Course materials

1. The discussion blog topic for Week 5 of Health Care Management is
“Competition”
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.https://www.vox.com/policy-and-
politics/2022/11/28/23424682/us-health-care-rural-hospital-closures-mergersIn
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.https://www.newschannel5.com/news/gallatin-
nursing-home-evacuated-due-to-covid-19-
outbreakhttps://www.gallatinnews.com/news/dead-others-hospitalized-after-covid–
outbreak-at-gallatin-nursing/article_843189a8-709d-11ea-b499-

2. 272c15888086.htmlCommunity 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. https://www.tennessean.com/story/opinion/2019/08/19/rural-tennessee-
hospitals-continue-cycle-failure/1988090001/ (Links to an external site).A Dec. 12, 2019
WKRN.com story reported that rural hospital closures have left a quarter of Tennesseeans
without emergency room access.https://www.wkrn.com/special-reports/counties-in-
crisis/hospital-closures-leave-a-quarter-of-tennesseans-without-emergency-room-
access/ (Links to an external site.)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

3. 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. (1) Should policymakers do more to protect community
hospitals from direct competition by their primary referral source – physicians? (2) How
can community hospitals be competitive in the face of declining utilization and revenues?