Should policymakers do more to protect community hospitals from direct competition by their primary referral source – physicians?  

The discussion blog topic for Week 5 of Health Care Management is “Competition” – competition between community hospitals and physicians who serve on their medical staffs, and competition between community hospitals and corporate specialized outpatient services providers such as ambulatory surgery centers, outpatient imaging centers, and outpatient diagnostic centers.

Community hospitals serve an important health care need, especially in communities classified as rural which may be hours away from the larger hospital health systems located in urban areas.  Community hospitals tend to serve a disproportionate percentage of uninsured patients and poor patients insured through the state Medicaid program.  The uninsured are at high risk of defaulting on their payment obligations.  State Medicaid programs pay hospitals much less than private insurance plans.  The high payment default rates by uninsured patients and low payments by state Medicaid programs places community hospitals at high risk of financial default and ultimate closure, which in turn places families requiring labor & delivery (L&D) services, emergency (ER) services, intensive care (ICU) services, etc. in a medically dangerous position of being unable to access necessary health care services.

In addition to L&D, ER, ICU and other medical services needed by community residents, community hospitals may be needed to quickly respond to mass illnesses and injuries affecting community residents, such as the COVID-19 virus in 2020.  In an emergency, time is of the essence and patients may not have the time to be transported to an urban hospital.

By way of example, at the outset of the COVID-19 pandemic in March 2020, 24 nursing home residents were emergently transported from the Gallatin Center for Health and Healing to Sumner Regional Medical Center late in the night on March 27. EMS staff dressed in Hazmat suits and ambulances from three counties responded to the emergency on Friday night.  On Sunday afternoon, all of the remaining residents were transferred to Sumner Regional using 54 ambulances, two EMS buses and one wheelchair van.  As a community hospital, Sumner Regional had to be ready, willing and able to accept this sudden influx of critically ill patients.

Community hospitals rely on physicians to refer patients for not only inpatient services, L&D, and other services that often run negative profit  margins, but also for the higher revenue-producing outpatient services that include same day surgery, ER, and X-Ray/MRI/CT imaging services.

The textbook reports at p. 324 that between 1990 and 2000, more than 200 rural hospitals (8% nationally) and nearly 300 urban hospitals (11% nationally) closed for economic reasons.  An Aug. 19, 2019 article in The Tennesseean reported that Tennessee leads the nation in hospital closures per capita; and is second only to Texas, a much larger state, in the absolute number of hospitals closing their doors. 

A Dec. 12, 2019 story reported that rural hospital closures have left a quarter of Tennesseeans without emergency room access.

Increasingly, physicians seek to compete directly against community hospitals by establishing their own physician-owned ambulatory surgery centers (ASC), urgent care centers, walk-in clinics, imaging centers, and other services that can be provided outside of the hospital.  (See textbook at p. 288.)  The advantage to the physician owners of an ASC is that they earn a professional services fee for surgeries they perform, as well as a distribution of the ASC’s profits for the services provided by all of the providers utilizing the ASC.  Many physicians “partner,” either formally or informally, with large urban health systems and/or national specialty outpatient service providers that compete directly with the community hospitals.  The result of the physician having an ownership interest in a health facility such as an ASC, walk-in clinic, imaging center, etc. is that the physician then refers all of their patients who are appropriate for the outpatient setting to the joint venture in which the physician has an ownership interest (again, earning a distribution of profits.)

In addition to physician owners having an incentive to refer their patients to health treatment centers in which they have an ownership interest, third party payers, such as Medicare and commercial insurance providers, encourage patients to go to these non-hospital outpatient services providers because they have a lower charge structure.  The lower overhead, reduced operating hours, leaner staffing requirements, and overall lower operating costs allow for lower charges than community hospitals that must provide 24/7 full-service health care operations to “all-comers” (meaning all patients regardless of insurance coverage).  

However, when there is an disaster, emergency or pandemic affecting the community, we look to our community hospital to be ready, willing and able to take care of the community’s sick.

Corporate owners of these outpatient services facilities actively solicit physicians to invest in the facility.  Physicians are more likely to refer patients to a facility that they own as opposed to a facility that they do not own.  While these outpatient services facilities offer greater efficiencies for physicians and patients, they also provide lucrative investment interests for the physicians.  By way of example, some surgeons will only do outpatient surgeries at ambulatory surgery center facilities in which they have an ownership interest, unless the surgery has to be done in the hospital due to the complexity of the procedure or medical fragility of the patient.  These surgeon owners can realize millions in annual profits distributions that are directly tied to surgeon owners utilizing the facility.  

Physician ownership increasingly encroaches on the revenue sources for community hospitals.  Competitors and policymakers recognize the challenge that the community hospitals are facing, and have commented that the hospitals “just have to figure out” how to be competitive in the changing marketplace.   Yet, these same competitors and policymakers expect the community hospital to be prepared to respond quickly and effectively to emergencies impacting the entire community likeness shootings, ebola outbreaks, and  COVID-19.  

Please comment on the changing health care environment whereby physicians are incentivized through lucrative ownership interests to redirect patient referrals away from the community hospital to outpatient facilities in which they have an ownership interest.

Should policymakers do more to protect community hospitals from direct competition by their primary referral source – physicians?  


In recent years, the issue of physician competition and its impact on community hospitals has been a growing concern for policymakers. This essay will explore the impact of physician competition on community hospitals, assess the potential benefits of government intervention in protecting community hospitals, and investigate strategies for minimizing the impact of physician competition on community hospitals. By examining these topics, this essay will answer the question of whether policymakers should do more to protect community hospitals from direct competition by their primary referral source – physicians.
The impact of physician competition on community hospitals is an area of growing interest that has been explored by numerous researchers. Studies have found that competition among physicians has the potential to result in both positive and negative consequences for community hospitals. As K Carey, JF Burgess, and GJ Young noted in their 2009 article in INQUIRY: The Journal of Health Care Organization, Provision, and Financing, “Competition among physicians for patients can lead to improved quality of care and better patient outcomes, but it can also lead to higher costs, overutilization of services, and lower quality of care” (Carey, Burgess, & Young, 2009). Thus, the effects of physician competition on community hospitals appear to be highly dependent on the particular context in which the competition is occurring. For example, when there is a high level of competition among physicians, the quality of care may improve, but the cost of services may also increase. On the other hand, when there is a low level of competition, the cost of services may decrease, but the quality of care may also suffer. In any case, it is clear that physician competition has the potential to strongly affect the functioning of community hospitals.
Government intervention in protecting community hospitals can provide a variety of benefits. According to MH Ruckelshaus et al. (2016), government intervention can help to ensure access to quality healthcare in communities that have difficulty accessing medical services. Government intervention can also help to reduce the cost of healthcare, thereby increasing the affordability of medical services for vulnerable populations. Additionally, government intervention can help to stabilize local health systems by providing financial incentives for healthcare providers to operate in underserved areas. This can be especially beneficial for rural areas with limited access to healthcare services. Finally, government intervention can help to improve the quality of care by introducing new regulations, standards, and quality control measures. All of these benefits of government intervention in protecting community hospitals can help to ensure that vulnerable populations have access to quality healthcare at an affordable cost.
The impact of physician competition on community hospitals is a persistent concern in health economics. According to M Gaynor and RJ Town in their Handbook of Health Economics (2011), physician competition has been linked to a decrease in hospital market share, as well as a decrease in revenues and profitability. Furthermore, physician competition can lead to a decrease in the quality of healthcare provided, as well as a decrease in patient satisfaction. To minimize the impact of physician competition on community hospitals, a number of strategies have been suggested. These strategies include collaboration between community hospitals and physician practices, strategic pricing, and the formation of physician-hospital organizations. Collaboration between community hospitals and physician practices can help to foster a mutually beneficial relationship between the two entities, encouraging collaboration on initiatives such as patient care, research, and physician education. Strategic pricing can help to ensure that community hospitals are able to remain competitive within their market. Finally, the formation of physician-hospital organizations can help to ensure that community hospitals are able to maintain control over their own operations and resources. In sum, there are a number of strategies that can be employed to minimize the impact of physician competition on community hospitals.
Overall, policymakers should take action to protect community hospitals against competition stemming from the primary referral source – physicians. In doing so, they can help ensure that community hospitals remain a viable option for reliable healthcare services to those in need, allowing them to remain stable and sustainable entities. Ultimately, the protection of these healthcare facilities is necessary to ensuring that healthcare access is preserved. Only with proper protection will community hospitals remain strong and well-resourced, providing necessary resources to those who benefit from them day in and day out.
Work Cited
RD Glass.”Ethical and epistemic dilemmas in knowledge production: Addressing their intersection in collaborative, community-based research.”
L Reid.”Towards energy care ethics: Exploring ethical implications of relationality within energy systems in transition.”
C Anderson.”Divergent perspectives on citizenship education: A Q-method study and survey of social studies teachers.”



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