The Hospital Wars

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There are only about 130 specialty hospitals in the U.S., compared with some 5,000 community hospitals, but dozens more are in the works since Congress this summer lifted a three-year moratorium on Medicare payments to new specialty hospitals. These typically focus on orthopedic and cardiac surgeries--which account for more than half the profits of many hospitals--and most lack costly emergency rooms. As these and other doctor-owned facilities spread and tensions soar, hospitals are finding it harder to get specialists on call in their ERs, reports HSC researcher Dr. Robert Berenson in a study published on the Web this week by Health Affairs.

Ambulatory Surgery Centers (ASCs), which compete with hospital outpatient departments for procedures that don't require overnight stays, like colonoscopies and some joint surgeries, are hollowing out hospitals as well. There are almost 5,000 ASCs today, nearly twice as many as a decade ago. Four in five are at least partly owned by physicians, many in partnership with hospitals seeking to minimize losses. The number of imaging centers has climbed to 6,037, up from 4,159 in 2001, according to the data firm Verispan. The scanning machines are costly to maintain, but once those costs are covered, the machines mint money. "There's an intense market-share competition taking place between hospital outpatient departments and imaging centers," says John Donahue, chairman of National Imaging Associates, which manages radiology for insurers in 36 states. "This battle is under way in Florida, Texas and virtually every state in which we operate."

Wichitans have had front- row seats to the war. In 1997, disgruntled cardiologists led by Dr. Gregory Duick approached Via Christi about establishing a heart hospital. "There was no grand conspiracy to make more dollars for doctors," says Duick. "It was fanned by frustration with the hospitals' inability to get things done and a lack of input from physicians on administration." When Via Christi declined, the doctors tapped local investors, and in 1999 opened the smartly designed, one-story Kansas Heart Hospital in a tony northeastern quadrant of town.

Kansas Heart triggered a cascade. This quiet, airy city of 540,000 already had--besides Via Christi's hospitals--the Wesley Medical Center, part of the for-profit HCA chain. Wichita now has five doctor-owned hospitals as well, along with a dozen ASCs and at least 10 free-standing diagnostic imaging centers, eight of which have physician investors. (Via Christi has a share in four of them, as it does in one ASC and a specialty hospital.) "The fear that emergency rooms and cardiovascular programs would close at community hospitals," says Duick, "has not been borne out over seven years in Wichita."