Abandon All Hope Ye Who Believe that Indian-Style Innovation Can Easily Be Adopted in the US

Part Six/Specialty hospitals in the US do not appear to compete on either price or quality

It is almost as if Dante and Gustave Dore were divinely inspired to provide generations of US healthcare commentators with a rich source of visual illustrations to supplement the topic at hand.

Just as with the boat ride with Charon across the river Styx, the American patient must pay to navigate the complex healthcare system. But unlike Charon who seemed quite reliable, patients sometimes have no idea of what they are really paying for.

The only reasonable comparison between a US and Indian hospital is perhaps India's new specialty heart hospitals and US specialty hospitals.

In the US, specialty hospitals promised to deliver a higher quality healthcare at a lower cost than local general hospitals by specializing in specific offerings and capabilities, producing a higher volume of service and reducing costs.

The actual achievements of these US specialty hospitals is mixed, and an assessment of their operations reveals the basis upon which hospitals really compete in the US. First, the quality of care is in dispute. The higher margins and lower costs were essentially driven by "cream-skimmed" patients who offered the most lucrative procedures and fewest complications. The Medicare Payment Advisory Commission (MedPAC) found that 94% of these specialty hospitals were located in states without certificate of need requirements. The financial success was not as result of efficiency, but exploiting hospital reimbursement policies.

Since payment to hospitals in the US is not based on quality or clinical outcomes, the US specialty hospital's business models seems to be not much more than careful patient selection. In fact, MedPAC and the US Department of Health and Human Services (HHS) concluded that there is little evidence that an efficiency-based business model was ever developed.

So, it appears that US specialty hospitals evolved to take advantage of financial loopholes within the payment system, rather than to exploit an opportunity for high quality and lower cost. It seems that the US regulatory environment has had the effect of actually discouraging value-based competition and throttled the organizational innovation that is now shaping the Indian market.