​​​​​​​Tensions rise between nonprofit, physician-owned hospitals

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Nonprofit hospitals and physician-owned facilities have a tense dynamic.

Tensions between physician-owned hospitals and nonprofit facilities in the Sioux Falls, South Dakota, region are a microcosm of the problems that can arise between these two types of providers.

Avera McKennan Hospital and University Health Center, a 545-bed tertiary hospital in Sioux Falls, recently parted with seven contracted physicians at CORE Orthopedics, which is selling its Prairie States Surgical Center to physician-owned Sioux Falls Specialty Hospital, according to an article from the Argus Leader.

It seems like a victory for the 35-bed specialty hospital on the surface, but Avera McKennan is hiring its own orthopedic physicians to replace those lost and could close the doors of its emergency department and outreach clinics to doctors not employed in-house.

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Larry Teuber, M.D., a Rapid City, South Dakota, neurologist and the cofounder of the specialty facility Black Hills Surgical Hospital, told the publication that such doctor-owned facilities often have “finite lifespans” as larger hospitals gear up to take them on directly to minimize “patient leakage” out of the facilities they control.

“Those markets are a zero-sum market,” Teuber said. “What I get, you lose. What you get, I lose. Every additional entrant into the market is going to mean that everybody else gets a smaller piece of the market.”

That was the case for North Dakota-based Sanford Health, he said, a system that battled for more than a decade to create an integrated system, including taking on Teuber himself directly. Sanford’s chief complaint, according to the article, is shared by many larger providers: Physician-owned facilities “cherry-pick” patients, leaving community hospitals to handled the sickest, most expensive to treat patients.