do not compete with specialty hospitals.
