Is there any reason that the game demands the CD unless Dosbox mounts the install folder as c:? I like to mount c:\games\dos as the root. It does this even if I edit hospital.cfg.

In my experience the game will run from other folders but it's rather picky about the install path not having any spaces or containing long file names. If everything fits within the 8.3 naming scheme without ~1 paths it works for me.