US healthcare

Published: 03/10/2002 Volume II2, No.5825 Page 27

Single-specialty hospitals - or 'focused factories'- achieve better outcomes at reduced cost.But their development in the US threatens general hospitals.

Howard Berliner reports As if hospitals in the US did not have enough to worry about alreadydeclining revenues, calls for increased staffing, recognition of the large number of medical errors, just for starters - they are now confronted with a new threat, the single-specialty hospital.

Management schools prefer to call them 'focused factories' as they are designed to limit their work to a single area of operation and in so doing achieve greater effectiveness and efficiency.

Marketing executives prefer the term 'niche facilities'. The classic example of the hospital as a focused factory is the Shouldice Hospital outside Toronto in Canada, where only hernia surgery is performed and the hospital has substantially better quality outcomes and can do the procedure more quickly and more economically than anywhere else.

The key to hospital finance in the US is cross-subsidy.Hospitals receive more in revenue for some types of patients and procedures and less for others.

Hospitals, for example, tend to lose money on emergency rooms and burn care but make money on heart surgery and orthopaedics.

The surpluses generated by the second category allow the hospital to continue to do the procedures in the first. But what if hospitals could no longer generate the surplus on those procedures? This is the situation that many hospitals in the US are beginning to face as new single-specialty focused factories are developed by competitor hospitals or medical groups.

The medical groups are the more potent threat since doctors can generate substantially more revenue on terms much more favourable to themselves by practising in such a facility. A large cardiac specialty group, for example, has the patient volume to make the establishment of a new hospital or unit a reality and can keep patients away from the general hospital.

Focused factories do not have to have emergency rooms, do not have to participate in Medicare or Medicaid (and be bound by the rules and regulations of those programmes), do not have to provide charity care, and can pretty much do whatever they want.

They can be less expensive than general hospitals because they do not need to carry the overheads and capital costs since they only have to provide what is necessary for their particular function.

There is no doubt that a patient would be able to get more convenient care in a focused factory than a traditional hospital, but the real issue is what then happens to the hospital.

With its profit-generating patients being 'creamed off ' by the specialty hospital, a downward cycle starts of cuts to services in an attempt to save money which drives more patients away until the hospital is filled with only the uninsured and those who have nowhere else to turn.

The dilemma that is created by the possibility of a focused factory in healthcare is a profound one. Is consumer choice more important than community needs?

Should the market be the ultimate arbiter of all service provision, or are there services that need to exist even if they are not supported by the market?

These issues are now being raised in California, Minnesota, Arizona, Washington and many other areas.

Hospitals can fight back against the factories in many ways, most obviously by emulating them - that is by creating focused factories within the overall structure of the hospital.

So a cardiac surgery unit can be organised as a semiautonomous entity within the hospital with its own staff and its own operating rooms, without having to share with any other department.Whatever ancillary services were needed, such as radiology and laboratories, would also be an integral part of the unit.

While this might allay the concerns of the cardiac surgeons, it would probably create havoc with other hospital departments.

Alternatively, hospitals could call for a return to community health planning which could limit the establishment of the niche hospitals, or demand that they do their part in caring for others in the community. But as hospitals were instrumental in eliminating health planning in the US because they were sure that they could thrive in an environment that was free from regulation, they surely recognise that a real market economy means that some providers thrive and others die away.

A resolution to the issue is needed soon.

It will not be long before technology disposes of the need for hospitals for many specialty procedures altogether.They will be done in the doctor's office - leaving the hospital with the expensive and generally under-compensated work.

Howard Berliner is professor of health policy and management, Milano Graduate School, New School University, New York.