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Insurers assert that by designating centers of excellence, they direct patients to the best care. Critics charge the concept is a contracting gimmick and will hurt small hospitals.

Hospitals fully realize that physician-owned specialty hospitals, or "carve-outs" are a force to be reckoned with. The real question now is whether to compete or cooperate--and each hospital must decide for itself.

Specialty centers that focus on lucrative services such as cardiology and orthopedics pose a challenge to full-service hospitals in already crowded health care markets. We examine how hospitals in three markets have responded, from aggressively working to keep niche facilities from gaining a foothold to partnering with physicians on their own centers.

Dinosaurs--big body, little brain. That's how one entrepreneur sizes up today's general hospitals. Some analysts and investors agree. They're betting on "focused factories," hospitals that specialize in heart care, orthopedics, and other services. But the so-called dinosaurs are fighting back.