Findings debated from specialty hospital report

The findings of a new report on specialty hospitals are being debated by outpatient surgery experts who are drawing lines in the sand over whether the hospitals are a good idea.

Specialty hospitals, such as surgical hospitals, are controversial because they are often for-profit and sometimes owned, in part, by physicians who work in them, the General Accounting Office (GAO) said in its report, Specialty Hospitals — Geographic Location, Services Provided, and Financial Performance. The surgical hospitals studied derived most of their revenues from outpatient services, the agency said.

The report is good news for those facilities and bad news for those lobbying to limit their development, says Eric Zimmerman, JD, partner with McDermott, Will & Emery in Washington, DC.

"GAO found insignificant differences — and with respect to some topics, no differences — between specialty hospitals and community hospitals," he says.

Interestingly, the GAO found that average for-profit specialty hospitals have lower profit margins that for-profit general acute care hospitals, Zimmerman says.

"This finding debunks assertions that specialty hospitals are cherry-picking healthy patients or somehow profiting unreasonably off of the Medi-care system," he says.

The report found that physicians combined ownership tended to be about 70% at surgical hospitals. The percentage of admitting physicians who were investors was about 44% at surgical hospitals. The GAO found that referral patterns between owners and nonowners were indistinguishable, Zimmerman says.

The American Surgical Hospital Association in San Diego noted the GAO reported more admissions come from physicians who are not investors in specialty hospitals. "This disproves the notion that the only motivation for physicians to use specialized hospitals is financial," the association said in a statement. "This key finding should finally put to rest the overused argument from general hospitals that physicians have a conflict of interest."

The report said Medicare records indicate that there were 16 surgical hospitals in 2001, and 17 surgical hospitals are under development.

"I think that this report should send Congress a message that constraining physician ownership in specialty hospitals at this time would be grossly premature," he says.

At press time, the House and Senate were considering a conditional temporary moratorium on building new specialty hospitals owned by physicians. The moratorium would be in place while the Medicare Payment Advisory Commission (MedPAC) studies the impact of specialty hospitals on community hospitals. Exemptions probably would be provided if the specialty hospitals have an emergency department, the hospital is accredited by the Joint Commission on Accreditation of Healthcare Organizations, and physician-owners disclose their ownership interest to patients.

For its part, the American Hospital Association (AHA) found some concerns in the report, such as the findings that specialty hospitals locate in areas with the greatest profit and growth potential and they serve significantly fewer Medicaid patients than general hospitals. Also, the AHA story pointed out that comparing all facilities, including not-for-profit, showed that specialty hospitals enjoy an average margin of 6.4%, more than double that of all general hospitals (3.1%).

The report "further confirms that specialty hospitals are a drain on the general hospitals that provide vital patient services to all in their community," said Rick Pollack, AHA executive vice president.1

He urged Congress to adopt the Breaux-Nickles-Lincoln amendment to the Medicare prescription drug bill that would prohibit physicians from referring patients to specialty hospitals in which they have an ownership interest.

"If left unchecked, the rapid growth of these hospitals will undermine access to a wide array of health services for patients across the country," he said.1

[Editor’s note: General Accounting Office (GAO) documents are available free at Click on "GAO Reports," and "Find GAO Reports." Click on "GAO Reports" and search for "GAO-04-167."]


1. American Hospital Association. AHA: GAO report further confirms’ need for Medicare bill amendment. AHA News Now, Oct. 22, 2003.


For more information on the report, contact:

  • American Surgical Hospital Association, P.O. Box 23220, San Diego, CA 92193. Telephone: (858) 490-8085. Fax: (858) 490-9016. E-mail:
  • Eric Zimmerman, McDermott, Will & Emery, 600 13th St. N.W., Washington, DC 20005. Telephone: (202) 756-8148. Fax: (202) 756-8087. E-mail: Web: