360 bed not-for-profit community hospital located in an adjoining state suburb of a major Northwest city. Hospital established for 150 years with no local competition. Physicians in the community were unaligned and comprised of small single specialty groups and one large multi-specialty group. The hospital purchased the assets of 2 primary care groups and merged them to keep them afloat after the collapse of their publicly traded for-profit owners. A large healthcare system in bordering state built new hospital in the community and began aggressive strategy to align physicians and attract patients through new facilities and strong customer service. Multi-specialty group entered into an aggressive growth strategy opening new clinics near campuses of both hospitals and began developing ancillary services to help increase revenue due to low reimbursement rates in the community. The siphoning of ancillary revenue from the hospital effected profitability and the ability to provide charity care to the community in support of the hospital’s mission. Although the assets of the primary care group were owned by the hospital, referrals were as likely to go to the new hospital.

The low reimbursement rates for clinical services made it extremely difficult for independent groups to provide competitive compensation to attract new physicians. Although located within a major metropolitan area the community was underserved in many medical specialties including approximately 20 primary care physicians. Low incomes and poor internal management led to the sudden departure of 40% of the primary care group.