HRET logo, click here to go to the site home page

Transforming health care
through research and education

Hospitals in the Pursuit of Excellence logo, click here to go to the HPOE home page

Educational Resources

Educational resources broken down by research area.

Resources section header image

Click here to subscribe to HRET Resources RSS feed Enhancing Effective Responses to Market Entry by Specialty Hospitals and Ambulatory Surgery Centers

Dr. Lawton R. Burns, PhD;Research Team: Guy David, PhD, from the Wharton School, University of Pennsylvania, and Lorens A. Helmchen, PhD, from the University of Illinois at Chicago - October 08, 2010

Click here to access this resource

The Challenge for Incumbent Community Hospitals
Single-specialty hospitals and ambulatory surgery centers aim to attract primarily patients suited for standard, low risk procedures. Their entry into a marketplace disproportionately exposes incumbent community hospitals to high-risk patients with complex care requirements.  Two critical problems are among those faced by the incumbent hospitals:

  1. Vulnerability to skimming of profitable patients and services by single-specialty hospitals and ambulatory surgery centers may force incumbent general hospitals to reduce unprofitable, yet socially desirable services.
    Concurrent with new competitive pressures, a tight regulatory environment, and growing numbers of uninsured and indigent patients, community hospitals are expected to continue providing community benefits.  However, the financial viability of these hospitals and their ability to fulfill their service mission depend on balancing profitable and unprofitable services.  Aggressive competition has the potential to upset this balance.

  2. >The entry of single-specialty hospitals and ambulatory surgery centers expands outside options for incumbent hospital staff.  Recruitment and retention of community hospital personnel may further divert resources away from the support of unprofitable service lines.
    Specialty hospitals and physician-owned ambulatory surgery centers alter the bargaining power of physicians vis-à-vis incumbent hospitals and also change the bargaining power among physicians within hospitals.  Relationships with physicians in all service lines of an incumbent hospital may be threatened as competition-driven price decreases compromise the funding for unprofitable service lines.

Attitudes and Responses of Incumbent Community Hospitals
One goal of this study was to gain insight about how hospital executives in select markets view and have responded to the new competitive challenges of emerging specialty facilities and to gauge the effectiveness of such responses.  To accomplish this, researchers conducted in-depth semi-structured interviews with lay and clinical executives from seven health systems and two specialty corporations operating in several states.

No uniformity of opinion was found among the interview respondents regarding the impact of single specialty hospitals (SSHs) on incumbents in local hospital markets. Freestanding SSHs set up by outside corporations were perceived as less threatening to local hospitals because of the presence of CON laws and regionally high cost of facility construction.  By contrast, competitor hospitals that set up SSHs as part of a joint-venture with their physicians were viewed as a major threat.  Respondents expressed concern that such ventures would entice specialist medical staff to relocate their offices closer to the SSH site.  Most respondents had not developed their own SSH or responded vigorously to the entry of a freestanding SSH.  Some respondents noted that some of their own ventures might develop into SSHs.

Ambulatory surgery centers (ASCs) were generally viewed as a competitive threat because of "cream-skimming" of privately insured patients and less difficult cases.  Respondents reported that they often had to undertake time-intensive recruiting of new surgeons to the community to address excess capacity in outpatient operating rooms.  ASCs were also seen as a threat because they might diversify into larger healthcare campuses (potentially hiring away the incumbent hospital's medical staff) or develop their own SSH (combining inpatient and outpatient services on a single campus).  Most respondents indicated that their institutions had developed one or more ASCs of their own, typically in partnership with physicians on their medical staff.

Because of their focus on primary care, retail clinics were not viewed by respondents as a threat.  In fact, hospital systems in both urban and rural areas reported developing their own retail clinic networks because they relieved congestion in the hospital's emergency room and in the offices of affiliated primary care physicians.

During the interviews, the lay and clinical executives were also asked about specific responses their organization had developed to the potential entry of specialty hospitals into their markets.  Responses included:

  • tightening the relationship with "feeder" primary care practices that send patients to their facilities;
  • negotiating exclusive managed care contracts with insurers;
  • providing lucrative "management" subcontracts with inpatient specialists;
  • opening their own heart and orthopedic "centers of excellence" on the hospital campus for specialists; and
  • building physician offices on campus.

Respondents also noted other strategic options including intensifying bill collections, reducing the provision of uncompensated care across all services, lowering the number of full-time equivalents on staff, and focusing resources and managerial effort on retention of pricing power.

Unanswered Questions
This study clearly elucidates the significant challenges to the financial resilience and mission fulfillment capability of incumbent community hospitals posed by specialty hospitals and ambulatory surgical centers.  However, further research is needed to determine if and how incumbent community hospitals should reconfigure the scope, quantity and quality of uncontested service lines in response to a threat of entry.

Terms of Use  | Privacy Policy

©2006-2017 by the American Hospital Association. All rights reserved. Noncommercial use of original content on is granted to AHA Institutional Members, their employees and State, Regional and Metro Hospital Associations unless otherwise indicated. AHA does not claim ownership of any content, including content incorporated by permission into AHA produced materials, created by any third party and cannot grant permission to use, distribute or otherwise reproduce such third party content. To request permission to reproduce AHA content, please click here.