Specialty Hospital Ownership Is Lucrative For Baylor

If you can't beat 'em, join 'em: That seems to be the motto of the Baylor Health System, which, instead of trying to squash local physician-owned hospitals, has invested in them. About 20 percent of Baylor's annual $3.5 billion in operating revenue comes from specialty hospitals that it co-owns with physicians, and one in nine of its affiliated physicians has a stake in one of these facilities, according to Kaiser Health News. The American Hospital Association maintains that specialty hospitals drive up health costs, and other critics say that one reason is that physicians who invest in a hospital have a motive to send patients there for unnecessary tests and procedures. Proponents of specialty hospitals say that they provide better, more efficient service and that the traditional hospitals oppose them only because they don't want more competition.

The Dallas-Fort Worth market provides a test case for this debate. Of the 226 doctor-owned hospitals in the country, 22 are in the Dallas-Fort Worth area, and another 23 are in development there. Of course, it's important to bear in mind that Texas does not have a certificate of need law that would provide an obstacle to the building of specialty hospitals. But clearly, the encouragement of the dominant Baylor system has helped create a receptive climate for these facilities.

So have all these hospitals driven costs through the roof in Dallas? One indication comes from the Dartmouth Atlas of Health Care, a compendium of Medicare costs in hospital referral regions across the country. In McAllen, TX, which has the highest Medicare costs in the country, and which gained notoriety from Atul Gawande's New Yorker article about the town, inpatient costs range from 114 percent of the national average in the least expensive hospital to 153 percent in the most expensive. In Dallas-Fort Worth, they range from 62 percent to 139 percent of the national average, with four Baylor facilities falling below the average in cost.

This doesn't really tell us how much people pay for hospital care in Dallas, compared to the country as a whole, because healthcare systems charge private payers more to compensate for their relatively low Medicare reimbursement. Moreover, these data do not indicate whether the Dallas-Fort Worth market has expanded as a result of the growth of specialty hospitals. So, without more information, it cannot be concluded that specialty hospitals have or have not pushed up overall costs.

In any case, based on Baylor's success, it will be interesting to see whether more full-line institutions decide it makes sense to invest in specialty hospitals.