The battle over so-called specialty hospitals is set to make headlines again. Earlier this month, the federal Department of Health and Human Services’ Centers for Medicare & Medicaid Services lifted its 3-1/2-year-old moratorium on construction of these private, for-profit and often physician-owned hospitals, meaning another round of clashes between free-marketeers and the guardians of community hospitals is coming.
For a few years this issue has simmered below the surface as each side engaged in a lobbying war to influence the Bush administration’s policy. Now that the hospitals are coming — the first ground-breaking is slated for this week in Fort Worth, Texas — so will the debates.
There are already more than 100 specialty hospitals around the country — about a third in Texas, the rest mostly in the South and West. They tend to be small and they tend to focus on a single or handful of types of care, such as cardiac care or orthopedics. Their supporters contend that specialization improves both the efficiency and the quality of care. Free-marketeers applaud them for the promise of more competition and choice. But critics argue that they siphon away the most lucrative, cost-offsetting patients upon whom community hospitals depend to stay afloat. Emergency rooms and other necessary operations are perpetually money-losers; hospitals need to recoup that money somehow, the argument goes.
The critics, prominently including the American Hospital Association, are also unhappy with the potential for conflicts of interest. Physicians with ownership stakes inevitably face conflicts between optimal care and optimal profit, and this, some charge, is a fatal flaw. The Centers for Medicare & Medical Services disagree, and tried to address the problem earlier this month by requiring hospitals to disclose their investment and compensation relationships with physicians as a means of increasing transparency. In addition, the agency warned that violations of federal law could occur for “disproportionate” returns on physician investments. But look for this debate question to recur, since these moves did not do much to placate critics.
Sen. Chuck Grassley, Iowa Republican, and Max Baucus, Montana Democrat, the chair and ranking member, respectively, of the Finance Committee which oversees the specialty-hospital rules, are the two key congressional critics in this debate. Both sought to extend the moratorium. Both are unhappy with the Medicare/Medicaid agency’s handling of the issue generally, not just with this month’s news but with what they take to be lax oversight of specialty hospitals generally.
But for now, specialty hospitals will have at least a few months and probably longer to grow in numbers and prove themselves. Their success would show that health care is not so radically distinct a segment of the economy that the normal laws of economics must be nullified completely.
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