Advocates of specialty hospitals  contend that the focused mission and dedicated resources of specialty  hospitals enable them to offer reduced treatment costs, improved care  quality, and enhanced amenities for patients compared with what general  hospitals are able to provide. Moreover, some advocates maintain that  competition from specialty hospitals can prompt general hospitals to  implement efficiency, quality, and amenity improvements, thus favorably  affecting the overall health care delivery system. We also reported that  physicians were owners or investors in the majority of specialty hospitals  we identified. Presence of Specialty Hospitals Had Little Effect on the Number or Type of Operational and Clinical Service Changes Reported by General Hospitals

Nearly all general hospitals responding to our survey reported making  operational and clinical service changes to remain competitive in markets  they viewed as increasingly competitive; however, there was little  evidence to suggest that the absence or presence of specialty hospitals had  much of an effect on the number or types of changes general hospitals  reported implementing between 2000 and 2005. General hospitals  responding to our survey reported facing increasing competition both  from other general hospitals and from limited-service facilities—a  category that includes specialty hospitals, ambulatory surgical centers,  and imaging centers. General Hospitals Reported Implementing a Variety of Operational and Clinical Service Changes from 2000 through 2005

Among the 72 potential operational changes survey respondents could  have indicated that they made and the 34 potential clinical services  respondents could have indicated that they added, expanded, reduced, or  eliminated on our survey, general hospitals reported implementing an  average of 30 changes (22 operational changes and 8 clinical service  changes) from 2000 through 2005. The majority of  hospitals added or expanded imaging/radiology services (73 percent) and  cardiology services (57 percent). If there was a specialty hospital in its regional market, an urban general  hospital was more likely to have reported making three of the seven  operational changes that significantly differed between general hospitals  in markets with and without specialty hospitals. That is, on average, general  hospitals in markets with specialty hospitals did not make a substantially  different number of changes or different types of changes relative to  general hospitals in markets without specialty hospitals. In written comments on a draft of this report, CMS stated that our study,  by providing quantitative data on the market effect of specialty hospitals,  was extremely helpful and that CMS would use the information as the  agency developed its DRA-mandated report on physician investment in  specialty hospitals. V.

Appendix I: Scope and Methodology

This appendix provides information on the key aspects of our analysis of  the competitive response of general hospitals to specialty hospitals. Second, it discusses the survey  used to collect data from a sample of general hospitals and the process of  fielding the survey.
Why GAO Did This Study

There has been much debate about specialty hospitals--short-term acute care hospitals with physician owners or investors that primarily treat patients who have specific medical conditions or need surgical procedures--and the competitive effects they may have on general hospitals. Advocates of specialty hospitals contend that competition from these physician-owned facilities can prompt general hospitals to implement efficiency, quality, and amenity improvements, thus favorably affecting the overall health care delivery system. Critics of specialty hospitals are concerned that general hospitals may respond to such competition by making changes that do not necessarily increase efficiency or benefit patients or communities, for example, by adding services already available in the community. The appropriateness of physicians' financial interests in specialty hospitals has also been questioned. GAO was asked to provide information on the competitive response of general hospitals to specialty hospitals. GAO surveyed approximately 600 general hospitals in markets with and without specialty hospitals to provide information on the extent to which these two groups of general hospitals reported implementing operational and clinical service changes to remain competitive. GAO received responses from 401 general hospitals.

What GAO Found

Nearly all general hospitals responding to GAO's survey reported making operational and clinical service changes to remain competitive in what they viewed as increasingly competitive healthcare markets; however, there was little evidence to suggest that general hospitals made substantially more or fewer changes or different types of changes if some of their competition came from a specialty hospital. While the majority of survey respondents indicated that competition from other general hospitals had increased, a larger proportion of respondents--91 percent of urban general hospitals and 74 percent of rural general hospitals--reported increases in competition from limited service facilities, a category that includes approximately 100 specialty hospitals across the nation and thousands of ambulatory surgical centers and imaging centers. To enhance their ability to compete, general hospitals reported making an average of 22 operational changes, such as introducing a formal process for evaluating efforts to improve quality and reduce costs, and 8 clinical service changes, such as adding or expanding cardiology services, from 2000 through 2005. Although specialty hospital advocates have hypothesized that the entrance of a specialty hospital into a market encourages the area's existing general hospitals to adopt changes that make them more efficient and better able to compete, the survey responses largely did not support this view. There were no substantial differences in the average number of operational and clinical service changes made by general hospitals in markets with and without specialty hospitals and, for the vast majority of the potential changes included on GAO's survey, there was no statistical difference between the two groups of hospitals in terms of the specific changes they reported implementing. GAO received comments on a draft of this report from the Centers for Medicare & Medicaid Services (CMS). In its comments, CMS stated that GAO's study, by providing quantitative data on the market effect of specialty hospitals, was extremely helpful.