General Hospitals: Operational and Clinical Changes Largely Unaffected by Presence of Competing Specialty Hospitals
Published: 2006-04-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: There has been much debate about specialty hospitals--short-term acute care hospitals with physician owners or investors that primarily treat patients who have specific medical conditions or need surgical procedures--and the competitive effects they may have on general hospitals. Advocates of specialty hospitals contend that competition from these physician-owned facilities can prompt general hospitals to implement efficiency, quality, and amenity improvements, thus favorably affecting the overall health care delivery system. Critics of specialty hospitals are concerned that general hospitals may respond to such competition by making changes that do not necessarily increase efficiency or benefit patients or communities, for example, by adding services already available in the community. The appropriateness of physicians' financial interests in specialty hospitals has also been questioned. GAO was asked to provide information on the competitive response of general hospitals to specialty hospitals. GAO surveyed approximately 600 general hospitals in markets with and without specialty hospitals to provide information on the extent to which these two groups of general hospitals reported implementing operational and clinical service changes to remain competitive. GAO received responses from 401 general hospitals.
section_title: What GAO Found
paragraphs: Nearly all general hospitals responding to GAO's survey reported making operational and clinical service changes to remain competitive in what they viewed as increasingly competitive healthcare markets; however, there was little evidence to suggest that general hospitals made substantially more or fewer changes or different types of changes if some of their competition came from a specialty hospital. While the majority of survey respondents indicated that competition from other general hospitals had increased, a larger proportion of respondents--91 percent of urban general hospitals and 74 percent of rural general hospitals--reported increases in competition from limited service facilities, a category that includes approximately 100 specialty hospitals across the nation and thousands of ambulatory surgical centers and imaging centers. To enhance their ability to compete, general hospitals reported making an average of 22 operational changes, such as introducing a formal process for evaluating efforts to improve quality and reduce costs, and 8 clinical service changes, such as adding or expanding cardiology services, from 2000 through 2005. Although specialty hospital advocates have hypothesized that the entrance of a specialty hospital into a market encourages the area's existing general hospitals to adopt changes that make them more efficient and better able to compete, the survey responses largely did not support this view. There were no substantial differences in the average number of operational and clinical service changes made by general hospitals in markets with and without specialty hospitals and, for the vast majority of the potential changes included on GAO's survey, there was no statistical difference between the two groups of hospitals in terms of the specific changes they reported implementing. GAO received comments on a draft of this report from the Centers for Medicare & Medicaid Services (CMS). In its comments, CMS stated that GAO's study, by providing quantitative data on the market effect of specialty hospitals, was extremely helpful.

section_title: Letter
paragraphs: The approximately 4,800 general hospitals in the nation face competition  from a variety of sources, including, in some markets, specialty hospitals  whose owners or investors include physicians who admit patients to the  facility. Specialty hospitals are distinguished from other short-term acute  care hospitals in that the former primarily treat patients who have specific  medical conditions or need surgical procedures. Specialty hospitals that  have opened in recent years typically provide cardiac or orthopedic care  or specialize in surgical procedures. In 2005, there were approximately 100  such specialty hospitals in operation or under development that had  physician owners or investors.
Although there are relatively few physician-owned specialty hospitals,  their potential effect on general hospitals and hospital markets has  become a subject of debate. Advocates for specialty hospitals have stated  that competition from these facilities favorably affects the overall health  care delivery system for hospital services. According to advocates, this  result occurs both because specialty hospitals’ focused missions enable  them to provide high-quality care efficiently and because competition from  specialty hospitals creates incentives for general hospitals to implement  quality, efficiency, and amenity improvements. In contrast, critics of  specialty hospitals have stated that these facilities, in part because of their  focused missions, have an unfair competitive advantage relative to general  hospitals, which have broad missions to serve all of a community’s health  care needs, including the provision of emergency care. These critics are  also concerned that physicians’ ownership or investment interests in  specialty hospitals create financial incentives that could inappropriately  affect physicians’ clinical and referral behavior. Moreover, this view holds,  the competitive behaviors that specialty hospitals elicit from general  hospitals may not all be socially desirable. For example, in their quest to  compete, general hospitals could add services that duplicate those already  available in a community, enter into exclusive contracts with health plans,  or make changes to discourage physicians from opening rival specialty  hospitals. We and other federal agencies have studied various issues  related to hospital market competition and specialty hospitals. To date,  however, the evidence of how general hospitals’ competitive actions have  been influenced by the presence of specialty hospitals has largely been  anecdotal.
Provisions in the Medicare Prescription Drug, Improvement, and  Modernization Act of 2003 (MMA) had the effect, in general, of  establishing an 18-month moratorium on the development of new specialty  hospitals. Although the moratorium expired in June 2005, the recently  enacted Deficit Reduction Act of 2005 (DRA) has the effect of extending  the moratorium until the date the Secretary of Health and Human Services  issues a final report to appropriate committees of jurisdiction of Congress  on a plan that addresses issues concerning physician investment in  specialty hospitals or up to 8 months after the enactment date of DRA,  whichever is earlier.
Because the issue of specialty hospitals remains controversial, you  expressed interest in knowing more about the competitive response of  general hospitals to specialty hospitals. In this report, we provide  information on the extent to which general hospitals in markets with  specialty hospitals and general hospitals in markets without specialty  hospitals reported implementing operational and clinical service changes  to remain competitive.
To conduct our analysis, we surveyed a sample of general hospitals in  regional markets with at least one specialty hospital that had opened since  the beginning of 1998. We also surveyed a comparison sample of general  hospitals in regional markets where there were no specialty hospitals.  General hospitals in both groups were asked to describe the extent of  competition within their markets in 2005, and to indicate the operational  changes and clinical service changes they made from 2000 through 2005 to  remain competitive in their markets. (See app. II for a copy of the survey.)  The 72 potential operational changes listed in the survey included, for  example, increasing income guarantees to recruit physicians. The 34  potential clinical services listed in the survey that hospitals could have  reported adding, expanding, reducing, or eliminating included services  such as cardiac care. We analyzed the survey responses to determine  whether there were significant differences between the two groups of  hospitals in terms of the total number and types of changes made. This  comparison was made separately for urban general hospitals, defined as  those hospitals located in a metropolitan statistical area (MSA), and rural  general hospitals, defined as those hospitals located outside of an MSA,  because the extent of changes made by general hospitals in response to  the presence of a specialty hospital could be different in the two  environments.
Our analysis accounted for the possibility that the presence of a specialty  hospital might be more likely to elicit competitive responses from general  hospitals that are reasonably close by. In constructing our sample of  general hospitals in regional markets with specialty hospitals, we excluded  urban general hospitals that were 90 miles or more from the nearest  specialty hospital and rural general hospitals that were 120 miles or more  from the nearest specialty hospital. We further explored this possibility by  analyzing the responses of a subset of urban general hospitals—those that  were in the same local market as a specialty hospital. Urban general  hospitals in this local subset may be more likely than other general  hospitals in the same regions to be affected by the presence of a specialty  hospital and thus may be more likely to have implemented operational or  clinical service changes in response. Therefore, we compared the  responses from this subset with the responses from urban hospitals in  regions without specialty hospitals.
We selected specific regional markets for our hospital comparison groups  by identifying areas that were similar to one another on several different  dimensions, including, for example, the number of Medicare beneficiaries  in each regional market. All of the regional markets were located in states  that did not have laws requiring hospitals to obtain state approval before  adding inpatient beds or building new inpatient facilities.
We surveyed 603 general hospitals during August and September of 2005,  and received responses from 401 facilities (67 percent response rate). (See  app. I for more detail regarding our scope and methodology.) We took  several steps to ensure that the data used to produce this report were  sufficiently reliable. For example, we checked each survey response for  internal consistency and contacted hospitals to clarify their responses  when necessary. We ensured the reliability of the hospital and market- related data sets used in this report by verifying that they were widely  used for similar research purposes and by performing appropriate  electronic data checks. We conducted our work from July 2005 through  March 2006 in accordance with generally accepted government auditing  standards.
subsections: section_title: Background
paragraphs: General hospitals face competition from a variety of sources, including the  approximately 100 specialty hospitals in operation or under development  in some markets in 2005. Despite the relatively small number of specialty  hospitals, the issue of how general hospitals have responded to the  competition from specialty hospitals has been a subject of debate. Federal  agencies have broadly addressed how general hospitals’ competitive  actions have been influenced by the presence of specialty hospitals;  however, to date, the evidence has been largely anecdotal.
subsections: section_title: Specialty Hospitals Represent a Small Share of Competition Facing General Hospitals
paragraphs: Specialty hospitals represent a small share of the national health care  market and the competition that general hospitals face from other general  hospitals, ASCs, imaging centers, and other types of facilities. In 2005, we  identified 66 existing specialty hospitals and an additional 46 that were  under development. In contrast, there were an estimated 4,800 general  hospitals, 4,100 Medicare certified ASCs, and 2,400 imaging centers. (See  fig. 1.) Another methodology for assessing the relative magnitude of  specialty hospitals is through Medicare inpatient spending. In prior work  pertaining to specialty hospitals of various types and ownership  structures, we found that specialty hospitals accounted for a low share of  Medicare spending for inpatient services relative even to their low share of  the hospital market. Specifically, in April 2003 we reported that specialty  hospitals in existence accounted for about 2 percent of existing hospitals,  but 1 percent of total Medicare inpatient spending.
section_title: Competitive Effect of Specialty Hospitals on General Hospitals Is Controversial
paragraphs: The overall competitive effect of specialty hospitals on general hospitals  continues to be the subject of debate. Advocates of specialty hospitals  contend that the focused mission and dedicated resources of specialty  hospitals enable them to offer reduced treatment costs, improved care  quality, and enhanced amenities for patients compared with what general  hospitals are able to provide. Moreover, some advocates maintain that  competition from specialty hospitals can prompt general hospitals to  implement efficiency, quality, and amenity improvements, thus favorably  affecting the overall health care delivery system.
However, critics are concerned that general hospitals may be adversely  affected by specialty hospitals. In 2003, using a broader definition of  specialty hospitals that included facilities with and without physician  owners or investors, we reported that specialty hospitals tended to treat  less-severely-ill patients, served proportionately fewer Medicaid patients,  and were less likely to have emergency rooms. We also reported that  physicians were owners or investors in the majority of specialty hospitals  we identified. These findings were consistent with critics’ concerns that  specialty hospitals tend to concentrate on the most profitable procedures  and serve patients with the fewest complications. According to such  critics, specialty hospitals draw financial resources away from general  hospitals and leave those hospitals with the responsibility of caring for the  sickest patients and fulfilling their broad missions to provide charity care,  emergency services, and standby capacity to respond to communitywide  disasters. Critics are also concerned that physician ownership of specialty  hospitals creates financial incentives that could inappropriately affect  physicians’ clinical behavior and their decisions to refer patients to  specific facilities.
section_title: Evidence of General Hospital Response to Specialty Hospitals Is Largely Anecdotal
paragraphs: To date, there have been only anecdotal reports of how general hospitals  have competitively responded to specialty hospitals. Two reports—one  jointly issued by the Federal Trade Commission (FTC) and the Department  of Justice (DOJ), and another issued by MedPAC—discussed general  hospitals’ responses to specialty hospitals. The FTC/DOJ report was  based primarily on written submissions and testimony provided by health  care experts at the agencies’ 2002 workshops and 2003 hearings. The  information contained in MedPAC’s report was gathered through site visits  and interviews with representatives of specialty and general hospitals in  selected markets where specialty hospitals existed and interviews with  others in the health care community. Collectively, the reports identified  several actions general hospitals took in response to the entry, or the  anticipation of entry, of specialty hospitals into the marketplace,  including: improving operating room scheduling, extending service hours,  building a single-specialty wing to discourage the establishment of  competing facilities, partnering with physicians on their medical staff to  open a specialty hospital, signing exclusive contracts with private payers  to preclude specialty hospitals or the physicians who invest in them from  contracting with those payers, and revoking the admitting privileges of  physicians involved with a competing specialty hospital.
section_title: Presence of Specialty Hospitals Had Little Effect on the Number or Type of Operational and Clinical Service Changes Reported by General Hospitals
paragraphs: Nearly all general hospitals responding to our survey reported making  operational and clinical service changes to remain competitive in markets  they viewed as increasingly competitive; however, there was little  evidence to suggest that the absence or presence of specialty hospitals had  much of an effect on the number or types of changes general hospitals  reported implementing between 2000 and 2005. General hospitals  responding to our survey reported facing increasing competition both  from other general hospitals and from limited-service facilities—a  category that includes specialty hospitals, ambulatory surgical centers,  and imaging centers. The general hospitals that responded to our survey  reported implementing a variety of operational and clinical service  changes. However, we found little evidence associating specific changes  made by general hospitals with the presence or absence of a nearby  specialty hospital. That is, with few exceptions, general hospitals did not  report implementing a substantially different number of changes or  different types of changes just because there was a specialty hospital in  their market.
subsections: section_title: General Hospitals Perceived an Increase in Competition from Both Other General Hospitals and Limited-service Facilities
paragraphs: Nearly all general hospitals that responded to our survey described their  market environments as ranging from somewhat competitive to extremely  competitive. Only one hospital described its market as not competitive.  Urban general hospitals were much more likely than rural general  hospitals to describe their market as either very or extremely competitive.  (See table 1.)
A larger percentage of general hospitals that responded to our survey— both urban and rural—reported increased competition from limited- service facilities relative to those that reported increased competition  from other general hospitals. More than 90 percent of urban general  hospitals indicated that competition from limited-service facilities had  either increased or greatly increased in their markets, while 75 percent of  urban general hospitals indicated that competition from other general  hospitals had either increased or greatly increased. (See table 2.) Similarly,  74 percent of rural general hospitals indicated that competition from  limited-service facilities had either increased or greatly increased, while   53 percent of rural general hospitals indicated that competition from other  general hospitals had either increased or greatly increased. (See table 3.)
section_title: General Hospitals Reported Implementing a Variety of Operational and Clinical Service Changes from 2000 through 2005
paragraphs: Among the 72 potential operational changes survey respondents could  have indicated that they made and the 34 potential clinical services  respondents could have indicated that they added, expanded, reduced, or  eliminated on our survey, general hospitals reported implementing an  average of 30 changes (22 operational changes and 8 clinical service  changes) from 2000 through 2005. Overall, general hospitals that  responded to our survey had reported implementing between 3 and 66  separate changes.
Overall, 100 percent of general hospitals we surveyed reported  implementing at least 1 operational change. There were 18 specific  operational changes that at least half of the general hospitals that  responded to our survey reported implementing. (See table 4.) Four of the  6 most commonly reported operational changes involved increasing wages  and benefits for nurses and offering more flexible working schedules in an  effort to improve nursing staff retention or recruitment. In addition, 4 of  the 18 most commonly reported operational changes related to physicians.  These changes involved increasing the physicians’ role in hospital  governance, increasing physician income guarantees, hiring new  physicians, and beginning a hospitalist program.
Nearly all general hospitals that responded to our survey reported  implementing clinical service changes. Overall, 97 percent of the hospitals  added or expanded at least one type of clinical service. The majority of  hospitals added or expanded imaging/radiology services (73 percent) and  cardiology services (57 percent). Other types of clinical services were  added or expanded by a minority of hospitals, such as outpatient surgical  services (37 percent) and orthopedic services (31 percent). Nearly one- third of hospitals (33 percent) reduced or eliminated at least one type of  clinical service. The most commonly reported clinical services to be  reduced or eliminated were inpatient/outpatient psychiatric services   (7 percent).
section_title: Few Operational and Clinical Service Change Differences Observed between General Hospitals in Markets with and without Specialty Hospitals
paragraphs: Overall, the operational and clinical service changes reported by general  hospitals that responded to our survey appeared largely unaffected by the  presence or absence of specialty hospitals in their markets. On average,  rural general hospitals with a specialty hospital in their regional market  made a few more operational service changes than rural general hospitals  in markets without specialty hospitals, but made a similar number of  clinical service changes. More specifically, rural general hospitals in  markets with specialty hospitals made an average of 21 operational  changes, 7 clinical service additions or expansions, and 1 clinical service  reduction or elimination. Rural general hospitals in markets without  specialty hospitals made an average of 18 operational changes, 6 clinical  service additions or expansions, and no clinical service reductions or  eliminations. (See table 5.) Urban general hospitals in regional and local  markets with specialty hospitals made similar numbers of operational and  clinical service changes as general hospitals in markets without specialty  hospitals.
For most of the 72 potential operational changes and 34 potential clinical  service changes listed on our survey, the percentage of general hospitals  that had reported implementing each change did not systematically vary  with the presence or absence of a specialty hospital in the market. For  example, 12 percent of urban general hospitals in regional markets with  specialty hospitals and 13 percent of urban general hospitals in regional  markets without specialty hospitals opened a new hospital wing  specializing in one type of medicine between 2000 and 2005. However, for  a few of the potential changes listed on our survey, there was a  relationship between the percentage of general hospitals that had reported  implementing the change and the presence of a specialty hospital in the  market. For example, there were 6 operational changes and 3 clinical  service changes (including clinical services that were added, expanded,  reduced, or eliminated) for which the percentage of rural general hospitals  implementing the change significantly differed depending on whether or  not a specialty hospital existed in the regional market. (See table 6.) The  greatest number of differences (11 operational change differences and 5  clinical service change differences) was observed between the group of  urban general hospitals in local markets with specialty hospitals and the  group of urban general hospitals where there were no specialty hospitals  in either the local or regional markets.
Rural general hospitals in markets with specialty hospitals were more  likely to have reported implementing six operational changes and two  clinical service changes relative to rural general hospitals in markets  without specialty hospitals. (See table 7.) For only one clinical service— adding or expanding sleep laboratory services—rural general hospitals in  markets with specialty hospitals were less likely to have reported  implementing a clinical service change.
If there was a specialty hospital in its regional market, an urban general  hospital was more likely to have reported making three of the seven  operational changes that significantly differed between general hospitals  in markets with and without specialty hospitals. Urban hospitals in  regional markets with specialty hospitals were less likely to have made  four operational changes and one clinical service change. (See table 8.)
Urban hospitals in local markets with specialty hospitals were more likely  to have made six operational changes and three clinical service changes  and less likely to have made five operational changes and two clinical  service changes relative to general hospitals in regional markets without  specialty hospitals. (See table 9.)
section_title: Concluding Observations
paragraphs: Overall, the general hospitals that responded to our survey reported  making a variety of operational and clinical service changes to better  compete in their markets. Some advocates of specialty hospitals have  stated that the presence of one or more of these facilities in a market may  prompt general hospitals to improve the quality of the care they deliver or  increase the efficiency with which they deliver their services. However,  our survey results found relatively few differences, in terms of operational  and clinical service changes reported, between general hospitals in  markets with and without specialty hospitals. That is, on average, general  hospitals in markets with specialty hospitals did not make a substantially  different number of changes or different types of changes relative to  general hospitals in markets without specialty hospitals. These results held  for both rural and urban general hospitals. Our survey results did show  that general hospitals reported facing a competitive market for their  services. However, general hospitals face competition from many types of  facilities, not just specialty hospitals. Competing facilities, including other  general hospitals in the market, ASCs, and imaging centers, far outnumber  the relatively few specialty hospitals in existence or under development.  The predominance of other types of competitors may help explain the lack  of a uniquely competitive response of the general hospitals in our study to  the existence of specialty hospitals.
section_title: Agency Comments and Comments from Organizations Representing General Hospitals
paragraphs: We obtained comments from CMS and representatives of AHA—a group  representing hospitals, health care systems, networks, and other providers  of care—and FAH—a group representing investor-owned and investor- managed hospitals and health systems. Their comments are summarized  below.
In written comments on a draft of this report, CMS stated that our study,  by providing quantitative data on the market effect of specialty hospitals,  was extremely helpful and that CMS would use the information as the  agency developed its DRA-mandated report on physician investment in  specialty hospitals. (CMS’s comments are reprinted in app. IV.) CMS also  provided technical comments, which we incorporated where appropriate.
AHA and FAH stated that their concerns regarding specialty hospitals  were specific to those facilities that have physician owners or investors.  Both organizations suggested text changes to emphasize that our report is  focused on the effect of these types of specialty hospitals on general  hospitals, which we incorporated where appropriate. In addition,  representatives of AHA stated that general hospitals may make operational  and clinical service changes for a variety of reasons, regardless of the  degree of competition in their market. While we recognize that general  hospitals may make changes for a variety of reasons, that fact does not  detract from our finding that general hospitals largely did not make a  different number of changes, or different types of changes, in response to  competition from specialty hospitals.
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If you or your staff have any questions, please contact me at (202) 512-7101  or steinwalda@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  GAO staff who made major contributions to this report are listed in app. V.
section_title: Appendix I: Scope and Methodology
paragraphs: This appendix provides information on the key aspects of our analysis of  the competitive response of general hospitals to specialty hospitals. First,  it describes the sample selection process. Second, it discusses the survey  used to collect data from a sample of general hospitals and the process of  fielding the survey. Third, it explains the differences between local and  regional markets. Fourth, it describes the methodology used to analyze  survey data. Finally, it addresses issues related to data reliability and  limitations.
subsections: section_title: Sample Selection
paragraphs: We selected two groups of general hospitals for this analysis—the sample  and a comparison sample. The sample consisted of general hospitals in  hospital referral regions (HRR)—which we refer to in this report as  regional health care markets—with a specialty hospital that opened since  the start of 1998. The comparison sample consisted of general hospitals in  regional health care markets without any specialty hospitals. In  constructing the comparison sample, we also excluded regional health  care markets with specialty hospitals that did not have physician owners  or investors.
Regional markets capable of meeting the criteria for the sample were  identified by compiling a current list of specialty hospitals that opened  from 1998 through 2005. We excluded markets in states where certificate  of need (CON) laws existed, because specialty hospitals are located  primarily in non-CON states. We identified 32 unique regional markets  containing 53 specialty hospitals that met these criteria. (See table 10.)
We selected markets for the comparison sample on the basis of their  similarity to the markets used for the sample, except for the presence of a  specialty hospital. We excluded markets from the comparison sample if  they contained a specialty hospital, regardless of ownership or date of  opening. We used data from DAP pertaining to market characteristics to  ensure that markets included in the comparison sample were similar to  markets in the sample. We excluded markets from the comparison sample  if any one of their values for seven market characteristics—overall  population, Medicare population, average number of inpatient beds,  population to beds ratio, physician specialists to total physicians ratio,  average number of surgical discharges, and the Herfindahl-Hirschman  Index—fell outside the range of values for markets in the sample. The  application of these criteria resulted in a sample that consisted of 78  unique regional markets.
The Centers for Medicare & Medicaid Services’ (CMS) 2005 Provider of  Services (POS) file was used to identify general hospitals located in the  markets selected for the sample and the comparison sample, and these  hospitals were subject to several exclusions. General hospitals that were  major teaching hospitals or had fewer than five cardiac, orthopedic, or  surgical discharges in 2004, were excluded from both samples because the  presence of a specialty hospital may not affect these hospitals in the same  manner it would affect other types of general hospitals. In addition, we  considered urban general hospitals to be in a regional market with a  specialty hospital only if it was also less than 90 miles away from a  specialty hospital. We considered rural general hospitals to be in a  regional market with a specialty hospital only if it was also less than 120  miles away from a specialty hospital. Information on these hospital  characteristics were obtained from CMS’s 2005 POS file, 2002/2003 Cost  Report file, and 2004 Health Care Information System (HCIS) file, and  Census 2000 US Gazetteer files. The sample included 326 general hospitals  and the comparison sample included 294 general hospitals. (See table 11.)
section_title: Survey of General Hospitals
paragraphs: The survey questionnaire had two sections. (See app. II.) First, it obtained  respondents’ perceptions of competition in their health care markets.  Second, it asked respondents to provide information on the operational  and clinical service changes that the respondents’ hospitals had made from  2000 through 2005 to remain competitive in their markets. The  questionnaire included 72 potential operational changes and 34 potential  clinical service changes. The specific operational and clinical service  change questions included in the survey were identified through a review  of articles in academic journals, industry reports, periodicals, a joint study  by the Federal Trade Commission and the Department of Justice, and  studies by CMS and the Medicare Payment Advisory Commission  (MedPAC).
We tested our survey questionnaire with external experts, including one  MedPAC analyst and seven hospital administrators from four general  hospitals and one hospital system.
In August and September of 2005, survey questionnaires were distributed  to 603 of the 620 hospitals in our sample—315 general hospitals in the  sample and 288 general hospitals in the comparison sample. Sixty-seven  percent of general hospitals that received our survey questionnaire  responded—401 general hospitals. Seventy percent of the sample and   63 percent of the comparison sample responded to our survey  questionnaire.
section_title: Relationship between Regional and Local Health Care Markets
paragraphs: We created a subsample to analyze the competive response of general  hospitals to specialty hospitals that were in close proximity. The  subsample consisted of general hospitals in hospital service areas (HSA)—  which we refer to in this report as local health care markets—with a  specialty hospital that opened from 1998 through 2005. Groups of local  health care markets form a regional health care market. (See fig. 2.) On  average, general hospitals in local health care markets with a specialty  hospital were in closer proximity to a specialty hospital than were general   hospitals in regional health care markets with a specialty hospital. Among  the 315 general hospitals in the sample, 152 resided in the same local  health care market as a specialty hospital. Sixty-four percent of general  hospitals in the local health care market subsample responded to our  survey.
section_title: Survey Data Analysis
paragraphs: From the survey responses, we determined the percentage of general  hospitals that reported making each of the potential operational and  clinical changes and then compared those percentages for three paired  sets of general hospitals. First, we compared rural general hospitals in  regional markets with specialty hospitals to rural general hospitals in  regional markets without specialty hospitals. (See fig. 3.) Second, we  compared urban general hospitals in regional markets with specialty  hospitals to urban general hospitals in regional markets without specialty  hospitals. Third, we compared urban general hospitals that had a specialty  hospital in their local markets to urban general hospitals that did not have  a specialty hospital in either their local or regional markets. The third  comparison was conducted to explore the possibility that specialty  hospitals are more likely to elicit a competitive response from general  hospitals that are closest to them. As a part of each comparison we  conducted a statistical test, the Pearson chi-square, in order to test the  statistical significance of the percentages for each of the three paired sets  of general hospitals. This test enabled us to determine if differences  between the paired sets of general hospitals were statistically significant.
Among the general hospitals that responded to our survey, the comparison  of rural general hospitals in regional health care markets included 71 rural  general hospitals in regional markets with specialty hospitals and 79 rural  general hospitals in regional markets without specialty hospitals. The  comparison of urban general hospitals in regional health care markets  included 148 urban general hospitals in regional markets with specialty  hospitals and 103 urban general hospitals in regional markets without  specialty hospitals. The comparison of urban general hospitals in local  health care markets with urban general hospitals in regional markets  included 90 urban general hospitals in markets with specialty hospitals  and 103 urban general hospitals in regional markets without specialty  hospitals. Because only 8 rural general hospitals in local markets  responded to the survey, we did not conduct a comparison of rural general  hospitals in local markets to rural general hospitals in regional markets.
section_title: Data Reliability
paragraphs: We used the survey data we collected for this work, three CMS datasets,  and four datasets from DAP to produce the results of this report. In each  case, we determined that the data were sufficiently reliable to address the  reporting objective.
Overall, 67 percent of general hospitals we contacted responded to our  2005 survey, and few respondents failed to complete the questionnaire in  full. We identified incomplete and inconsistent survey responses within  individual surveys and placed follow-up calls to respondents to complete  or verify their responses. We conducted an analysis to identify outliers  who made extremely high numbers of service changes. We manually  verified 10 percent of all survey responses contained in our aggregated  electronic data files, in order to ensure that survey response data were  accurately transferred to electronic files for analytical purposes.
We determined the three CMS datasets—2002/2003 Cost Report File, first  quarter 2005 POS file, and the 2004 HCIS File—and four DAP datasets— 2003 Zip Code Crosswalk File, 1999 Chapter 2 Table File, 2001 selected  surgical discharge rates by HRR, and 1999 physician workforce data— were sufficiently reliable for our purposes. The CMS datasets were used to  gather descriptive information for hospitals in our sample, to determine  general hospital teaching status, and to tie discharge data to individual  hospitals. The DAP datasets were used to link the general hospitals in our  sample to their corresponding market characteristics. These CMS and DAP  files are widely used for similar research purposes.
We identified two potential limitations of our analysis. First, because  independent information to verify survey responses was not available, all  analyses in this report are based on data that are self-reported and  potentially limited by the respondent’s ability to report the operational or  clinical service changes implemented from 2000 through 2005 for  competitive reasons. Second, in response to the threat of future  competition, it is possible that general hospitals made changes to their  facilities prior to 2000 or that changes made by some general hospitals in  anticipation of the new specialty hospitals successfully deterred the entry  of that hospital, which our survey did not capture.
section_title: Appendix II: Survey Questionnaire
section_title: Appendix III: Survey Response by Category
paragraphs: Our survey listed 72 potential operational changes and 34 potential clinical  service changes that a respondent hospital could have indicated that they  had implemented from 2000 through 2005. Within the survey, the potential  operational changes were organized into nine separate subject-oriented  categories. For each of the clinical service changes, respondents were  asked to indicate whether they had added, expanded, eliminated, or  decreased the service. For analytical purposes, we grouped together  “added” and “expanded” clinical service change responses. Also, we  grouped together “eliminated” and “decreased” clinical service change  responses. When stratified by urban and rural location there were few  differences between general hospitals in markets with and without  specialty hospitals, in terms of the average number of changes they  reported implementing in each category of operational and clinical service  change from 2000 through 2005. (See table 12.)
section_title: Appendix IV: CMS Comments
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: Other contributors to this report include James Cosgrove, Assistant  Director; Jennie Apter; Zachary Gaumer; Gregory Giusto; Kevin Milne; and  Dae Park.
section_title: Related GAO Products
paragraphs: Specialty Hospitals: Information on Potential New Facilities. GAO-05- 647R. Washington, D.C.: May 19, 2005.
Specialty Hospitals: Geographic Location, Services Provided, and  Financial Performance. GAO-04-167. Washington, D.C.: October 22, 2003.
Specialty Hospitals: Information on National Market Share, Physician  Ownership, and Patients Served. GAO-03-683R. Washington, D.C.:   April 18, 2003.