One issue concerns physician ownership of specialty  hospitals and whether such ownership might inappropriately affect  physicians’ clinical decision-making and referral behavior. Our April 2003 report provided  information on both issues: the extent of physician ownership at specialty  hospitals and the relative severity of patients’ illnesses at specialty and  general hospitals. 1.) Approximately one-third  of specialty hospitals were owned in part by a specialty hospital chain. Specialty Hospitals Clustered in Areas Where State Policy and Local Demographic Conditions Favor Growth

Although 28 states had at least one existing specialty hospital, about two- thirds of the 100 specialty hospitals we identified were located in 7 states. 2.) The specialty hospitals that are planned to open over the next few months  or years will tend to reinforce the existing pattern of geographic  concentration. 3.) Specialty Hospitals Tend to Locate in States That Do Not Restrict Hospital Growth

The location of specialty hospitals is strongly correlated to whether states  allow hospitals to add beds or build new facilities without first obtaining  state approval for such health care capacity increases. All of the specialty  hospitals that are under development and 96 percent of the specialty  hospitals that opened from 1990 to June 2003 are located in such states. The Four Specialty Hospital Types Differed from General Hospitals in Size and Scope but Also Differed from One Another

Relative to general hospitals, specialty hospitals, as a group, were much  less likely to have emergency departments, saw fewer patients in their  emergency departments, treated smaller percentages of Medicaid patients,  and derived a smaller share of their revenues from inpatient services. However, there were important differences among the four specialty  hospital types in these and other service indicators, such as the extent to  which hospitals’ emergency departments focused on certain medical  conditions or procedures. Overall, 45 percent of specialty hospitals had  emergency departments, compared with 92 percent of general hospitals. Specialty Hospitals Rivaled General Hospitals in Certain Market Share Measures and Financial Performance

Although a general hospital typically had more beds than a specialty  hospital had, the focused mission of a specialty hospital often resulted in  its treating more patients with a given condition. When the costs from all lines of business and the revenues from all payers  were considered, specialty hospitals tended to outperform general  hospitals. Financial Performance of Specialty Hospitals Tended to Equal or Exceed That of General Hospitals

Financially, specialty hospitals tended to perform about as well as general  hospitals did on their Medicare inpatient business in fiscal year 2001—the  most recent year for which this information is available. The officials  generally agreed with the information in our report and offered their views  on reasons for key differences between specialty and general hospitals. Critics of specialty hospitals are  concerned that such facilities may erode the financial health of general  hospitals and impair their ability to provide emergency care and meet  other basic community needs, such as stand-by capacity to respond to  communitywide disasters.
Why GAO Did This Study

The recent growth in specialty hospitals that are largely for-profit and owned, in part, by physicians, has been controversial. Advocates of these hospitals contend that the focused mission and dedicated resources of specialty hospitals both improve quality and reduce costs. Critics contend that specialty hospitals siphon off the most profitable procedures and patient cases, thus eroding the financial health of neighboring general hospitals and impairing their ability to provide emergency care and other essential community services. Critics also contend that physician ownership of specialty hospitals creates financial incentives that may inappropriately affect physicians' clinical and referral behavior. In April 2003, GAO reported on certain aspects of specialty hospitals, including the extent of physician ownership and the relative severity of patients treated (GAO-03-683R). For this report, GAO was asked to examine (1) state policies and local conditions associated with the location of specialty hospitals, (2) how specialty hospitals differ from general hospitals in providing emergency care and serving a community's other medical needs, and (3) how specialty and general hospitals in the same communities compare in terms of market share and financial health.

What GAO Found

The 100 existing specialty hospitals identified by GAO--hospitals that focus on cardiac, orthopedic, or women's medicine or on surgical procedures--are geographically concentrated in areas where state policy facilitates hospital growth. Although 28 states have at least 1 specialty hospital, approximately two-thirds of the 100 specialty hospitals are located in 7 states. At least an additional 26 specialty hospitals were under development in 2003 and will tend to reinforce the existing pattern of geographic concentration. Specialty hospitals are much more likely to be found in states where hospitals are permitted to add beds or build new facilities without first obtaining state approval for such health care capacity increases. Relative to general hospitals, specialty hospitals, as a group, were much less likely to have emergency departments, treated smaller percentages of Medicaid patients, and derived a smaller share of their revenues from inpatient services. For example, 45 percent of specialty hospitals, but 92 percent of general hospitals, had emergency departments. There were, however, important differences among the four specialty hospital types in these and other service indicators. Although general hospitals typically have more beds than specialty hospitals, the focused mission of specialty hospitals often resulted in their treating more patients in their given fields of specialization. Financially, specialty hospitals tended to perform about as well as general hospitals did on their Medicare inpatient business. However, specialty hospitals tended to outperform general hospitals when the costs from all lines of business and the revenues from all payers were considered. Officials from three specialty hospital organizations commented on a draft of this report. They generally agreed with the report's information and commented on key differences between specialty and general hospitals.