The hospital model today stands in the crosswinds of market and nonmarket forces. On the market side, there is the hard reality that sustainable margins are required for financial viability. On the nonmarket side, there are a host of regulations to comply with, a mission that includes caring for those who can’t pay, disproportionate payer bargaining power in many markets, and very limited experience competing on the dimensions of price and quality.

Compounding the problem has been the growing number of freestanding clinics, which are not subject to the same regulations and are able to carve out the most profitable portions of the market for themselves. With newer equipment and lower overhead, they can capture higher margins and can refer the uninsured, the marginally insured with big copays and those complex cases that pose the biggest medical and financial risks to the hospital.

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