Specialty hospitals: can general hospitals compete?

The rapid increase in specialty cardiac, surgical, and orthopedic hospitals has captured the attention of general hospitals and policymakers. Although the number of specialty hospitals remains small in absolute terms, their entry into certain health care markets has fueled arguments about the rules of "fair" competition among health care providers. To allow the smoke to clear, Congress effectively stalled the growth in new specialty hospitals by temporarily prohibiting physicians from referring Medicare or Medicaid patients to specialty hospitals in which they had an ownership interest. During this 18-month moratorium, which expired June 8, 2005, two mandated studies of specialty hospitals provided information to help assess their potential effect on health care delivery. This issue brief discusses the research on specialty hospitals, including their payments under Medicare's hospital inpatient payment system, the quality and cost of care they deliver, their effect on general hospitals and on overall health care delivery, and the regulatory and legal environment in which they have proliferated. It concludes with open issues concerning physician self-referral and the role of general hospitals in providing a range of health care services.