Even as Congress struggles with how to pay for health-care reform, the White House keeps doing its best to accentuate the positive. Last week, Vice President Joe Biden hosted the country's three largest hospital trade groups as they announced they will accept $155 billion in Medicare and Medicaid cuts over the next 10 years. It's all part of an inspiring storyline, the idea that everyone is doing their part to make this most ambitious undertaking a reality. But no one actually thinks that the hospitals or for that matter other key players like pharmaceutical manufacturers or doctors are giving up something for nothing. On the contrary, any health-reform package passed by Congress will likely deal a major blow to an upstart competitor of many hospitals.
Buried in the 850-page House health-reform draft is a provision that could in effect ban further construction of doctor-owned, for-profit specialty hospitals and prohibit existing ones from expanding. (The provision would prevent new facilities from receiving any Medicare payments and would limit changes to current facilities.) Senators Charles Grassley and Max Baucus, who lead the body's powerful Finance Committee, have been vocal critics of the doctor-owned specialty-hospital model and the industry expects similar language to be included in any upcoming Senate health-reform bill as well. Doctor-owned specialty hospitals would "wither on the vine," says Molly Sandvig, executive director of the industry lobbying group Physician Hospitals of America. "Any business that can't grow or adjust to the market won't be around too long."
Specialty hospitals that focus on providing care for children or cancer patients have long existed, but the target of the House legislation is something else entirely for-profit health-care facilities owned by doctors that perform some of the most lucrative medical procedures in fields like orthopedics and cardiology. There are now some 220 such facilities operating mostly in the South and Midwest up from 110 in 2001 generating some $40 billion in annual revenue. According to Sandvig, more than 80 additional facilities are currently under development.
While these places are known as specialty hospitals, most do not resemble acute-care, all-purpose community health-care institutions. For one thing, they tend to sell themselves on the promise of comfort, if not luxury, with at least a few offering wine with gourmet meals and on-campus hotels for friends and family. More importantly, about half don't have any kind of emergency department and of those that do, more than half have only one bed available, according to a 2008 report from the inspector general of the Department of Health and Human Services. Even more troubling to critics is the fact that, despite being physician-owned, only about 30% have a doctor on site at all times, and about two-thirds actually tell staff to call 911 in case of an emergency, according to the same report.
This has created a dangerous situation, according to critics. The inspector general's report came about after a 44-year-old spinal-surgery patient at a doctor-owned specialty hospital in Texas the state with the highest number of such facilities developed breathing problems and died, despite being taken by ambulance to a larger community hospital. The staff had called 911 after noticing the man's respiratory function was poor, but there was no doctor present to help. And just last month, a female patient at the physician-owned Colorado Orthopaedic and Surgical Hospital died after she became unresponsive following surgery and was transferred to a community hospital. The facility has suspended all outpatient surgeries and the state health department has ordered the hospital to change its protocol in order to have a board-certified emergency doctor on site at all times.
As disturbing as those incidents are, the more widespread concern about the newfangled hospitals is money. Although there is not ample hard data yet available to prove that specialty hospitals take a large bite out of community hospitals' bottom lines, a quick scan of the list of the common procedures performed at the highly focused institutions suggests just that. Orthopedic and cardiac care bring in some of the highest margin reimbursements from insurers, money community hospitals use to cover the cost of low-margin or money-losing services like burn units, neonatal care and treating the uninsured. When healthier, fully insured patients migrate away from community hospitals to specialty facilities, their reimbursements go with them. Overall profit margins at specialty hospitals, sometimes as high as 30%, dwarf those of community hospitals. Plus, specialty hospitals don't typically treat many Medicaid patients, which bring in some of the lowest reimbursements available.