Micro-Hospitals in the Spotlight: Small Size, Big Benefits

Often called neighborhood hospitals, these small-footprint facilities give health systems a branded presence in competitive and underserved markets.

That shiny new hospital complex or fancy tower might not be the best way to extend the health system footprint into new communities.

With capital expenses on a very short leash and consumers looking for a more connected approach to care, healthcare leaders are partnering to build micro-, mini- or neighborhood hospitals. They’re fully accredited and smaller in size, covering about 15,000 to 60,000 square feet, with 8-30 inpatient beds for short stays, and 24/7 ED capabilities.

In existence since roughly 2007, healthcare consultant Erdman estimates there are between 60 and 100 such hospitals either open or soon to be open, most of them built in partnerships between health systems and companies.

“Micro-hospitals, if designed appropriately, accrue four strategic advantages to hospital sponsors: broaden market expansion, lessen capital risks, decrease operating costs and increase consumer appeal,” the Erdman report states. “They are designed and built to optimize patient experiences, maximize staff productivity and serve as a flexible footprint for additional services as demand warrants. While the regulatory climate for micro-hospitals is volatile, the sector is expected to grow as health systems deploy capital to micro-hospital projects. Therefore, micro-hospitals serve as a critical element of a hospital’s strategic plan for growth and scale.”

Fulfilling a health system’s expansion strategy

Allegheny Health partnered with Texas-based Emerus in 2014 to build four neighborhood hospitals in and around Pittsburgh, a competitive market it shares with, among others, UPMC. CFO Brian Devine says the micro-hospitals give them a means of extending the brand into neighborhoods where access to care might be limited.

“We wanted to create a way to control ED costs, to control our own destiny with access points,” he says.

While the new sites proved especially valuable during the pandemic, taking pressure off of Allegheny Health’s main hospitals and especially their EDs, the strategy for sustainability goes far beyond pandemics. Allegheny Health’s four neighborhood hospitals give patients a quick and convenient access point for emergency care, and patients are either discharged home or transferred to other care sites in the Allegheny network for continued treatment.

“We saw a significant ramp-up in growth of the brand and ED visits to those facilities, and [we have] significantly benefited from transfers into our tertiary hospitals,” Devine says. “I know the market has changed. I know the competition has changed. But at the end of the day we are seeing benefits from them providing access to our system at four key points around the city of Pittsburgh.”

One key factor in the success of the partnership is medical office space. Allegheny Health has medical offices and imaging services alongside two of the four sites, enabling the health system to keep the patient’s care journey in-house. Devine says that capability will factor into future expansion plans.

As for partnering with Emerus in the first place, Devine says many health systems today don’t have the resources to “go big” and build new hospitals. They’re either building up their main campus and hospitals or looking at a strategy that expands care opportunities into communities.

The partnership with Emerus is “significantly helpful from a capital perspective,” he says, and it also allows them to outsource those responsibilities and focus on other areas of growth.

“It comes down to bandwidth and where we’re prioritizing, and what we’re prioritizing is different areas of growth with our institutes and different levels of efficiency in our core hospitals,” he says.

“We are used to running a traditional hospital, a much larger hospital facility,” Devine says. “But they have a national model that’s been proven, and we have to have some reliance on and trust in that.”

An integrated, and branded, part of the network

“We are completely licensed hospitals with a small footprint,” says Rachel George, MD, CMO for Emerus, a Texas-based developer of micro-hospitals that launched in 2000 and has built 42 hospitals to date for health systems like Allegheny Health, Ascension, Baptist Health, Baylor Scott & White Health, Dignity Health, Providence, INTEGRIS WellSpan Health and ChristianaCare. “And we are able to take care of anything and everything that walks through our door.”

George and David Hall, Emerus’ chief growth officer, say neighborhood hospitals—George dislikes the ‘micro-hospital’ moniker—are fully integrated with the partner health system, right down to the branding. They integrate with the health system’s EHR, adhere to their standards of care, and transfer all patients who need transferring to care sites within that health network.

George says these sites are not designated trauma centers, with no surgery services, but they do take care of, stabilize and manage trauma care patients, then make sure those patients are transferred to the right location for continued care. The average length of stay for observational patients is around 28 hours, and most patients are discharged in less than three days, at least one day less than the average.

Emerus staffs its hospitals with its own nurses and emergency care clinicians, pointing to a much lower nurse-to-patient ratio than most hospitals, and has an on-demand telehealth platform that connects its hospitals to physicians and specialists, such as cardiologists, intensivists, and infectious disease specialists.

“We’re able to discharge a very large percentage of our patients back to their homes, which is great for the community, great for the patient and great for the health system,” George notes.

“A big part of what we're doing right now is becoming a part of that brand, understanding exactly how they want to position themselves and what they represent to the communities that they serve,” adds Hall, noting that while it takes, on average, 35 minutes to get to the nearest hospital, neighborhood hospitals are designed to be 5-10 minutes away.

Looking to the future

Devine says Allegheny Health will plan carefully for any future neighborhood hospitals, taking into account not only location and access to medical offices but the population around such a site.

“We would be looking at communities that may not have the right access today [or are in] jeopardy of losing access,” he notes, adding this plays into Allegheny Health’s strategy of developing community healthcare hubs.

Devine says there needs to be the right mix of Medicaid, Medicare and commercial payer coverage to support a neighborhood hospital. Without commercial coverage, he says, the smaller hospital wouldn’t be sustainable, particularly as Medicare and Medicaid reduce reimbursements.

“You’d have to be very judicious around the patient mix that you expect to get, which would be payer mix,” he says. “And you also want to make sure that you can get those inpatient stays. Clearly an inpatient stay is very helpful to the economics, and you want to make sure that it's in an area that would garner enough visits to yield a few inpatient stays. That's the fine balance of balancing access with the economics of healthcare today.”

“Clearly, the rationale for developing micro-hospitals varies depending on the strategic aims of the sponsor,” the Erdman report notes. “Return on capital goals is different if a micro-hospital is part of a health system’s long-term master site plan for growth and a private investor’s goal is profitability. Both must remain flexible in the scale and scope of services offered as market opportunities evolve, regulations emerge, licensing and accreditation standards are codified, consumer expectations change and competition heats up. Thus, for a community hospital or health system sponsor, the investment in a micro-hospital is both an offensive and defensive strategy: to strengthen competitive positioning and protect against competitive encroachment.”