Do Financial Incentives Linked to Ownership of Specialty Hospitals Affect Physicians’ Practice Patterns?

BACKGROUND: Although physician-owned specialty hospitals have become increasingly prevalent in recent years, little research has examined whether the financial incentives linked to ownership influence physicians' referral rates for services performed at the specialty hospital. OBJECTIVE: We compared the practice patterns of physician owners of specialty hospitals in Oklahoma, before and after ownership, to the practice patterns of physician nonowners who treated similar cases over the same time period in Oklahoma markets without physician-owned specialty hospitals. RESEARCH DESIGN: We constructed episodes of care for injured workers with a primary diagnosis of back/spine disorders. We used pre-post comparisons and difference-in-differences analysis to evaluate changes in practice patterns for physician owners and nonowners over the time period spanned by the entry of the specialty hospital. RESULTS: Findings suggest the introduction of financial incentives linked to ownership coincided with a significant change in the practice patterns of physician owners, whereas such changes were not evident among physician nonowners. After physicians established ownership interests in a specialty hospital, the frequency of use of surgery, diagnostic, and ancillary services used in the treatment of injured workers with back/spine disorders increased significantly. CONCLUSIONS: Physician ownership of specialty hospitals altered the frequency of use for an array of procedures rendered to patients treated at these hospitals. Given the growth in physician-owned specialty hospitals, these findings suggest that health care expenditures will be substantially greater for patients treated at these institutions relative to persons who obtain care from nonself-referral providers.