Focused Factories? Physician-owned Specialty Facilities

November/December 2003
Health Affairs,, Vol. 22, No. 6
Lawrence P. Casalino, Kelly Devers, Linda R. Brewster

Hospitals must decide whether to cooperate or compete with their specialists who own specialty facilities; either choice is fraught with dangers. Based on findings from HSC's 2002-03 site visits to 12 nationally representative communities, the study describes the recent rapid increase in physician-owned specialty hospitals and ambulatory surgery centers, reasons for the increase, possible impacts and potential policy options. These facilities could lead to excess capacity, provision of unnecessary services and lower quality because of decreased volume at some facilities. They also could reduce community hospitals' net revenue and thus their ability to subsidize socially necessary but unprofitable services. But regulatory intervention should be cautious, because data on impact are inconclusive, and these facilities could potentially function as "focused factories" that improve quality and reduce costs.