Hospital costs and specialization: benefits of limiting the number of product lines

Abstract

Trends in hospital specialization are studied using multiple regression analysis for the period 1999-2008. The observed 31.3 percent rise in specialization was associated with a 9.5 percent decline in unit cost per admission. The number of specialized hospitals has grown by 149 percent in the past decade. Other hospitals are getting more specialized by reducing their product lines. Specialization has been highest in competitive West Coast markets and lowest in the rate-regulated states (New York and Massachusetts). Hospitals have less incentive to contain costs by decreasing the array of services offered in stringent rate-setting states. The term "underspecialization" is advanced to capture the inability of some hospitals to selectively prune out product lines in order to specialize. Such hospitals spread resources so thin that many good departments suffer. Unit cost per case (DRG-adjusted) is higher in the less specialized hospitals.