Understanding the physician-owned specialty hospital phenomenon: the confluence of DRG payment methodology and physician self-referral laws.

Physician-owned specialty hospitals have flourished in today's healthcare arena, but also have been the subject of a great deal of controversy. The author argues that the rise of specialty hospitals has been the result of a confluence of two healthcare policies: (1) skewed DRG payment methodologies and (2) the misapplication of exemptions to the Stark Law's ban on physician self-referral. This Article examines the aspects of these healthcare policies that have allowed for the explosion of specialty hospitals, as well as the arguments for and against the creation and need for specialty hospitals. The Article also analyzes the reform proposals to correct the Stark and DRG methodologies and how those proposals will affect both specialty and general hospitals.