General Hospitals, Speciality Hospitals and Financially Vulnerable Patients

General Hospitals, Specialty Hospitals and Financially Vulnerable Patients

Research Brief No. 11 | April 23, 2009 | Contact: Alwyn Cassil, (202) 264-3484

The rapid growth of specialty hospitals focused on profitable service lines like cardiac and orthopedic care raised widespread concern about the financial wellbeing of general hospitals. Critics argued that specialty facilities selectively attracted less complex, better-insured patients -- leaving general hospitals to care for a sicker, costlier patient population with fewer resources to cross-subsidize unprofitable services and uncompensated care. A study by the Center for Studying Health System Change examined how general hospitals actually responded to specialty hospital competition in three markets: Indianapolis, Phoenix and Little Rock, Arkansas.

Study Design and Markets Examined

The research team, led by Peter Cram, M.D. of the University of Iowa under a Robert Wood Johnson Foundation Physician Faculty Scholars Program grant, conducted 43 semi-structured interviews between March and June 2008. Respondents represented hospitals, physician practices, community health centers, emergency medical services, medical societies, hospital associations and state regulatory agencies. While the three study markets were not nationally representative and specialty hospitals still accounted for a relatively small share of overall inpatient care in those communities, their experiences offered useful insight into the range of general hospital responses to specialty competition.

Competition for Staff and Emergency Coverage

General hospitals felt the impact of specialty hospital competition most acutely in recruiting and retaining physicians and other clinical staff, and in maintaining adequate emergency department on-call coverage. When specialist physicians left for specialty hospitals, general facilities responded by employing specialists directly or structuring contractual arrangements that encouraged physicians practicing at multiple sites to concentrate their work at a particular general hospital. These strategies also helped general hospitals recover from early volume losses to specialty competitors.

Patient Acuity and Cream Skimming

Contrary to what many critics expected, respondents at general and safety net hospitals generally did not observe specialty hospitals selectively taking less complicated, lower-risk patients. Some general hospital leaders in Little Rock and Phoenix reported seeing higher patient acuity after specialty hospitals entered their markets, but could not definitively attribute this shift to specialty hospital competition specifically. The findings suggested that concerns about systematic cream skimming were not borne out in these three communities.

Changes in Payer Mix

Several general and safety net hospitals did report serving greater numbers of financially vulnerable patients over time. In isolated cases, hospitals linked these payer mix shifts to the loss of commercially insured patients to specialty competitors. More frequently, however, respondents attributed changes in their payer mix to a broader increase in the uninsured population across their respective markets -- a trend driven by economic conditions rather than specialty hospital competition.

Overall Impact on Vulnerable Populations

Despite initial challenges around staffing, call coverage and volume, general hospitals across the three study markets were largely able to maintain their care for financially vulnerable patients without significant disruption. General hospitals proved more likely than safety net facilities to feel competitive pressure from specialty hospitals, but both types of institutions managed to continue serving their patient populations. The study's findings suggested that while specialty hospital competition created real operational challenges, the feared erosion of care for vulnerable populations had not materialized in the markets studied.

Sources and Further Reading

This study was published as HSC Research Brief No. 11 and coauthored by Peter Cram, M.D.; Ann Tynan, M.P.H.; Elizabeth November, J.D.; Johanna Lauer; and Hoangmai H. Pham, M.D. The Center for Studying Health System Change was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.