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An examination of cardiac care provided in single-specialty hospitals and community hospitals in two Arizona cities.
ABSTRACT: In recent years physician ownership of so-called limited-service hospitals has become commonplace in many states lacking certificate-of-need regulations. Empirical evidence documenting the effects of these facilities is sparse. This study compares practice patterns of physician-owners of limited-service cardiac hospitals and physician-nonowners who treat cardiac patients at competing full-service community hospitals. Analyses of six years of Arizona inpatient discharge data show that physician-owners treat higher volumes of profitable cardiac surgical diagnosis-related groups (DRGs), higher percentages of lowseverity cases, and higher percentages of cases with generous insurance compared with physician-nonowners who treat cardiac patients in community hospitals.
Prohibitions on physician self-referral were enacted during the early 1990s in response to several empirical studies' findings that the financial incentives inherent in physician self-referral arrangements resulted in increased use of services and higher third-party reimbursements.1 Federal and most state laws, however, exempt "whole hospitals" and ambulatory surgery centers (ASCs).2 The basis for the formerwas that any referral made by a physician-investor would yield only small financial gains for each physician because hospitals typically provide a wide range of services. Although classified as whole hospitals, physician-owned "limitedservice" hospitals are more akin to a specialized hospital department.3
Much of the concern about the recent growth of limited-service hospitals focuses on physician ownership issues.4 Hospitals are typically paid a facility fee for each patient treated; physicians bill patients separately for professional services. A referring physician with ownership interest in a limited-service hospital is compensated for professional services but also shares in any profit generated from facility fees. Thus, physician ownership of limited-service hospitals creates financial incentives that could influence physicians' referral behavior. Second, under the diagnosisrelated group (DRG) case-based payment approach, physician-owners of limited-service hospitals could have incentives to treat primarily low-acuity patients within DRGs that are more profitable but send clinically complex cases to full-service community hospitals. A third concern is whether physician-investors refer patients with generous insurance coverage to their own facilities and send those with limited or no coverage to community hospitals. If this is the case, then full-service community hospitals will have limited revenues to subsidize the costs of money-losing services (such as trauma and indigent care).
Proponents counter that...