The Hospital Wars

Surgery and imaging centers owned by doctors are swiping patients from traditional hospitals. Competition is good, right? Not always in health care, where an arms race keeps the costs rising

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Kevin Conlin in the Cyberknife operating room at Via Christie Hospital in Wichita, Kansas.

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Nowhere is this more apparent than in diagnostic imaging. Last year Americans spent more than $100 billion on outpatient scans. Medicare's imaging costs have been growing 16% a year, much faster than the 9.6% rise for all physician services. The most lucrative--MRI and CT--climbed 25% last year. A third of the testing, says Donahue of National Imaging, is inappropriate; doctors order unnecessary scans, or two when one would suffice. "This is one of the most unsavory and concerning areas of how imaging is delivered," he says. "It's when imaging studies are not based upon clinical needs but on entrepreneurial requirements." Much of the growth is coming from cardiologists and orthopedists, who increasingly own such devices. It angers radiologists, who rely on referrals, and even imaging-center executives. "There should be some relief on the physician self-referral problem," says Bret Jorgensen, CEO of the chain InSight Health. "It's the single biggest reason imaging centers have been growing so rapidly." Physicians say much of the supposedly excessive testing is defensive. "If you fail to do a test and there's a bad outcome," says Dr. Kim Allan Williams, a nuclear cardiologist at the University of Chicago, "you will get sued in this country."

Congress and the Centers for Medicare and Medicaid Services (CMS) have taken steps to rein in imaging. Beginning next year, imaging centers will see payment cuts that the industry and its manufacturing allies--GE, Siemens, Phillips--say will reduce some payments to 20% of the cost of doing them. To level the specialty-hospital playing field, CMS will pay hospitals more for their more complex cases. Similarly it proposes to pay ASCs at 62% the rate of hospital outpatient departments. The industry is asking for 75%. Lobbyists are racing to the scene.

Though these changes are probably a step in the right direction, they do not directly address the problem of physician self-referral--or the distorted economics that underpin the rise of specialty facilities. Next year Medicare will pay physicians more for the time they spend on their patients' well-being, but, HSC researcher Dr. Hoangmai Pham notes, it still rewards them far more generously for procedures than for cognitive services like diagnosis and management of disease. So Wichita, which 15 years ago had seven psychiatric inpatient facilities, now has one, run by Via Christi. It has six that do heart surgeries.

Further, since physicians get paid through fee-for-service rather than, say, for curing their patients, their primary incentive is to do more stuff. CMS is starting to experiment with pay-for-performance programs that address this concern. But such measures can work only if they are remunerative enough to counter the base incentives that drive excess care. "A few pennies here and there is not going to change what physicians do every day," says Pham. "They're not stupid, and they have business managers."

And political clout. As do the manufacturers of medical technology. So creating a payment system that makes competition work as it ought to--reducing costs rather than inflating them--won't be easy. But the same can be said for living in a society that can't afford its sick and dying.

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