Hospitals narrow their scope

“An entire hospital dedicated to fighting heart disease” goes the motto at Bakersfield Heart Hospital, a two-story red-and-beige building with a glass exterior that resembles a modern bus terminal more than a hospital.

Inside, the art-filled lobby gleams and the hospital hums with efficiency. There is a lot for patients to like here. The hospital’s 47 rooms -- all singles -- are spacious and decorated in calming tones. There are no visiting restrictions, so family and friends come and go as they please. Many spend the night in relative comfort on plush chairs that fold out into beds in each room.

A chef prepares food on par with some hotels (grilled Southwest chicken fajitas with stuffed tomato salad, anyone?), and meals are served room-service style. Patients may eat at nearly any time of day.

Sitting up in his hospital bed, Benny Bowman, a 53-year-old disabled sales clerk from Bakersfield, says his stay has been pleasant and better than his two trips to other local hospitals last year. To Bowman, who has congestive heart failure and arrived here with chest pains, his current doctors and nurses seem more knowledgeable about his heart condition than his previous doctors. He says he feels better. Another plus? “I like having my own shower,” he says.

Hospitals like this one, known as specialty or boutique hospitals, represent one of the fastest-growing trends in hospital care today. Such hospitals typically are small, with only a few dozen beds each, and focus on a single medical specialty.

Most focus on three specialties that increasingly are the most profitable for U.S. hospitals: cardiac care, orthopedics and general surgeries. Canada has an entire hospital dedicated to hernia surgeries.

Many have no emergency rooms and don’t offer other traditional hospital services, such as neonatal or burn centers. Almost all are partially owned by local doctors, who often direct their patients there for treatment.

They also are controversial. General hospitals, which often are nonprofits, accuse specialty hospitals of cherry-picking their most profitable patients. They warn that without them, especially heart and orthopedic patients, they will be forced to scale back money-losing but socially beneficial services such as emergency room or psychiatric care.

As part of reform legislation passed in November 2003, Congress set an 18th-month moratorium on construction of new specialty hospitals by blocking Medicare funding while it researches the issue. (Those already open are exempted.) Several general hospitals already bar doctors with a financial stake in competing hospitals from their medical staffs. Doctors in South Dakota and Ohio recently sued to regain their medical privileges at those hospitals, but they lost their cases. Several other lawsuits around the country are pending.

According to a recent report by the General Accounting Office, there are more than 90 specialty hospitals in the United States today, about three times the number just a decade ago. Developers have broken ground on two dozen more sites that are excluded from the recent moratorium. California has nine such hospitals, more than any other state.

Hospital experts say several factors are fueling the boutique hospital trend. A recent wave of hospital consolidation has diminished the bargaining clout of many doctors and given them less control over everything from their work schedules to patient care, they say.

By investing in hospitals, doctors are trying to make up income lost under managed care in recent years. (Federal law bars physicians from referring patients to any medical facilities in which they have a financial interest, but there is an exception for hospitals.)

Patients also seem to like the idea of doctors focusing on a specific area, and some believe it produces better results.

There is some evidence that that may be true. A small but growing body of research, including a large study published in the New England Journal of Medicine in 2002, indicates that doctors who perform a high volume of a single surgical procedure have better medical outcomes: fewer complications and fewer patient deaths.

“It’s like [18th century Scottish economist] Adam Smith said, specialization can lead to higher quality at lower costs,” says Lawrence Casalino, a physician and professor in the department of health studies at the University of Chicago. Casalino believes that the appeal of specialty hospitals has grown in recent years as reports about medical errors at hospitals have drawn the public’s attention.

Another reason for the growing trend: the federal Medicare system, which spends more than a $100 billion a year on in-patient hospital care, with its oft-criticized and outdated hospital payment system. By reimbursing more money for some procedures and less for others, it has left room for specialty hospitals to enter the market and make money quickly, experts say.

In 1983, Medicare began reimbursing hospitals on a fixed set of rates set by Congress rather than by the older model of simply paying costs. Over time, however, Medicare has reimbursed more for high-tech medical procedures, such as complicated cardiac or orthopedic surgeries, than it has for other services, such as emergency care. By some estimates, specialties such as cardiac services can account for up to 35% of profits at some hospitals.

As a result, many hospitals must subsidize the costs of treating an uninsured patient injured in a car accident, for example, with lucrative procedures such as heart surgeries. “It’s simple arbitrage,” says Stuart Altman, a health economist at Brandeis University in Massachusetts.

Most specialty facilities are concentrated in a handful of states that don’t require prior state approval before building a new hospital, a requirement known as a “certificate of need.” According to the GAO, two-thirds of all specialty hospitals are in seven states: Oklahoma, Kansas, Tennessee, Louisiana, Texas, Arizona and California. Many are in rural areas or fast-growing cities that lack competition from large urban hospitals or teaching hospitals with strong reputations.

Critics say there may be more at stake than snazzier hospital amenities and happier physicians. Some doctors worry that specialty hospitals are inadequately prepared for the inevitable medical emergencies. “What if someone has a stroke during heart surgery?” asks Dr. Mitchell T. Rabkin, former chief executive of Beth Israel Hospital in Boston and a professor at Harvard Medical School. “Are they prepared to treat them there or do they have to transfer the patient and lose valuable time?” (An executive with the Fresno Heart Hospital said that if a patient arrives with an emergency at the facility, “we call 911.”)

Others warn about potential conflicts of interest that could arise when doctors send patients to facilities in which they have a financial interest. Some doctors disclose their ownership in a facility before sending patients there, while others do not.

The biggest concern -- at least among many hospital executives -- is how they will survive amid all the new and, they say, unfair competition. Some general hospitals have already begun cutting some unprofitable services.

Carmela Coyle, senior vice president for policy at the American Hospital Assn., which represents more than 5,000 general hospitals and medical providers, says hospitals in Indianapolis, Oklahoma City and other cities have recently scaled back services like psychiatric care and reduced the number of physicians on call to make up for revenue lost to new specialty hospitals. What makes the competition unfair, she says, is that specialty hospitals get to choose whom to treat.

The reason: Specialty hospitals don’t have emergency rooms and therefore aren’t required to accept all patients who come to their doors, as general hospitals are required to do under federal law. That means most specialty hospitals don’t accept Medicaid patients or the uninsured and that ultimately the poorest and costliest patients may not have access to their care. Treating patients differently “tears at the traditional fabric of what hospitals do and the public good they provide,” says Coyle.

General hospitals also accuse doctors who invest in specialty hospitals of sending more costly patients to competing hospitals and healthier ones to their own facilities. For instance, what is to stop a doctor from sending a healthier -- and probably less costly -- angioplasty patient to a hospital in which he or she has a financial stake, while referring an older, sicker patient to another hospital?

Specialty hospital executives are adamant that their doctors have no conflicts of interest, nor do their doctors direct costlier patients to competing hospitals. Still, many acknowledge that there are few safeguards to guarantee it doesn’t happen. A separate GAO report last spring found that specialty hospitals treat a lower percentage of severely ill patients than general hospitals.

It remains unclear if and what reform Congress may set at the end of its 18-month deadline, but many anticipate more regulation. Already, researchers in the field are suspicious that the time frame is too short for compiling convincing evidence on the issue.

Says Altman of Brandeis: “It’s hard not to imagine that what they do will be more about politics than about what’s really happening here.”