Too POSH for the public: Are physician-owned hospitals a drain on emergency care? (part II)
Article Outline
- More heat than light
- “Cream skimming”?
- Between data and policy falls the shadow
- POSH as a brain drain
- Pictures from 2 institutions: Baylor-Frisco and Gilbert
- Canaries in the Gemeinschaft
- Notes
- Further References
The emergency departments (EDs) of full-service community hospitals have long been operating under financial duress, but the evidence to date doesn’t prove that physician-owned specialty hospitals (POSH) are the culprits.
Familiar factors pummel the community hospital’s bottom line: tight Medicare-driven payment schedules, uncompensated care, and the unfunded mandates of the Emergency Medical Treatment and Active Labor Act (EMTALA). The recent rise of POSH, according to some economists, spokespersons for community hospitals, and public officials, has intensified these pressures.
(Part I of this article, in the July issue, provides background and comments on this controversy.)
However, congressionally mandated studies seem to cut both ways, appearing to convict POSH on the charge of “cherry-picking” more profitable cases but not proving financial harm to community hospitals.
The General Accounting Office (GAO) released a two-part report in 20031, 2 that laid initial groundwork but largely left key issues for future inquiry. A subsequent GAO study released in April 2006 (after that organization’s name change to the Government Accountability Office) reinforces the view that POSH have not yet had substantial impact on general hospitals’ well-being.3 Reviewing 401 general hospitals’ responses to competition by specialty hospitals and other institutions, this survey found nothing to support either the contention that POSH represent a unique threat or the converse argument that their competitive pressure stimulates general hospitals to improve the quality and efficiency of care.
More heat than light
Observers of the debate looked to studies by the Medicare Payment Advisory Commission (MedPAC)4 and the Centers for Medicare and Medicaid Services (CMS)5 to shed light where there was already heat.
These 2 studies were designed to be complementary, with MedPAC focusing on effects that are measurable in financial terms and CMS analyzing patterns of care. The MedPAC investigation had 4 aims: 1) Establish whether certain diagnosis-related groups (DRGs) that disproportionately attract POSH were more profitable than others; 2) Investigate whether, within those DRGs, the POSH selected patients whose conditions were less severe and thus more profitable; 3) Show whether POSH incurred higher or lower actual costs in treating Medicare patients; and 4) Study whether POSH were unnecessarily increasing per capita utilization of lucrative procedures in their local markets. The CMS study was five-fold: 1) Establish the proportion of patients admitted to POSH who were referred by physician-owners; 2) Examine those physician-owners’ referral patterns, including admissions to their own facilities and to other hospitals; 3) Investigate the quality of care in POSH and in full-service hospitals for similar conditions; 4) Quantify patient satisfaction with care provided by the two hospital types; and 5) Study differences in how the hospitals shoulder community burdens, including uncompensated care and taxes.
“Cream skimming”?
The 2 reports, says economist Stuart Guterman, senior program director of the Commonwealth Fund’s Program on Medicare’s Future (and former CMS official), should be interpreted together. “The bottom line” from MedPAC, he says, “was that specialty hospitals were indeed skimming.”
MedPAC undermined certain pro-POSH arguments, finding that claims of superior economic efficiency in these facilities did not hold up when costs per discharge were adjusted for case mix (POSH patients, unsurprisingly, had shorter lengths of stay). Profits for physician-owners could be considerable, and higher returns accompanied selection not only by severity but by payer: POSH treated fewer Medicaid patients than community hospitals did, with cardiac hospitals primarily handling Medicare and orthopedic and surgical hospitals taking more private insurance.
However, whether these differences have actually harmed community hospitals in areas with POSH competition remains unproven. MedPAC’s report acknowledges the limits of its sample size and the early developmental stage of the industry; effects beyond the study’s 2-year period may appear in follow-up investigations.
CMS found that physician-owners referred the most Medicare patients to their POSH, but patterns were not clear-cut: the physician-owners also referred patients to other hospitals, and they were not the only physicians making referrals to these POSH. Quality of care and patient satisfaction were both high in POSH; there were no allegations of deficient care. While these institutions provided little uncompensated care, the CMS analysis factored in their property, real estate, income, and sales taxes, leading to a conclusion that these combined community contributions by POSH outweighed the uncompensated care provided by full-service hospitals.
Guterman regards the issue of tax payments as a red herring. In an influential article in Health Affairs,6 he observes that comparing the taxes paid by a for-profit organization with the value of social services provided by a tax-exempt one is biased against the latter (noting that Donald Trump’s taxes, by this yardstick, would outweigh Mother Teresa’s works).
Between data and policy falls the shadow
Proponents of POSH have welcomed some of these findings, downplaying selectivity and emphasizing the absence of economically measurable harm. Spokesperson Molly Gutierrez, JD, of the American Surgical Hospital Association, claims that MedPAC refutes the critique that POSH drain essential resources away from community hospitals. She describes their presence as an indirect boon to general hospitals in the form of a local recruitment magnet. Gutierrez attributes her institutions’ low proportion of Medicaid cases largely to factors such as suburban locations and patient age, particularly in sports-oriented orthopedic hospitals.
Others interpret the studies less charitably. Georgetown’s Jean Mitchell, PhD, describes the MedPAC cherry-picking patterns as unmistakable and is not convinced the study’s financial measurements tell the full story. “I think you’ve got to look at this over the longer term; a 2-year period is probably too short to demonstrate whether there’s an impact.” Statistical re-analysis of MedPAC’s data on cardiac procedures, as well as Mitchell’s own trend analysis on spine procedures—both unpublished at this writing—also suggests that the ownership variable independently raises utilization rates through self-referral. Mitchell minces no words about POSH: “They’re cash cows.”
Susan Nedza, MD, MBA, an emergency physician and chief medical officer for CMS’s Chicago regional office, notes that MedPAC’s report confirms that the POSH compete by taking market share from community hospitals. The lack of financial impact may simply indicate that there are “plenty of people to go around,” or perhaps that POSH are rarely large enough to exert much effect. “If you look at emergency departments as diagnostic and treatment centers,” she says, “I think they’re more affected by primary care access and primary care practice patterns than they are anything to do with specialty hospitals.”
As a CMS official, Dr. Nedza refrains from commenting on the studies’ implications. “There’s certainly research to support both viewpoints” on cherry-picking, she says. “The definitive head-to-head scientific study has not really been done.” She does find it plausible that specialist drain has an indirect effect on emergency care.
POSH as a brain drain
When a hospital loses “individuals [who] bring in significant amounts of revenue through surgical procedures… it leaves the hospital with fewer resources and sicker patients who are not as financially lucrative. You end up seeing fewer resources available for using the surgical dollars to support the Medicare beneficiaries’ pneumonia,” said Nedza.
MedPAC’s policy recommendations include extending the moratorium for another 18 months, refining payment accuracy both within and across DRGs, and allowing regulated “gain sharing” between hospitals and physicians. Nedza also reports that CMS policy recommendations are beginning to follow from the studies. The Inpatient Prospective Payment System rules published on April 12, 2006, require specialty hospitals (with or without an ED) to accept appropriate transfers, a recommendation of the CMS EMTALA Technical Advisory Group,7 along with moving toward equalizing payment on certain procedures. “We’re moving to a system where DRGs are going to be adjusted for severity of illness… which takes away financial incentive for specialty hospitals to cherry-pick. We’re going to go for more accurate payment and reduce incentives for treating only the most profitable patients, so you see payment policy moving back in the direction of rewarding institutions for the more expensive patient care.” These changes, she hopes, will help level the playing field without closing down POSH or sending a message that they “aren’t real hospitals.”
Pictures from 2 institutions: Baylor-Frisco and Gilbert
Every major study has stressed the diversity of the specialty hospitals; community hospitals take equally wide-ranging forms and scales. Two institutions in the southwestern “POSH belt”—one specialty hospital and one new facility that might be described as an acute-care hospital with specialist tendencies—illustrate ways real hospitals can adapt to today’s practice environment by leveraging the strengths of specialization.
If an actually existing POSH could correspond to the idealized portrait drawn by ASHA’s Gutierrez, it might resemble Baylor Medical Center of Frisco (near north Dallas), where anesthesiologist Jim LaFerney, MD, practices. Dr. LaFerney is justifiably proud of “his grandbaby”: founded in 2002 by a group of senior physicians seeking greater efficiency and autonomy, Baylor-Frisco has rapidly expanded its staff, performed well in controlling complications (including a postoperative infection rate 10-fold lower than those of its competitors nationwide), and scored high in surveys of patient and staff satisfaction.
Some of the motivation for launching a surgical POSH involved the drop in specialist reimbursements dating from the mid-1990s. “If the fee for [procedures] is decreasing and overhead’s increasing,” LaFerney says, “I’ve got to do more cases, so I’ve got to be very efficient. I can’t go into a hospital setting where it takes me 35 to 45 minutes to do the operation and then have to wait another hour before I can get to the next case. I want to be able to do 10- to 15-minute turnover time.”
Baylor-Frisco has hotel-like accommodations, fast operating-room bookings and turnover, an incentive program rewarding staff for cost-saving ideas, and high staff loyalty, even amid a regional nursing shortage reflected in serial signing bonuses and constant one-year turnover.
In response to the cherry-picking critique, LaFerney likens small specialty facilities to community hospitals in remote areas. “If I have a head-on collision and possibly have a ruptured aorta, I’d love to have a chest surgeon in that emergency room waiting for me. Well, only a few trauma centers in the entire state have that.… As long as you certify that you’re doing everything according to what everybody would agree is stabilizing care, what does it matter whether you’re a specialty hospital or the hospital in Seymour, Texas? …We get a lot of arrows about that: ‘You guys can’t take care of trauma patients.’ Well, maybe we don’t need to.”
Arizona’s 4-month-old Gilbert Hospital, located in Phoenix’s fast-growing East Valley, has already attracted nationwide attention. It is licensed as an acute-care general hospital but is often misleadingly described as a specialty hospital. The appellation POSH is inaccurate, but Gilbert has physician investors and does, in a sense, specialize: it positions itself as a center of excellence in emergency medicine.
While practicing elsewhere in the region, founder and medical director Tim Johns, MD, and his colleagues observed that demographic growth had contributed to unacceptable crowding and ambulance diversion, unrelieved by new hospital construction. Gilbert’s priority is to cut the organizational gridlock that keeps patients waiting; its watchword, says Dr. Johns, is “door to doc in 31 minutes.”
With 8- to 24-hour delays common, and leaving-without-treatment rates reaching 20% some days among competitors, how does Gilbert do what it does? Part of the answer is to avoid isolating itself. Gilbert views the whole region as an integrated system and keeps tabs on system-wide capacity. Instead of holding patients in an ED until an inpatient bed opens up within the same institution—one reason some hospitals have all beds full, and a log-jammed ED, while others a few miles away are half empty—Gilbert rapidly transfers 5.8% of its patients to neighboring institutions (both full-service and specialty hospitals), wherever capacity is available and specialty strengths match the patient’s needs.
“A lot of folks thought that we were something that we’re not, that we were exploiting some loophole,” Johns recalls. Its proportions differ from the norm by design, but Gilbert, despite skeptics’ suspicions, is much more than a souped-up urgent-care center or surgery center. While not striving to be all things to all patients, it focuses on orchestrating its strengths with those of other institutions. “We will never try and have 43 different specialties,” says Johns. “We want the nuts-and-bolts specialties—general surgery, orthopedics, podiatry, cardiology—but we don’t want urology, hand surgery, and neurosurgery. Those [cases] we want to get to the type of beds where they do a better job than we do… We don’t want every specialty known to mankind; we want to get them to centers of excellence.”
“Ambulance companies love us,” Johns reports, “because we never go on diversion and always take their patients.”
Does the future belong to strategically positioned hospitals like Gilbert? Perhaps, says Johns—he has noticed a major local system opening a new hospital with a familiar-looking plan, centered on a robust ED—but he recognizes that not all institutions will be so flexible. “The hook in this for other hospitals, which I think is going to be the toughest nut for them to swallow, is, are they willing to transfer patients to a competitor down the road when they can’t take care of them themselves, to keep their ED open?”
Ownership by physicians, Johns believes, is a response to one simple professional need. “Physicians want a place to practice medicine the way they feel it should be practiced. I don’t think there’d be any physician-owned hospitals around if physicians had a practice environment they thought was for the best… I want an experience for the patient that’s good for the patient. I wasn’t getting that [at a large hospital]; it wasn’t going to be on the horizon; in fact, I was being viewed as a malcontent by pushing for just a simple thing, getting patients seen in a timely fashion. I wasn’t asking for the Taj Mahal.”
Canaries in the Gemeinschaft
Not all commentators share economist Mitchell’s view that financial motivation is inevitable, but reforms such as the application of enforced EMTALA transfer guidelines to specialty hospitals would arguably go a long way toward removing the appearance, the suspicion, and perhaps the reality of medically inappropriate cream-skimming. ACEP’s 2004 position paper on specialty hospitals8 recommends a similar proposal.
Steven Pearlstein’s comment in the Washington Post on June 8, 2005, noted that the POSH debate elucidates a critical contradiction in modern American medicine, part profession and part business:
When they are vilifying insurers and managed-care companies, physicians like to present themselves as Dr. Welby—selfless professionals whose medical judgments would never, ever be colored by their financial interests. But in lining up behind physician ownership of specialty hospitals, the doctors essentially acknowledge that they are just like the rest of us, their behavior swayed by even modest financial incentives.9
It may require an a priori faith in the beneficence of market mechanisms to accept the contentions of some POSH advocates. For some patients, focused specialty care can offer benefits. For physician-investors, it appears to offer ease, gain, and control. For full-service hospitals and the profession as a whole, its most important effect may be as a wake-up call, a bracing glimpse of what a more privatized, 2-tiered practice environment looks like.
The focused-care argument is persuasive in the abstract, critics assert, but real-life patients have “unfocused” comorbidities (particularly older, sicker Medicare and Medicaid patients). Todd Taylor, MD, of the Arizona College of Emergency Physicians, is succinct about the limits of “health care by body part”: “Patients don’t come subdivided, [so that] you can send their brain someplace, and you can send their arm another place…. Trauma centers are the first to see this problem; other hospitals can sort of ignore it. A trauma center’s got to have it all. So what they’re doing is paying blood money to the specialists that they need.”
Much depends on whether one views medicine as a Gemeinschaft, a community, or a Gesellschaft, a business arrangement. If specialty-hospital physicians are exploring new organizational territory, their venture may resemble the flight of sentinel birds into a brave new world of medical economics—except that in this case, the canaries are exiting, not entering, the Gemeinschaft. What they’re leaving behind is a system that, as LaFerney observes, “has not changed in 60 years,” and is showing the strain.
Notes
- General Accounting Office, GAO-03-683R. Specialty hospitals: information on national market share, physician ownership, and patients served. April 2003.
- General Accounting Office, GAO-04-167. Specialty hospitals: geographic location, services provided, and financial performance. October 2003.
- Government Accountability Office, GAO –06-520. General hospitals: operational and clinical changes largely unaffected by presence of competing specialty hospitals. April 2006.
- MedPAC. Report to the Congress: physician-owned specialty hospitals. March 2005.
- Centers for Medicare & Medicaid Services. Study of physician-owned specialty hospitals required in Section 507(c)(2) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.
- . Specialty hospitals (a problem or a symptom?) . Health Affairs . 2006;25:95–105
- . Report Number Three to the Secretary, U.S. Department of Health and Human Services. Minutes of meeting, Baltimore, October 26-28, 2005 . Bethesda, MD: Magnificent Publications; 2005;
- American College of Emergency Physicians Board of Directors. Specialty hospitals: policy statement no. 400340. October 2004. Available at: http://www.acep.org/webportal/PracticeResources/PolicyStatements/hosp/SpecialtyHospitals.htm. Accessed June 14, 2006.
- Pearlstein S. Free-market philosophy doesn’t always work for health care. Washington Post, June 8, 2005, p. D01.
Further References
- . Cardiac revascularization in specialty and general hospitals . N Engl J Med . 2005;352:1454–1462
- Department of Health and Human Services, Centers for Medicare & Medicaid Services. Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2007 Rates. CMS-1488-P. (Discussion of specialty hospitals and EMTALA: p. 437 ff.) http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/cms1488p.pdf.
- . The emergence of physician-owned specialty hospitals . N Engl J Med . 2005;352(1):78–84 January 6
- McClellan M. Specialty hospitals: assessing their role in the delivery of quality health care: testimony before the House Committee on Energy and Commerce, 12 May 2005, 1. http://www.cms.hhs.gov/apps/media/press/testimony.asp?Counter=1459
- Mitchell JM. Effects of physician-owned limited-service hospitals: evidence from Arizona. Health Affairs (Oct. 25, 2005): 10.1377/hlthaff.w5.481. http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w5.481
- . Physician ownership of physical therapy services . JAMA . 1992;268(16):2055–2059 Oct. 21
- . Consequences of physicians’ ownership of health care facilities — joint ventures in radiation therapy . N Engl J Med . 1992;327(21):1497–1501 Nov. 19
PII: S0196-0644(06)00877-8
doi:10.1016/j.annemergmed.2006.06.020
