Health Care
Specialty hospitals are changing the face of U.S. health care

From Las Cruces to Santa Fe, Albuquerque to Farmington and every where in between, a new type of hospital is changing America's health care landscape. They're called specialty hospitals: facilities that treat a narrow range of illnesses like cancer or heart disease.

Albuquerque has a three-year-old, 55-bed heart hospital. Las Cruces and Albuquerque have just opened cancer centers. Cancer and heart centers are being built in Ohio, Indiana, Wisconsin and California.

These "focus factories," as they're called, are controversial. Supporters say they offer patients better care than they can get at large, diverse community hospitals that treat everything. They also give doctors more freedom to treat their patients as they see fit, and higher pay.

Dr. Richard Gerety, a heart surgeon who helped form the Heart Hospital of New Mexico, says the specialization that is coming to health care is no different then that which has occurred in other industries as they become more complex.

"It's something that was destined to happen. It's happened in every other industry. As you get bigger and more complex you get more complex you get more highly specialized and you begin to break up," Gerety says.

Skeptics worry that specialty hospitals will drain high-paying, profitable patients away from community hospitals and force those "department stores" of health care to cut back on service, go out of business or engage in a medical arms race that the nation saw in the 1970s. Such a race, in which hospitals try to match and outdo each other in the services they provide, can lead to more expensive health care, skeptics say. They also question whether specialty hospitals really do provide better patient care.

St. Vincent Hospital in Santa Fe could face competition from a proposed 20-bed simple surgery center for Santa Fe. Gary Buff, vice president of planning for St. Vincent, worries that the specialty hospital will take money away from his hospital. "We will have to decide what service to the community do we cut, or to seek some sort of funding or tax from city and county citizens. It’s not more complex then that," Buff says.

Trend responds to HMO backlash
One thing is certain, specialty hospital represent a growing trend in the health care industry.

"The new trend is toward specialization. What we are seeing is a new medical arms race that is rekindling the phenomena of mimicking and one-upman-ship that we saw in the 1970s. It's like the United States and the Soviet Union during the missile race," says Kelly Devers, a health researcher for the Washington, D.C.-based Center for Studying Health Systems Change (CSHSC), a nonprofit agency that is funded by the Robert Wood Johnson Foundation.

These kinds of facilities are growing, and the trend in health care is toward specialization and niche care. They are appearing in the highly profitable areas of service like cancer, cardiovascular diseases, oncology orthopedics.

"There has been a real shift in emphasis in strategy from what I call wholesale strategy of trying to sell bundle of services, to offering limited services that will be attractive to individuals and physicians and that generate a lot of revenue," Devers says.

In fact, 44 percent of the 43 hospitals the CSHSC surveyed in 12 cities are building specialty care centers such as cancer units, Devers says.

Specialty hospitals are growing trend for several reasons, mostly stemming from dissatisfaction on the part of patients and doctors associated with managed care. Devers says.

"A lot of people have decided that managed care is not going to develop as they had anticipated, and we have seen a backlash against managed care," Devers says. That backlash comes from patients and doctors who are angered by the lack of choice that managed care offers. Patients want to choose their doctors, and doctors want to be free to treat patients without having a worry whether the test or procedure will be approved.

"Consumers and employees have become less tolerant of closed network plans and a limited set of hospitals," Devers says.

In responding to that backlash, managed care organizations have opened up their networks and done away with most referral requirements. As a result, some of the cost-saving incentives that managed care brought about have disappeared, and specialists have gained more influence in the health care industry, Devers says.

Another reason for the growth of specialty hospitals is the "failure of capitation to become the predominate method of payment," Devers says. Under capitation, health plans pay doctors a set amount of money per month per patient. But doctors have also balked at that, and now they and hospitals are being paid by the day, by the procedure or by other formulas. "All of these mechanisms typically gave the hospital a little bit more room and a little less incentive to cost conscious. So we have a new trend toward specialization, we call it the new medical arms race," Devers adds.

Perhaps the biggest reason for the spurt of specialty hospitals is that the illnesses they treat are profitable and aren’t elective. "If you're diagnosed with cancer have to have the service," says Peter Snow, senior vice president of strategy of Presbyterian Hospital.

Heart Hospitals
Nowhere is the trend toward specialty hospitals more evident than in the area of cardiac care. Heart hospitals are popping up all over the nation. Albuquerque's 55-bed Heart Hospital of New Mexico, opened in October 1999. It was built through an agreement among four partners, the New Mexico Heart Institute, Southwest Cardiology Associates, St. Joseph Healthcare Systems, and MedCath Corp., a Charlotte, NC.-based company that specializes in building heart hospitals in partnership with physicians. MedCath operates eight heart hospitals and is constructing five more. The company plans to build three hospitals a year in the next several years.

Everyone agrees that heart care is a money maker for hospitals. On the average, insurers pay hospitals $29,300 for a coronary bypass operation. Out of that, $6,800 is profit for the hospitals. In 2000, 4.4 million people in America were treated for heart disease, at a cost of about $200 billion. Heart programs account 20 percent of a hospital’s revenues and up to 50 percent of its profits. "So, if you can’t hang onto your cardiovascular program, you are in big trouble," Devers says.

Those heart care profits are used to subsidize services and treatments that don't make hospitals money, says Joe Mnuk, a cardiologist with the Presbyterian Heart Group. Mnuk was a partner in the New Mexico Heart Institute in the late 1990s and decided not to invest in the Heart Hospital of New Mexico. He instead decided to help form the Presbyterian Heart Group.

"Cardiac services are a very profitable area for hospitals," Mnuk says in explaining why he did not join the Heart Hospital. "The concern I had is that in some ways, the profit derived from cardiac services is what keeps the general hospitals afloat. The income that cardiac services generate keeps open the intensive care unit and all of the other services that are losers as far as hospitals go. My concern was that if those funds that were generated from cardiac services went somewhere else, then the total health care of the population we serve would suffer."

Presbyterian's Snow wonders how community hospitals like his will survive if their money-making heart services are siphoned off by specialty hospitals. He believes that Albuquerque's St. Joseph Hospital foundered because it gave up a big portion of its heart services income to the Heart Hospital when it agreed to invest in the hospital.

St. Joseph is a not-for-profit system that is in the process of being sold to the for-profit-Ardent Health Services of Nashville, Tenn., for $75 million. St. Joseph's owners, Catholic Health Initiatives said it did not want to spend the $50 million that was needed to keep St. Joseph competitive in the Albuquerque market.

"We have a perfect case study here, which is the difficulty, and now the sale of St. Joseph. Most observers say that at least a factor leading to the sale was the decision they made to get out of the heart business and become just a minority shareholder in the Heart Hospital," Snow says.

But Gerety says he doesn't understand why heart patients subsidize unprofitable areas of care at the expense of heart programs. "Every dollar of profit that a general hospital divers from its heart program to other areas hurts the heart program and heart patients," Gerety says.

Other critics fear that specialty hospitals will skim off from general hospitals those patients how can pay their bills. They also fear that the hospitals won't provide their share of care to Medicare and indigent patients. That would leave the general community hospitals serving a larger share of indigent people and providing more care for which they don't get reimbursed. New Mexico's hospitals already provide $260 million a year in unreimbursed health care.

But MedCath's CEO David Crane says the suggestion that his company's heart hospitals don't take Medicare patients is "100 percent not true. We treat a higher percentage of Medicare patients than they do. Sixty-five percent of our patients are Medicare. We treat any indigent patient that comes to our door. That comes to six percent. We are not skimming anything," Crane says.

Specialty hospital supporters say they offer better care for their specialties than general community hospitals do. With a narrowly focused mission, heart hospitals can buy the latest technology sooner and can more intensely focus on that area of medicine then can general hospitals, Crane says.

At a general hospital, heart surgery patients are moved to different rooms three to five times on average, Crane says. They go to intensive care ward after surgery and then are moved to other rooms as their condition improves. With those different rooms comes a different set of nurses and more handling of a patient’s medical chart, and that can be disruptive and a detriment to recovery, he adds.

At MedCath's hospitals, every room is equipped for intensive care and patients stay in one room during their hospital stay. "They have the same set of nurses, the family knows how to reach them without searching all over the hospital and the physicians have a rapport with them," Crane says.

Gerety says the Heart Hospital provides heart care at a lower cost then general hospitals, in part, because patients there recover faster and spend fewer days in the hospital.

Skeptics say there is no proof that specialty hospitals provide better care then general hospitals. They also say that diseases often come in pairs and triplets and are often related. That means that a heart hospital might not be able to treat a patient who has other medical problems, where as a general hospital could, Snow says.

But Crane cites a study that he says proves that MedCath’s hospitals provide better care. The April 2002 study by The Lewin Group compared MedCath’s eight heart hospitals to 946 peer community hospitals that perform open heart surgery in the U.S. It found:
— A 12.1 percent lower in-hospital mortality rate for Medicare cardiac cases compared to peer community hospitals.
— Shorter lengths of stay (4.12days) then peer community hospitals (4.99 days).
— Discharged 23.8 percent more patients to their homes than a peer community hospitals ( 89.6 percent vs.72.4 percent).

"This results in reduced aggregate Medicare expenditures for patients treated in MedCath heart Hospitals as compared to patients treated in a peer group community hospital," the study says.

Battle in Santa Fe
Specialty hospitals could have major impacts in small markets such as Santa Fe, which is served by one community hospital, St. Vincent. A group of doctors is attempting to build a 20-bed simple surgery center called the Physicians Medical Center. Simple surgeries might require an overnight stay in the hospital, but don’t require intensive care. They are often elective surgeries that are profitable for hospitals, Buff says.

Buff says the situation could be desperate for the 140-bed St. Vincent if the medical center is built because St. Vincent servers a community that has a 21 percent uninsured rate and already provides $14 million in unreimbursed care to the community. With an annual budget of $140 million, St. Vincent needs every dollar it can get to work even and to make a profit. A specialty hospital that siphons off as little as $2 million in revenues can damage St. Vincent, Buff says.

The future
Specialty hospitals will continue to grow. What effect they will have on health card and general hospitals is unknown.

"For community hospitals it creates a challenge. One of the key issues is that they might be left with the less profitable services," Devers says.

Presbyterian's Snow wonders if the new specialty hospitals will go the same route as have the behavioral health hospitals that flourished in the 1980s.

Medical improvements such as the advent of the anti-depressant drugs, caused the "bottom to fall out" of the behavioral health hospitals market in the late 1980s and early 1990s, Snow says.

And whether specialty hospitals provide better care is still in question, Devers says. "But the truth is, we don't have enough data in most cases, and the bottom line is that there has not bee a lot of research on the impact of these facilities for quality and cost. We would love to have that kind of research."

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