Hospitals and Doctors - New Twists in Specialty Hospital Development

In Innovation-Driven Health Care (Jones and Bartlett, 2007), I said total knee replacement was an innovator’s dream. It played perfectly into Americans’ penchant for quick technological fixes, desires of aging baby boomers for an active functional life style, into the booming business of treating athletic injuries, and in the dramatic shift to outpatient care.


These factors haven’t gone unnoticed by orthopedic surgeons, and by hospitals whose bottom lines depend heavily on orthopedic procedures. That’s why orthopedic surgeons own 50% of orthopedic specialty hospitals, and why general hospitals, fearful of being stripped of profitable procedures, succeeding in imposing a federal moratorium on specialty hospitals – made up mostly of doctor-owned hospitals devoted to short term stays for heart, orthopedic, other surgical, and women’s procedures.


The federal moratorium on physician-owned specialty hospital is ending, and there are signs the specialty hospital building boom will soon be underway.


There are two fundamentally new twists in specialty hospital development.


An antitrust suite against hospitals blocking doctor-owned facilities -- The U.S, District of Kansas has allowed Heartland Spine & Specialty Hospital, in Overland Park, Kansas to pursue an anti-trust lawsuit accusing two major insurers and three Kansas City acute care hospitals from conspiring to put the doctor-owned facility out of business. The question before the court is “ Can a doctor-owned specialty hospital sue hospitals and insurers for allegedly conspiring to block competition?” The hospital defendants control 90% of managed care enrollees in Kansas City. Cases like Heartland are popping up in States where Certificate of Needs laws are lax or non-existent.


The building of specialty hospitals in joint ventures with physicians -- Hospitals are moving rapidly to build specialty hospitals in joint ventures between the hospital and physicians or investor-owned chains. Physicians typically want 50% ownership. From the hospital point of view, the question seems to be: have the pie or none at all. .According to DGAPartners in Bala Cynwyd, Pennsylvania, a hospital consulting group, the criteria for entering into a joint venture should include:

1) Make sure market projections indicate at least 25% of caseload for the specialty hospital comes from increased demand or market growth;

2) consider the full impact of the specialty hospital on hospital revenues;

3) structure the deal to give flexibility for physician exit;

4) plan for a highly efficient high amenity facility. These facilities are usually 20 to 25 beds and serve a population 0f 150,000 to 200,000. Usually they provide care for routine orthopedic, neurosurgical, or cardiac procedures.

Ideally, if planned right, specialty hospitals should be profitable for hospitals and physicians alike.