Environmental complexity refers to the interorganizational relationships an organization encounters to obtain resources. Organizations need to compete with others to
gain different inputs and to produce outputs given limited
resources. The increased environmental complexity may cause hospitals to reduce their dependence of resources by improving their efficiency. We conceptualized environmental complexity as arising from two major sources: managed care and market competition. The managed care environment in the United States has induced a high degree of resource competition among hospitals. Hospitals
may have to improve efficiency by lowering costs in
response to lower negotiated prices (Rosko, 1999). Also, hospitals may have fewer resources to cross-subsidize costly uncompensated care when faced with greater HMO penetration in the market (Thorpe et al., 2001)