The Health Reform Law (ACA) includes a provision to prohibit physicians having any ownership interest in “specialty” hospitals (e.g., those primarily providing cardiac surgery, or orthopedic surgery, etc.) from receiving Medicare payment for any services they provide in such hospitals. A previous moratorium on opening new “specialty hospitals” reflected two concerns: a) specialty hospitals were treating less severe and more profitable patients [“cream skimming”] which was adversely affecting the financial stability of general hospitals in the same service area; and b) physicians practicing at specialty hospitals often also were investors in the hospitals, creating a financial conflict of interest.

a. Discuss the economic concepts of “economies of scale” and “economies of scope” as they relate to potential differences in productive efficiency between specialty and general hospitals.