Hospital privileges were originally designed to protect patients, ensuring only qualified physicians could admit, treat, and operate within a hospital. At their best, they safeguard safety, quality, and public trust. But in today’s healthcare market, these privileges have also become tools of market control. Combined with strategic real estate restrictions, they can quietly limit competition and keep referrals within a hospital’s own network. For independent physician groups, this isn’t just a matter of paperwork. It can determine whether a practice thrives or gets strategically edged out.
What Are Hospital Privileges?
Hospital privileges grant a physician the ability to:
- Admit patients
- Perform procedures, including surgeries and diagnostic tests
- Access operating rooms, labs, and inpatient resources
- Bill for inpatient services
The credentialing process is thorough – verifying training, experience, and competency, gathering peer references, and gaining committee and board approval. In theory, this protects patients. In practice, the process can also be shaped by competitive and financial motives.
The Hidden Politics of Credentialing
A growing concern is economic credentialing, when a hospital denies or revokes privileges for reasons tied to business competition, not patient safety.
For example, a physician who owns an outpatient surgery center that competes with hospital services may suddenly lose privileges, despite an excellent care record.
The American Medical Association opposes this practice, stating it undermines fairness and physician independence. Still, in markets where a few systems dominate, it’s used to keep referrals and revenue, in-house.
Some hospitals use closed-staff models, limiting privileges to their own employed or affiliated physicians, further narrowing options for independent doctors and the patients they serve.
Real Estate as a Gatekeeping Tool
Control over physician access doesn’t stop with credentials. Many hospital systems also control surrounding land and medical office buildings. By owning key properties, hospitals can impose restrictive covenants in deeds or leases that block certain services like imaging, urgent care, or surgery centers from opening nearby. In some cases, restrictions extend across large geographic areas.
From the hospital’s perspective, this protects their market. From the physician’s perspective, it can be a significant barrier.
These restrictions can:
- Limit where independent practices can set up
- Reduce the value of nearby medical properties
- Restrict patient access to alternative care options
Even developers who want to lease to independent practices may be unable to do so because of these covenants.
Regulations That Reinforce Control
Some states have Certificate-of-Need (CON) laws, which require state approval before building or expanding healthcare facilities. While intended to prevent unnecessary duplication of services, these laws can also protect incumbents, allowing dominant systems to challenge and delay competitors’ projects.
Research shows states without CON laws often have more hospitals and better access to care. In CON states, established systems can use the process to keep new entrants out.
Federal and state antitrust agencies are taking more interest in healthcare consolidation and referral restrictions. However, enforcement can be slow, and by the time rulings come down, market conditions may already be locked in.
Practical Strategies for Physician Groups
For New or Startup Practices:
- Review hospital bylaws before applying for privileges.
- Check property titles for restrictive covenants before signing a lease or buying.
- Look for off-campus sites with fewer limitations.
- Negotiate lease terms that allow for future service expansion.
- Build relationships with hospital-employed physicians to help maintain referrals
For Established Independent Groups:
- If denied privileges for competitive reasons, appeal using your quality track record and patient outcomes.
- Consider joint ventures with hospitals or real estate developers that preserve autonomy.
- Invest in physician-owned property to secure control over your practice’s location and services.
- Collaborate with other independent physicians to co-own facilities like ASCs or imaging centers.
Hospital privileges and real estate restrictions are not just procedural hurdles; they’re powerful tools that shape the healthcare market. For independent practices, understanding these forces is key. With careful due diligence, smart site selection, and strategic partnerships, physician groups can protect their independence and grow even in hospital-dominated markets.
How the ICRE Investment Team Can Help
We assist physician groups in:
- Identifying locations without restrictive covenants
- Navigating hospital-driven property restrictions
- Structuring owner-user and joint venture deals that align with long-term goals
If you’re planning to launch, expand, or relocate, we can help secure the space and the leverage you need to stay competitive. Your practice deserves a site that works for you – not against you. Let’s secure it.
