Using data from Round Four of the Community Tracking Study site visits, this paper describes the recent rapid increase in physician-owned specialty hospitals and ambulatory surgery centers, reasons for this increase, possible impacts, and potential policy options. These facilities could lead to excess capacity, provision of unnecessary services, and lower quality because of decreased volume at some facilities. They also could reduce community hospitals' net revenue and thus their ability to subsidize socially necessary but unprofitable services. But regulatory intervention should be cautious, because data on impact are inconclusive, and these facilities could have the potential to function as "focused factories" that improve quality and reduce costs.
