SIC 8069
SPECIALTY HOSPITALS, EXCEPT PSYCHIATRIC



This industry consists of establishments primarily engaged in providing hospital services for specialized categories of patients, except for the mentally ill (see SIC 8051: Skilled Nursing Care Facilities and SIC 8063: Psychiatric Hospitals. Hospitals in this industry classification include facilities that treat alcoholism and drug addiction, cancer, children's illnesses, chronic disease, maternity, orthopedic, and tuberculosis.

NAICS Code(s)

622110 (General Medical and Surgical Hospitals)

622210 (Psychiatric and Substance Abuse Hospitals)

622310 (Specialty (except Psychiatric and Substance Abuse) Hospitals)

Industry Snapshot

Establishments in this industry provide hospital services for patients who have usually already seen a physician at a general hospital or medical office. Specialty hospitals appear most densely in the mid-Atlantic United States, including New York and Pennsylvania, with the second greatest concentration in Texas, Oklahoma, and Louisiana. Many are located along the southern Atlantic seaboard as well. This industry, as part of the broader health care industry, saw overall growth throughout the 20th century, with certain areas experiencing distinct growth in the final years of the century. Specific specialty hospitals, such as those treating tuberculosis and cancer, grew as a response to the increase in the number of people diagnosed with these ailments. Maternity hospitals conversely decreased in number as technology and social change brought about an increase in birthing facilities at general hospitals.

Throughout the 1990s, these hospitals, like other establishments in the larger health care industry, were faced with cost-cutting measures imposed by economic factors and anticipated government reforms targeted at health care. Service Industries USA reported 577 specialty hospitals in the United States in 1992, up from 505 in 1987, an increase of 14.3 percent; yet viable projections suggested a continued revenue decline beginning in the mid 1990s.

Organization and Structure

Several distinct types of hospitals are classified in this industry group—each with a unique history and status. Like other hospitals, specialty hospitals are either non-profit or profit making and have competition from government-owned hospitals. In 1990, the U.S. government owned the vast majority of tuberculosis and chronic disease hospitals in the United States. Alcohol and drug abuse rehabilitation hospitals and cancer hospitals tended to fall under private ownership. Of the total number of specialty hospitals in the 1990s, 64 percent fell into the category of non-taxed (government operated or nonprofit) institutions.

Specialty hospitals include both long-term and acute (short-term) facilities. Long-term specialty hospitals (where patients usually stay for 30 days or more) include alcohol and drug abuse rehabilitation hospitals, (physical) rehabilitation hospitals, chronic disease hospitals, and cancer hospitals. Short-term specialty hospitals (where patients usually stay for 30 days or less) include maternity (obstetric) hospitals and children's hospitals.

Background and Development

The evolution of specialty hospitals is best understood through an examination of the diverse histories and services offered by each respective hospital type.

Tuberculosis Hospitals. Tuberculosis, an infectious disease that usually affects the lungs, was the leading killer of Americans at the turn of the century. This disease, also referred to as consumption, gave rise to hundreds of sanitariums in the early 1900s. It was thought that rest and isolation, along with treatments using temperature extremes, were ways of curing the disease. It was not until the 1940s that antibiotics were used successfully to cure the disease, turning many of the sanitariums into tuberculosis hospitals. Preventive treatments were developed and, during the 1950s, hundreds of tuberculosis hospitals in the United States closed.

In 1985, the federal government reduced funding for preventive treatments, thinking that tuberculosis was under control. In the 1990s, however, documented cases of tuberculosis began to rise again for the first time in more than 50 years. At that time, there were reportedly only four tuberculosis hospitals in the United States. The total of these facilities included 470 beds at 66.4 percent occupancy rate. Additionally, the hospitals provided services for more than 16,800 non-emergency outpatient visits. (These hospitals did not provide emergency services.) Observers forecasted the conversion of selected general hospitals into tuberculosis hospitals to meet the potential demand.

Maternity Hospitals. In the early 1990s, there were 12 maternity hospitals, with a total of 1,894 beds, in operation in the United States. During that time, these hospitals had a 57.4 percent occupancy rate and performed duties for more than 55,000 births. In addition, maternity hospitals serviced more than 60,000 surgeries, 58,000 emergency outpatient visits, and 223,000 non-emergency out-patient visits. By the mid 1990s, approximately 135 licensed birth centers invaded the market in 34 states, with 90 additional centers slated to open before the end of the century.

Eye, Ear, Nose, and Throat Hospitals. There were 12 eye, ear, nose, and throat (otolaryngology) hospitals in the United States in the mid 1990s. These facilities together offered 669 beds and a 32 percent occupancy rate. During that time, they performed more than 79,000 surgeries, and provided services for more than 78,000 emergency outpatient visits and 458,000 non-emergency outpatient visits.

Rehabilitation Hospitals. Rehabilitation hospitals provide medical services for patients suffering from physically debilitating ailments, usually as a result of an injury. In the 1990s, most patients admitted to these establishments suffered from head or traumatic spinal cord injuries. More than 140 rehabilitation hospitals maintained operation in the United States, with a total of 19,079 beds and an average 73.6 percent occupancy rate. These facilities performed more than 5,300 surgeries, and serviced more than 29,000 emergency outpatient visits and more than 2.2 million non-emergency outpatient visits.

Rehabilitation centers dedicated to the treatment of addiction encountered a serious challenge in the mid 1990s with the rise of managed care insurance programs. Managed care plans in general afforded their members little or no coverage in the area of substance abuse and addiction treatment, and hospitals that specialized in the treatment of these ailments suffered subsequent loss of revenue. "The number of inpatient treatment programs has declined precipitously," Monica Oss, editor of the behavioral health industry newsletter, Open Minds, told Time. "Between 1988 and 1993, the average number of patient bed days dropped from 35 to 17." Rehabilitation facilities countered the circumstance by offering a variety of treatment options, including outpatient therapy.

Orthopedic Hospitals. In the 1990s, there were approximately 30 orthopedic hospitals in operation in the United States. These facilities treated patients with physical deformities; often these patients are children. These hospitals had a total of more than 2,000 beds and a 55.5 percent occupancy rate. They performed more than 58,000 surgeries and serviced nearly 40,000 emergency outpatient visits and more than 570,000 non-emergency outpatient visits.

Chronic Disease Hospitals. More than 30 chronic disease hospitals operated in the United States in the 1990s. These hospitals most commonly provide long-term in-patient care facilities for patients with chronic illnesses, such as chronic respiratory infections. Chronic disease hospitals had a total of 10,870 beds and a 90.3 percent occupancy rate. During that time, they performed just over 1,000 surgeries and provided services for more than 4,500 emergency outpatient cases and 118,000 nonemergency outpatient cases. Chronic disease hospitals do not treat cancer and tuberculosis patients.

Children's Hospitals. Among other specialty hospitals in the United States, the leading establishments are children's hospitals and cancer hospitals. In the mid 1990s, children's hospitals were in high demand, and administrators commonly resorted to the use of waiting lists as a method of prioritizing admittance into the facilities. One crucial factor that contributed to the growing need for children's hospitals was the increase in the number of children in the United States who required care for illnesses related to poverty.

The demand for cancer hospitals increased during the 1990s. Hospitals noted that, "The American Cancer Society… estimates that one in three Americans now living will develop cancer at some point in their lives. Each year of this decade, more than 1.1 million people will be diagnosed with the disease." Accredited cancer programs proliferated at general hospitals across the country in response to the need, even as cancer treatment specialty hospitals increased in number.

Prognosis. In 1998, HCIA, Incorporated reported that a renewed upsurge of specialty hospitals in certain geographic areas stimulated cooperative efforts between those hospitals and the physicians of the region. The collaborations resulted in the formation of mutual partnerships between the two factions. Survey results suggest that the entry of a specialty hospital into any given market place might potentially drain as much as 35 percent of revenues from traditional programs within the respective locale. Findings were based on a study that focused on effects of cardiac specialty facilities on the disbursement of Medicare dollars within a given area.

Industry Leaders

According to Service Industries USA, in 1999 the three industry leaders for specialty hospitals in the United States were Columbia/HCA Healthcare, with $18.7 billion in revenue in 1998; Tenet Healthcare Corporation, with 1999 revenue of $10.9 billion; and Beverly Enterprises, Incorporated, reporting $2.8 billion in revenue.

In 1994, Columbia Healthcare Corp. of Kentucky, merged with Hospital Corporation of America. In April of 1995, Columbia/HCA formed yet another merger — with Health Trust Incorporated, of Tennessee. The 1995 merger was the largest hospital chain merger in U.S. history. The $5.6 billion merger resulted in a huge chain of 318 hospitals. In the mid 1990s, Columbia/HCA Healthcare owned and operated approximately 220 facilities. Tenet Healthcare involved more than 120 facilities across 18 United States, plus operations overseas in Barcelona, Spain.

Another merger in this field combined the next two leaders in the industry in March of 1995. National Medical Enterprises merged with American Medical International to form Tenet Healthcare Corporation, of California. In 1997, Tenet challenged Columbia/HCA Healthcare as the largest hospital operator when it acquired OrNda HealthCorp for $3.1 billion. According to Modern Healthcare, Tenet Healthcare anticipated the new acquisition would add $2 billion to its $9 billion annual revenues in 1997. American Medical International owned and operated 8,853 beds in 36 facilities; National Medical Enterprises had 6,671 beds in 33 facilities; and OrNda had 8,423 beds in 47 facilities. However not all facilities were strictly specialty hospitals. Already impressive, Tenet reported revenue growth of 10 percent in 1999, as compared to Columbia/HCA which grew by only 0.7 percent in 1998.

Industry leaders among the non-profit segment of the industry in 1999 were City of Hope National Medical Center in Duarte, California; Spaulding Rehabilitation Hospital Corporation in Boston, Massachusetts; and Bethesda Hospital Association of Zanesville, Ohio—each with more than $50 million in reported earnings. Greenery Rehabilitation Group, Inc., which operated rehabilitation hospitals for young adults with neurological impairments was next in earnings, followed by Children's Hospital of Orange County, and Women and Infants Hospital of Rhode Island.

Workforce

In the mid 1990s, approximately 270,000 people were employed in specialty hospitals in the United States. The distribution of the work force included registered nurses (RNs) comprising 25 percent of the total, aides and orderlies made up 6.2 percent, and licensed practical nurses (LPNs) comprised 4.6 percent. Non-medical personnel, such as maintenance and clerical workers, totaled 11.6 percent of the work force, while professionals, administrators, and physicians comprised 8.1 percent, not including 5.1 percent categorized as technicians. Other professions included therapists, social workers, psychiatric staff, and medical secretaries.

Research and Technology

This industry, which can be regarded as primarily one for specialists, relies strongly on developments in research and technology. Research in biotechnology is expected to have a tremendous impact on cancer treatments provided by cancer hospitals and general hospitals. Hospitals noted that such research advances could mean that "biotech will shift the site for treatment from inside to outside—from external, systemic treatments like radiation and chemotherapy, to targeted, tumor-specific drugs that strengthen and then deploy the body's immune system to destroy cancer cells." The Pharmaceutical Manufacturers Association cited numerous cancer-treating biotechnology drugs under development, and biotech drugs may replace radiation and chemotherapy, which have been the main forms of cancer treatment since the 1970s. Additionally, the emerging field of gene therapy holds promise in the field of cancer research. Researchers at the Karolinska Institutet in Stockholm, Sweden announced advancements in 1999 of the development of enhanced methods of delivering tumor-killing genes. Investigators observed that the technology performed effectively in vitro (in test tubes) and expressed promise for the potential of a genetically-based offensive against cancer.

Another significant development in cancer treatment, which will also expand the use of outpatient services, has been in bone marrow transplants. Traditionally, bone marrow transplants have required long hospital stays ranging from a few weeks to a month, and from the hospitals' viewpoint, extensive staffing for the follow-up care and related administrative duties. In the early 1990s, advances in the use of laser technology and other less-invasive procedures allowed many types of bone marrow transplants to be performed on an outpatient basis. New changes in cancer treatment clearly hold the potential to effect the nature and duration of treatment at cancer hospitals. Advanced technologies hold the promise of shifting emphasis from long-term inpatient facilities such as those required for radiation and chemotherapy treatment to minimized inpatient care and outpatient care of shorter duration. Indeed a trend in the direction of expanded outpatient care for cancer patients was underway by the end of the 20th century, independent of molecular biological research, as a result of cost cutting by many hospitals.

Research in the 1990s has led to the development of a number of prosthetic and other devices related to orthopedics. Developments in biotechnology and biomaterials, as well as research and development with carbon composite prostheses and thermoplastic prostheses will also affect orthopedics.

Technological advances in computer systems have also assisted many specialty hospitals by providing networks of information, which can be linked among hospitals throughout the country. Throughout the 1990s, these hospitals increasingly shared information on treatments through the use of treatment registries available on computer networks.

Further Reading

"Beverly Enterprises, Inc." Hoover's Online. Available from wysiswyg://16/ http://wwww.hoovers.com/co/capsule/1/0,2163,10211,00.html .

"Columbia/HCA Healthcare Corporation." Hoover's Online. Available from wysiwyg://7/ http://www.hoovers.com/co/capsule/7/0,2163,15237,00.html .

Darnay, Arsen J., ed. Service Industries USA. 4th ed. Farmington Hills, MI: Gale Group, 1999.

Gleick, Elizabeth. "Rehab Centers Run Dry: Kicking the Habit of 30-Day Inpatient Treatment, Substance Abuse Clinics Retool for Managed Care." Time, 5 February 1996.

"Healthcare: Hospitals Drugs, and Services." Standard & Poor's Industry Surveys, 7 September 1995.

Japsen, Bruce. "Tenet Gains Ground: OrNda Deal Creates a Financially Powerful No. 2 Chain." Modern Healthcare, 3 February 1997.

McCormick, Louis H., and Bruce R. Korf. "Editorial: Genetics in Medicine: The Future Is Here." Patient Care, 15 November 1998.

"Reports on Improved Gene Therapy Method Published." Cancer Weekly Plus, 25 January 1999.

Service Industries USA. 3rd ed. Farmington Hills, MI: Gale Group, 1999.

"Specialty Hospitals Disrupt Local Markets." Findings, 12 December 1999. Available from http://www.hcia.com/findings/981230_competitivethreat.htm .

"Tenet Healthcare Corporation." Hoover's Online. Available from wysiwyg://10/ http://www.hoovers.com/co/capsule/5/0,2163,11055,00.html .



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