Utilization Changes Following Market Entry by Physician-owned Specialty Hospitals

Abstract

Physician ownership of specialty hospitals has become commonplace in recent years in several states where certificate-of-need laws do not exist. The study examines trends in utilization rates for complex and simple spinal fusion procedures performed on injured workers with back/spine disorders in two markets in Oklahoma. During the time period we examine, physician-owned spine or orthopedic specialty hospitals entered both market areas in Oklahoma. Because there were no market areas in Oklahoma without physician-owned spine or orthopedic hospitals to use as a comparison group, we also analyzed trends in utilization for these surgical procedures performed on Medicare beneficiaries. We compared utilization for these procedures in Oklahoma and three other states with a high concentration of physician-owned specialty hospitals (Kansas, South Dakota, and Arizona) to utilization rates for back surgery performed on Medicare patients who reside in the Northeast region. States in the Northeast constitute an appropriate control group because there are no physician-owned specialty hospitals in this region. Both analyses indicate that the entry of the physician-owned specialty hospitals was followed by substantial increases in the market area utilization rates for complex spinal fusion surgery. Conversely, such dramatic changes did not occur in the Northeast where physician-owned specialty hospitals do not exist. After considering but ruling out alternative explanations, the findings imply that the financial incentives linked to ownership coincided with significant changes in physicians' practice patterns.