Abstract
The U.S. hospital industry has recently witnessed a number of policy changes aimed at aligning hospital payments to costs and these can be traced to significant concerns regarding selection of profitable patients and procedures by physician-owned specialty hospitals. The policy responses to specialty hospitals have alternated between payment system reforms and outright moratoriums on hospital operations including one in the recently enacted Affordable Care Act. A key issue is whether physician-owned specialty hospitals pose financial strain on the larger group of general hospitals through cream-skimming of profitable patients, yet there is no study that conducts a systematic analysis relating such selection behavior by physician-owners to financial impacts within hospital markets. The current paper takes into account heterogeneity in specialty hospital behavior and finds some evidence of their adverse impact on profit margins of competitor hospitals, especially for-profit hospitals. There is also some evidence of hospital consolidation in response to competitive pressures by specialty hospitals. Overall, these findings underline the importance of the payment reforms aimed at correcting distortions in the reimbursement system that generate incentives for risk-selection among providers groups. The identification techniques will also inform empirical analysis on future data testing the efficacy of these payment reforms.
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Notes
A bill passed in December 2011 in the U.S. house of representatives offered relief to hospitals that were already under construction.
According to an Office of Inspector General study, only half of specialty hospitals had emergency departments in 2006 and among those, the number of beds varied considerably (http://oig.hhs.gov/oei/reports/oei-02-06-00310.pdf).
As explained below, the analysis examining the effect of entry on financial margins is restricted to hospitals in Texas due to availability of relevant data.
As explained in Bertrand et al. (2004), since entry occurs in different points of time, the “pre” and “post” are no longer the same for each entry county and not even defined for non-entry counties.
p values are 0.07 and 0.05 respectively.
This difference is not statistically significant.
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Acknowledgments
I am grateful to Marty Gaynor, Bill Vogt, John Bowblis, Yaa Akosa Antwi, Derek DeLia and Yunfeng Shi for valuable comments on previous versions of this paper.
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Chakravarty, S. Much ado about nothing? The financial impact of physician-owned specialty hospitals. Int J Health Econ Manag. 16, 103–131 (2016). https://doi.org/10.1007/s10754-015-9181-1
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DOI: https://doi.org/10.1007/s10754-015-9181-1