New study challenges specialty-hospital profit assumptions

LOUISVILLE, KY, May 5, 2005 – A recent study by Cost Report Data Resources, LLC, which provides Medicare cost reports online, suggests that hospitals specializing in cardiovascular or orthopedic services may not be more profitable than their peers. The results challenge the idea that increased specialization has a direct correlation to stronger financial performance.

Cost Report Data Resources used publicly available data collected by the Centers for Medicare and Medicaid Studies (CMS) to analyze the profitability and competitive effectiveness of specialty-hospitals versus their general-care counterparts. Data included Medicare bills for the twelve months ending October 31, 2003, and each hospital’s most recently available Medicare cost report.

Concerns have been growing about the impact of specialty hospitals on neighboring full-service hospitals. The chief concern is that physician-owned specialty hospitals could skim the most desirable patients, leaving uninsured and high risk patients to be treated by the general hospitals in the community. If such skimming occurred it could disrupt community care and possibly create conflicts of interest for referring physicians. Specialty hospitals counter that they are creating more physician-centric and efficient operations in order to achieve optimal quality and clinical outcomes.

“You might believe that a more specialized hospital should enjoy more economies of scale and increased profitability,” said Paul Shoemaker, president and chief executive officer of Cost Report Data Resources. “But, the data shows otherwise. A hospital’s financial performance does not necessarily improve with the degree of specialization.”

The study considered other specialty-hospital profitability factors, including case mix, location, and ownership type.