Specialty Services == The New Battleground between Doctors and Hospitals

The Center for Studying Health System Change has published a study in the journal Health Affairs titled “Specialty-Service Lines: Salvos in the New Medical Arms Race.” The study postulates that during the 1990s hospitals competed primarily based on price due to the strict utilization controls and risk contracting imposed by health plans. The consumer backlash against those controls caused health plans to revert more or less to a fee for service environment in this decade.

The study observes that

In some ways, the first decade of the twenty-first century has seen a reemergence of hospital and physician interactions that were dominant prior to the managed care era, when hospitals competed for physicians’ loyalty by building the best facilities and obtaining the most up-to-date technologies. Contrary to mainstream economic theory, hospitals in more competitive environments had higher costs per case and per day than those in less competitive environments, when other factors were controlled for.

Although public policy attention has focused on specialty services provided by physician-owned specialty hospitals, resulting in a temporary federal moratorium on these facilities, the phenomenon of specialty services is a more pervasive development. Moreover, the rapid expansion of physician-owned ambulatory diagnostic and treatment facilities is threatening hospitals’ hegemony over a number of service lines. Aware of the threat posed by specialist physicians’ ability to raise capital on their own, some hospitals have established joint ventures with physicians, primarily as a defensive move. In short, while hospitals find a competitive need to promote a service-line orientation, an approach that requires the committed participation of key physicians, at the same time they often face growing competition from physician-owned service lines [in cancer treatment, cardiac care, orthopedic care, etc.].

The study concludes

Based on our interviews, hospitals associate some of their recent financial success to the use of service-line strategies. Hospitals still have sufficient control over many profitable service lines and continued contracting leverage with managed care plans, such that rate increases from private health plans make up for losses of business to competing hospitals and physician-owned ambulatory facilities. However, as more care moves to physician-owned ambulatory sites of service through gene therapy, robotic surgery, and other “disruptive technologies,” the role of the hospital in the health care system could change markedly.

Whether health care delivery is controlled by hospitals, physicians, or joint ventures between the two, one thing is certain: It is increasingly organized through specialty-service lines, which are already leading to early signs of increasing health care costs and having as-yet-unquantified effects on the quality of care. These salvos in the new medical arms race bear monitoring as the century unfolds.

This study is worth a read at the beach.