Correspondence: Sameer Kumar, Opus College of Business, University of St. Thomas, Mail # TMH 343, 1000 LaSalle Avenue, Minneapolis, MN 55403-2005, USA. Tel: +1651 962 4350; Fax: +1651 962 4710; E-mail: skumar@stthomas.edu

¹Sameer Kumar is a professor of Decision Sciences and Qwest Chair in Global Communications and Technology Management in the Opus College of Business, University of St. Thomas. Major research interests include optimisation concepts applied to design and operational management of production and service systems where issues relating to various aspects of global supply chain management, international operations, technology management, product and process innovation, and capital investment justification decisions are also considered.

²William H Nunne is a senior staff engineer at Seagate Technology LLC in Bloomington, MN. Over the last 26 years, he has been involved with manufacturing and process development of semiconductor technology at Honeywell and Sharp Microelectronics, as well as magnetic recording heads for disk drives. He has a bachelor's degree in Physics from the University of Illinois.

Received 1 November 2007; Revised 1 November 2007; Published online 22 February 2008.

Abstract

The rising cost of healthcare in the United States has had a major impact on the operation of general hospitals. The limitation of a fee for service has forced them to scale back operations in an attempt to become efficient. Over the last 15 years, general hospitals have faced a new competition from for-profit specialty hospitals that operate on a focused factory model and are threatening to siphon-off the most profitable patients. This paper will discuss the presence of specialty hospitals in North America and Europe and review the impact of governmental intervention and investigation of them. Finally, it attempts to compare the efficiency of general hospitals and specialty hospitals in the United States using stochastic frontier regression analysis. Although the data set used here is simulated, based on realistic assumptions from the available data, the results suggest that specialty hospitals would be more efficient than general hospitals. The analysis and findings will enable healthcare managers to steer their institutions in a new direction in a time of change within the industry.