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What's Behind the Boom in Specialty Hospitals?

In a new Health Affairs article, the Fund's Stuart Guterman discusses two congressionally mandated reports on specialty hospitals, the source of some recent controversy.

Concerns about cardiac, orthopedic, and surgical hospitals stem from the issue of physician ownership. Some critics worry that physician#&8211;owners will be torn between considerations of clinical appropriateness and financial benefit when deciding among treatment options and settings to recommend to their patients. Critics also contend that because physicians who own specialty hospitals can, to some extent, control the flow of patients admitted, they might siphon off the least complex and most profitable cases. There is also strong incentive for these hospitals to avoid patients who are uninsured or underinsured.

The reports find that specialty hospitals appear to provide high quality while offering popular amenities to their patients, but they also tend to treat more profitable Medicare patients and fewer Medicaid and uninsured patients than community hospitals in the same markets.

Guterman, who directs the Fund's Program on Medicare's Future, argues that the congressional findings point to the need to refine the accuracy of Medicare payment rates—reforms that have long been under consideration and have proven particularly confounding. In the end, however, concerns over specialty hospitals are symptomatic of broader problems with the health care financing system: low payments for most Medicaid patients and a lack of payments for uninsured patients create strong incentives for specialty hospitals and community hospitals alike to attract well-paying patients and avoid others. "Above all," says Guterman, "the lack of explicit financing of the broader (and unprofitable) missions of health care facilities is a major failure."

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