Legislators Mull Pros, Cons of Boutique Hospitals

Lawmakers in several states are pushing to limit the number of so-called “boutique” hospitals that specialize in expensive procedures for people who can afford them, contending that these niche facilities could lead to diminished health care for the general public.

The hospitals in question are for-profit, physician-owned facilities that specialize in areas such as cardiology or orthopedic surgery.

Lawmakers in at least 10 states fear that if the number of these specialty hospitals continues to grow, they’ll threaten the bottom line and ultimately the quality of care in general hospitals by leaving them to care largely for indigent patients.

“This issue has really just bubbled up in the past year or two, so it’s only been on policy makers radar screens for a short while,” said Alwyn Cassil, spokeswoman for the Center for Studying Health System Change, a non-partisan research organization based in Washington, D.C.

A report by the General Accounting Office found that specialty hospitals are a “small, but growing segment of the health care industry.” As of February 2003, there were more than 92 specialty hospitals across the United States. The number of specialty hospitals has tripled since 1990, though they represent only 2 percent of acute care facilities.

Proponents say boutique hospitals offer higher quality care, more amenities and an alternative to general hospitals. Critics say these facilities drive up health care costs and diminish the quality of care by siphoning money and patients away from general hospitals.

General hospitals say they need to perform lucrative procedures, such as heart surgery, to pay for unprofitable services like burn units, mental health or emergency room services, which most specialty hospitals are not required to provide.

“Unfortunately, there are certain services that you can never even come close to recovering your cost for. And the ones that have traditionally been very well compensated are precisely the ones these specialty hospitals are (serving), said Ellen Pryga, director of policy development at the American Hospital Association, a national group that represents about 5,000 hospitals, including specialty hospitals.

Some doctors groups, such as the American Surgical Hospital Association, argue that “physicians are interested in specialized hospitals because of their efficiency and high quality, not investment returns.” Tim Maglione, senior director of government relations at the Ohio State Medical Association told Stateline.org: “We’d like to see less government intrusion into the ability of physicians to create innovative delivery systems.”

A number of legislative responses have been debated, but few have become law. Policy analysts said the issue is complex and that lawmakers are struggling to determine how much government involvement will maintain a fair and competitive health care market.

“When specialty hospitals are an issue in the legislature, there is debate about whether these new hospitals are natural responses of the free market to customer demand or whether they are exploiting a loophole in existing laws,” said Trudi Matthews, a health policy analyst at The Council of State Governments.

In the Arizona, Louisiana, New Mexico and Washington legislatures, bills were introduced that would have used licensing rules to require specialty hospitals to provide at least some emergency room services, but none have been signed into law.

In Louisiana, where there are about a dozen specialty hospitals, state Sen. Tom Schedler (R) introduced three unsuccessful bills this session one which would have required that a doctor disclose ownership of a specialty hospital when referring a patient there.

The federal Stark law prohibits doctors from referring Medicare patients to health care facilities in which they have financial investments, but it doesn’t apply to hospitals, policy analysts said.

Schedler said he was “disappointed” about his legislation’s fate and said that reimbursements from the government and private insurers to specialty hospitals should be cut because they are not required to provide emergency room or indigent care.

“If you did that, I think you’d see the proliferation of these (hospitals) come to a screeching halt,” Schedler told Stateline.org.

The debate over boutique hospitals is especially prevalent in states like Louisiana where there is no “certificate of need” (CON), a process that regulates hospital building and expansion or investment in new technology. About two-thirds of states have CON laws, but they vary greatly in their strength, Richard Cauchi at the National Conference of State Legislatures said.

Ohio has been a hotbed of debate on this issue. Lawmakers in the state House of Representatives passed a two-year moratorium on hospital construction so a commission of experts could further study the financial impact of boutique hospitals. The Senate is expected to take up debate on the issue soon. Ohio state Rep. Jon Peterson (R), who sponsored the bill, initially tried to ban doctors from referring patients to hospitals they own, but compromised to at least pass the moratorium. “The crisis hasn’t reached Ohio yet, but we’re trying to act ahead of the curve, to act before we have to react,” Peterson said.

In 2002 Wisconsin state Sen. Russ Decker (D) attempted to hold down health care costs through a similar moratorium, but the measure was soundly defeated, according to the Wisconsin Hospital Association. But a measure in Oklahoma passed the Legislature in 1999 that requires specialty hospitals to pay a fee if they have fewer than 35 percent of their patients on state or federal government health care assistance, according to The Council of State Governments.

The issue is also being examined on a national level. At the request of several Congressmen, the GAO later this fall is expected to release a more comprehensive report than the one cited previously. It will assess the impact and prevalence of specialty hospitals.