Do Specialty Hospitals Promote Price Competition?

Originally published by the Center for Studying Health System Change (HSC), 2006.

Do Specialty Hospitals Promote or Undermine Price Competition?

The growth of physician-owned specialty hospitals, which focused on profitable service lines like cardiac surgery and orthopedics, raised questions about the impact on price competition in health care markets. HSC research examined whether specialty hospitals promoted competition that could benefit consumers through lower prices and better service, or whether they undermined the financial viability of general hospitals by siphoning off the most profitable patients and services.

Proponents argued that specialty hospitals introduced competitive pressure that could drive general hospitals to improve quality and efficiency in the targeted service lines. Critics contended that specialty hospitals selected healthier, better-insured patients, leaving general hospitals with a sicker, less profitable patient mix and undermining the cross-subsidization that allowed general hospitals to maintain less profitable but essential services like emergency departments, trauma centers, and burn units. The research found that the competitive effects of specialty hospitals were complex and context-dependent, varying based on local market conditions, the specific services involved, and the regulatory environment.

Sources and Further Reading

Center for Studying Health System Change, "Do Specialty Hospitals Promote Price Competition?" (2006).