Eyes of Medicine Are on Specialty Hospitals : Health Boon or Marketing Gimmick?

For 18 years, the Los Alamitos Medical Center, like other general care hospitals, has stood as an all-purpose answer to most of its community’s medical needs--treating everything from cancer to hernias.

But next year, the company that owns the medical center, Los Angeles-based National Medical Enterprises, will open an unusual new competitor next door: a $7.2-million, 142-bed hospital that treats only Alzheimer’s disease.

Taking a cue from the nation’s 500,000 doctors who have splintered into 81 medical practice specialties in the last century, National Medical Enterprises and other hospital chains are launching a controversial trend in health care by opening hospitals that treat only one ailment or type of patient.

“Significant developments in the nation’s health-care marketplace have compelled us to shift our emphasis from acute care to specialty hospitals and long-term care,” NME Chairman Richard K. Eamer told the company’s annual shareholders meeting in October. “These (specialty) markets . . . represent areas of tremendous potential growth for NME.”

With industry and government cost-cutting measures siphoning away patients and profits from traditional hospitals, chains are opening hospitals specializing in such areas as sports medicine, tuberculosis, AIDS, eye surgery, Alzheimer’s disease, physical rehabilitation and the care of women.

Though the estimated 700 specialty hospitals make up only 11% of the nation’s 6,000 hospitals, according to the Chicago-based American Hospital Assn., experts say they are fast becoming a popular new alternative in the increasingly competitive $426-billion-a-year health-care market, which has seen the average hospital occupancy rate decline to about 65% from 76% in 1980, according to the AHA.

“Specialty hospitals are a real growth area,” said James D. Houy, group vice president of the American Hospital Assn. “Hospitals and health care in general are becoming more market and consumer driven. It used to be the hospital (that) decided what was best for people, now consumers are sort of in the driver’s seat.”

Free-standing specialty hospitals are unlike smaller enterprises such as Humana’s Heart Institute in Louisville, Ky., and other special centers, which may have their own names but basically are part of larger general medical centers. The specialty hospitals typically are independent operations, often with 75 or more beds.

Specialty hospitals promise that they can focus greater attention and resources on treating certain medical problems. And by treating only one kind of patient, proponents say, they are in a position to gather a wealth of medical data that could help researchers find better and less expensive care.

“To (be) totally dedicated to specialized surgery is a much more desirable way of operating,” said Gordon Smith, executive director of American Assn. of Eye and Ear Hospitals in Birmingham, Ala.

Eye hospitals were among the first specialized facilities, and they are seeing a new spurt of growth. Smith said the number of free-standing eye hospitals had remained at about 10 for nearly a decade. But interest has picked up, and Smith said he knows of three new eye hospitals expected to open in the next year.

Critics, however, call specialty hospitals an expensive marketing gimmick, in which the cost of care can outstrip treatment in a general hospital. They also say that some specialty hospitals potentially could put patients at medical risk because such hospitals are unprepared to deal with a broad range of illnesses.

“A specialty hospital is not equipped to deal with anything but its specialty,” said Arnold S. Realman, editor of the New England Journal of Medicine and a medical professor at Harvard University.

“Unfortunately, that’s not the way sickness comes--discretely wrapped up in neat packages,” Realman continued. “I wouldn’t want my wife to be taken care of in a women’s hospital, for instance. As a physician I know that gynecological problems can spread to other parts of her body.”

While the emergence of specialty hospitals has stirred controversy, they are not new.

Tuberculosis hospitals were common between World War I and II and eye hospitals have been around since the 19th Century, according to Rosemary Stevens, a professor of history at the University of Pennsylvania, who has written several books on American medicine.

The newest specialty hospitals, however, have sprouted in response to government rules that set less stringent limits on reimbursements for certain types of specialty care--such as physical rehabilitation and long-term care. They also are capitalizing on increased public awareness about health care and the propensity of some groups--women, for example--to enter the hospital more frequently than men.

Respond to Needs

In response to the big rise in AIDS cases, for example, Beverly Hills-based American Medical International opened a 140-bed AIDS hospital in Houston in September. A growing elderly population prompted AMI to plan a 102-bed hospital for arthritis patients in Encino. Scheduled to open in early December, the facility will have a large swimming pool and other therapeutic exercise facilities to help treat arthritis sufferers.

Louisville-based Humana Inc. has women’s hospitals in San Antonio, Tampa, Fla., and Indianapolis that offer special treatment in areas such as obstetrics and gynecology.

The nation’s largest hospital chain, Hospital Corp. of America, has three speciality facilities: two women’s hospitals and the Hughston Sport Medicine Hospital in Columbus, Ga., which specializes in treating athletic injuries.

In addition to its Alzheimer’s facility, NME opened a $26-million rehabilitation hospital in Dallas in September, 1985, to treat patients with spinal cord and head injuries, strokes, amputations and arthritis.

By the end of its current fiscal year, which ends May 31, 1987, NME expects to invest about 70% of its $450-million capital spending budget on acquisition and new construction of specialized hospitals.

“I think specialization is the way of the future,” said Edward J. Mullen, a former hospital administrator for Hospital Corp. of America who now works for the Pasadena health-care consulting firm Brighton Consulting Group. “We get a large number of calls from people interested in developing their own specialty hospital.”

Easier to Sell

A large part of the appeal of such hospitals is the ease with which they can market their services.

Unlike general acute-care hospitals, which are largely dependent on physician referrals, specialty hospitals can allay themselves with groups that serve the population they treat such as women, sports programs or foundations that fight specific diseases. One is the John Douglas French Foundation for Alzheimer’s Disease, a Los Angeles-based nonprofit group that has lent its name and support to NME’s Alzheimer’s hospital.

In such a manner, specialty hospitals can concentrate on the most lucrative medical markets.

The emergence of women’s hospitals, for example, stems from the fact that women are admitted to the hospital more frequently than men, experts say. Even factoring out the number of admissions for childbirth, female admissions are about 15% higher than the number of male admissions, according to the National Center for Health Statistics.

In addition, more women have gained the financial wherewithal to make choices about their medical care. Women have flooded the job market, taking two-thirds of the jobs created since 1974, according to the Labor Department.

Similarly, AMI’s AIDS hospital is aimed at a potentially huge number of AIDS cases that are expected to emerge. The federal Public Health Service predicts that AIDS will increase more than 10-fold in the next four years, striking 270,000 people by 1990.

On the other hand, more liberal government and private insurance reimbursement policies explain the growth of specialty psychiatric and long-term care hospitals such as NME’s Alzheimer’s facility.

Unaffected by Reforms

Largely unaffected by federal reforms imposed on other health-care providers to control escalating insurance reimbursement costs and unburdened by high capital expenses, psychiatric and long-term care hospitals have long been among health care’s most lucrative enterprises.

Although experts say they are not aware of any major studies that have compared the cost of speciality hospitals to acute-care hospitals, the federal government’s Medicare program provides some evidence that specialty hospitals may be more expensive.

The average cost of treating Medicare patients in free-standing psychiatric hospitals is $7,814, compared to $5,132 for care in the psychiatric unit of a general acute-care hospital, said Carl Taube, director applied science at the National Institute of Mental Health in suburban Washington.

Taube said the price difference may reflect the fact that psychiatric-only hospitals “are picking up more sicker patients who require more longer-term care”--a claim made also by some specialty hospital officials.

Paul Hensler, administrator of Estelle Doheny Eye Hospital in Los Angeles, a nonprofit, 35-bed specialty facility that opened last year, admits that the average cost per patient is higher than at general care facilities despite the fact that the hospital “doesn’t have to maintain a lot of the very expensive equipment and services (that) a full-service hospital has.”

But he added: “The nature of our practice here is tertiary. Our patients are much sicker and our cases much more complex.”

However, many health-care experts doubt whether specialty hospitals offer significant cost advantages, arguing that specialty hospitals must spend more on marketing to attract patients. In addition, they say, such hospitals often have higher labor costs due to the higher percentage of specialists and technicians.

“I’d be skeptical that there are many economies of scale” in specialty hospitals, said Joseph P. Newhouse, a health-care economist and senior fellow at Rand Corp. in Santa Monica. “My guess is that they are probably more expensive than a general hospital.”

Adds Dr. Sidney M. Wolfe, director of Public Science Health Research Group in Washington: “Without question, the cost is higher.” Specialty hospitals, he added, are “just a marketing strategy . . . to fill the glut of hospital beds.”

Despite the criticism, specialty hospitals seem to be a hit with some consumers.

When Atlanta Hawks basketball center Wayne (Tree) Rollins injured his knee last year, for instance, he didn’t check into a local hospital. Instead, he traveled more than 100 miles to the 100-bed Hughston Sports Medicine Hospital in Columbus, Ga., to be treated by sports medicine pioneer Dr. Jack Hughston.

“I guess it seems kind of strange that a hospital like that would be in a small town like Columbus,” Rollins said in an interview. “But we researched the whole thing and found that Hughston Hospital was the best place. It has treated so many other athletes.”

Rollins said Dr. Hughston was able to diagnose and repair his knee injury almost immediately. He said the injury had confounded other orthopedic specialists and had bothered him for months.

“It was amazing, Dr. Hughston came in and examined my knee and told me right away what the problem was,” Rollins said.

Likewise, officials at AMI say their speciality hospitals are so well respected that patients have come from as far away as Europe and South America.

“What makes it work is not the name but the . . . physicians that work there,” said Jeffrey Simmons, chief marketing officer for AMI’s California region. Simmons says AMI recruits well-known specialists to head its specialty hospitals. Such doctors, he said. “attract patients and bring other good doctors with them.”

Still an Open Question

Medical historian Rosemary Stevens, says the “jury is still out” on the viability of specialty hospitals.

But at least one hospital administrator, whose facility has shunned the single specialty approach in favor of treating several critical ailments, believes the interest in specialty hospitals will soon wane.

“There’s not enough demand out there” to focus on treating one specific thing, said M. Marc Goldberg, chief executive of Sherman Oaks Community Hospital, which has a nationally renowned burn center, a new AIDS unit and a cancer wing. “I think the single specialty facilities--excluding the children’s hospitals and psychiatric facilities--may be just a fad.”