implications for washington state specialty hospitals revised december 2005 introduction specialty hospitals specialize in providing the most profitable health services specialty hospitals divert the revenue streams most important to the financial viability of full-service community general hospitals loss of those revenues severely damages the ability of general hospitals to provide the broad range of services communities expect from their hospitals including emergency departments mental health services educational programs and care for the uninsured specialty hospitals became a real issue of concern for general acute care hospitals in washington state early in 2003 when a group of orthopedic physicians in tacoma announced their intent to build an orthopedic hospital until that time specialty hospitals were only a national phenomenon written about in health care literature lawmakers around the country are grappling with the issue of specialty hospitals since march 2003 many studies and
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what is a specialty hospital a specialty hospital sometimes known as a boutique or niche hospital has the following characteristics · · treats patients of a single specialty most commonly cardiology cancer orthopedics or other profitable areas has a small number of inpatient beds an average of 21 beds for cardiac hospitals and 16 beds for orthopedic hospitals1 enabling treatment of patients too complicated for an ambulatory surgery center but not so ill as to require rehabilitation or intensive care usually has no emergency department operates for a profit usually by a national company with local physician specialist co-owners has its own state-issued license · · · long-term acute care psychiatric rehabilitation and children s hospitals defined in federal regulations 42 cfr 412.23 are not considered specialty hospitals even though they have some of the same characteristics as specialty hospitals such hospitals are recognized by the federal government and medicare for their unique a
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why are there specialty hospitals · there appear to be four main reasons for the creation of specialty hospitals historically high payment for some procedures for many years the fixed diagnosis or procedure code payment formulas for cardiology cancer and orthopedic patients have been among the highest profit services for hospitals and physicians there are a number of possible explanations for these higher payments one may be the recognition of specialists higher training and procedural skills a second may be an out-of-date payment level that does not account for improvements in technology and productivity.2 profit margins are estimated to be 20 to 30 percent for procedures typically performed in specialty hospitals creating an incentive for physician specialists and national investors to finance specialty hospitals.3 specialty hospitals capture these high profit services removing them from community hospitals the 20 to 30 percent specialty margin is in contrast to the overall average
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states that 21 of the 25 specialty hospitals it surveyed treated lower percentage of patients who were severely ill relative to patients in the same diagnosis categories treated at general hospitals in the same urban areas 5 the medicare payment advisory commission made the same observations in march 2005 the sicker patients are referred to general acute care hospitals for treatment · specialty hospitals have unfair financial advantages by tak a figure 2 median percentage of severely ill patients treated in specialty hospitals and general hospitals by specialty hospital category percentage of severely ill patients specialty hospital category specialty hospitals source u.s general accounting office april 18 2003 general hospitals in urban areas with specialty hospitals ing less sick patients specialty hospitals can exploit hospitals diagnosis-based diagnosis related groups and physicians procedure-based methods of payment payment for a specific diagnosis or procedure is fixed based o
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· no emergency department means fewer uninsured patients most specialty hospitals around the country do not have emergency departments without an emergency department the hospital is not readily accessible to patients who are not referred by the physician owners of the hospital a hospital that does not have an emergency department is not subject to the federal emergency medical treatment and labor act emtala that requires hospitals to provide care to patients regardless of their ability food bank clients waiting in line patients to pay.6 as a result physicians can limit referrals to their own hospital to well-insuredin seattle wa and take far fewer no pay or slow pay and medicaid patients.7 this leaves the vast majority of uninsured or underinsured patients to be cared for by established general acute care hospitals many specialty hospitals are hospitals in name only in those states where specialty hospitals are operating a centers for medicare medicaid services sample of specialty
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why is legislation required current laws are inadequate to address the issues posed by specialty hospitals and their potential adverse impact on the delivery of hospital care · certificate of need con does not address specialty hospitals establishing a new hospital including a specialty hospital requires complying with the state department of health s con process that process was not designed to address the specific issues raised by specialty hospitals congress and the washington state legislature created con in the early 1970 s as a medicare cost-containment vehicle resting largely on judgments about service need and financial feasibility con is inadequate to measure such matters as self-referral conflict of interest payment inequities financial harm to other hospitals and transfer agreements federal and state legislation national legislation signed in december 2003 imposed a moratorium on the addition of new specialty hospitals and authorized two federal studies the studies underscor
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footnotes 1 u s general accounting office specialty hospitals information on national market share physician ownership and patients served april 18 2003 page 8 center for studying health system change specialty hospitals focused factories or cream skimmers presentation by paul ginsburg and mark miller draft conference transcript april 15 2003 page 44 center for studying health system change specialty hospitals focused factories or cream skimmers presentation by gary taylor principal of equity research bank of america securities draft conference transcript april 15 2003 page 16 center for studying health system change specialty hospitals focused factories or cream skimmers presentations by kelly devers ph.d and gary taylor principal of equity research bank of america securities draft conference transcript april 15 2003 pages 4 and 31 u.s general accounting office specialty hospitals information on national market share physician ownership and patients served april 18 2003 page
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for more information contact robb menaul senior vice president washington state hospital association 206 216-2514 robbm@wsha.org washington state hospital association 300 elliott avenue west suite 300 seattle wa 98119-4118 phone 206 281-7211 fax 206 283-6122 www.wsha.org
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