Clearing the Air on Specialty Hospitals

In recent years, the state of Kansas has become a veritable hot bed for the growth of specialty
hospitals. These health care providers offer care only within a specific medical area – such as cardiology. Specialty hospitals face accusations of siphoning more profitable patients away from community hospitals through referral. Critics claim such tactics undermine the ability of community hospitals to provide less profitable services such as emergency care.

In response, policymakers in Kansas recently considered legislation that would have placed a
moratorium on their growth. Though the legislation did not pass, the issue is only likely to grow in importance as competition increases.

This paper seeks to shift the current debate from symptoms to root causes. Namely, if it is the case that specialty hospitals are merely the outgrowth of flaws within state and federal pricing structures, then will it ever be possible for a government agency to set the “right” price for every procedure at every time in every area of the country? If not, then adjusting rates to prevent abuse today merely creates the conditions for someone to take advantage of them tomorrow.

If Medicare and Medicaid are to avoid the pitfalls of administrative pricing, it will be necessary to transition toward a more workable model – one in which beneficiaries are empowered to act as consumers and providers respond to demand rather than bureaucratic decree. Any effort to solve the problems created by existing regulation with additional regulation will only create new problems arising from market distortions in the future.

Ultimately, the decision over whether specialty hospitals or any other health care innovation
should not be left to lobbyists and government agencies far removed from the day-to-day health
care needs of the average citizen. Instead, this important decision should be in the hands of
dispersed consumers acting in their own best interests both in Kansas and throughout the
country.