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Health systems increasingly think small. At the micro level.

Expanding a health system’s footprint is about, well, getting bigger.

However, a mounting number of systems are seeing savings in shrinking hospitals instead.

Micro-hospitals are cropping up as a lower-cost alternative to larger acute care facilities with numerous service lines. Micro-hospitals are often between 15,000 and 50,000 square feet with 10 beds or fewer for short-term stays. They include front-end components, including emergency rooms, primary care and specialists. While a traditional acute care hospital looks to offer as many service lines as possible, a micro-hospital limits offerings and hospital stays while sending serious acute care cases to local hospital partners.

Health systems interested in micro-hospitals are often looking to capture patient flow without making significant investments in hospital infrastructure, Zach Hafner, partner at Optum Advisory Services, told Healthcare Dive.

These facilities offer fewer capital costs. They also meet emergency and limited inpatient need, while feeding back more serious acute care patients to a main hospital.

“Micro-hospitals fall into the realm of big investments, but not game-changer investments, so [health systems] are willing to make those bets,” Hafner said.

Micro-hospitals work best when they fill an access need — and not as purely a financial bet. A health system could drop a micro-hospital in an area and disrupt a competitor’s flow of business, Hafner added. “It’s creating new access points in areas where they didn’t exist or where they can disrupt the flow of patient volume,” he said.

Advisory Board estimates micro-hospitals look to meet up to 90% of a community’s care needs.

“While the ancillary services vary, each micro-hospital has a set of core services including the emergency department, pharmacy, lab and imaging. The rest of the services depend on the needs of the community, but common examples include primary care, dietary services, women’s services and low-acuity outpatient surgeries,” according to the consulting group.

On the flip side, health systems are also turning to these smaller hospitals as an alternative to ambulatory surgery settings, which get lower reimbursements.

What’s behind the micro-hospital trend
In a recent report, Advisory Board cited several factors driving the trend, including a bid to reach new patients, allow for downscaling or anchoring to an existing ambulatory village.

Patient convenience and access, health system consolidation and the move to value-based care are also factors. Bigger competitors are carving out broader geographies.

Traditionally, health systems have purchased physician practices or hired more doctors to grow their footprint. That’s expensive. Plus, patient loyalty isn’t as relevant now. What’s more important is convenience.

“The strategic flexibility comes from placing more convenient and accessible centers in communities where you’re going to have a certain amount of patient volume that utilizes those sites because they’re more convenient,” Hafner said.

Health systems are also turning to micro-hospitals as a way to defend against others in the market. Competitors include non-traditional participants that are opening freestanding EDs and urgent care centers.

Vic Schmerbeck, EVP of strategy and business development at Emerus, a company that partners with health systems to operate 28 micro-hospitals, told Healthcare Dive that their facilities on average see 25 to 50 patients per day. The volume depends on demographics and healthcare access points.

Emerus operates accredited, independently licensed hospitals open 24/7 and compliant with the Emergency Medical Treatment and Active Labor Act. Board-certified ER physicians and hospitalists staff the facilities.

They offer X-rays, CT scans, ultrasound and lab services, observation and short stay inpatient medical services and maintain transfer agreements with partner hospitals. About 5% of the patients require a higher level of care, Schmerbeck said.

“Health systems who partner with Emerus can extend their footprints into areas in need of improved access to high-quality healthcare and patients benefit because they receive the same high-quality services in the convenience of their own neighborhoods,” Schmerbeck said.

Micro-hospitals often have better door-to-doctor times than larger facilities. Emerus’ facilities usually see patients within 15 minutes in the ED and complete their ED visit within 90 minutes or less, he said. “They have the capability to admit patients when necessary, keeping patients closer to home and away from the ‘big’ hospital when they don’t need to be there,” he added.

Emerus’ work is growing with 20 more micro-hospitals under development, including four with Highmark’s Allegheny Health Network in the Pittsburgh area.

Another health system that partners with Emerus is Dignity Health. One of the largest health systems in the U.S., the San Francisco-based company has facilities in 21 states, including a small but growing number of micro-hospitals.

Peggy Sanborn, vice president for strategic growth, mergers and acquisitions and partnership development for Dignity Health, told Healthcare Dive the system places micro-hospitals in lower acuity population areas, where a sizable acute facility isn’t warranted.

Most of Dignity’s micro-hospitals are new builds, designed for the most efficient footprint and lower capital costs. More importantly, micro-hospitals are designed to integrate workflow between the emergency and acute components and efficiencies around diagnostics and primary and specialty care offices.

“It’s intended to be the ‘Honey, I Shrunk the Kids’ version,” Sanborn quipped about the micro-campus goal.

Growing market presence and building large facilities are expensive. Micro-hospitals are a way Dignity Health can expand in a market without heavy investment. Sanborn said one reason for Dignity’s move into micro-hospitals is that contemporary patients have a more consumer-centric view of healthcare.

Sanborn said an essential part of micro-hospitals is that they’re one piece of an extensive health system. They’re fully integrated into a system with primary care and specialists, acute care facilities, ambulatory surgery centers, freestanding imaging centers and post-acute care.

Another increasingly important factor is that micro-hospitals will help in the value-based environment. Value-based care will require systems to manage patients’ lives and health more effectively, Sanborn said.

Dignity Health’s micro-hospitals’ results so far are encouraging. The company reports 90% patient satisfaction, average door-to-diagnostic evaluation of 13 minutes and median time for ED arrival to ED departure of 93 minutes.

What could stall the movement
There are hurdles, including 34 states with some form of certificate of need laws that can limit micro-hospitals.

Advisory Board said micro-hospitals have only opened in states without CON laws. Schmerbeck is hopeful that states with CON laws will amend them to enable systems to reallocate beds and spread their footprint through micro-hospitals.

Another barrier is payer policies that increasingly push foot traffic away from hospitals and toward lower-cost facilities. Anthem has been leading the effort, but it’s far from the only insurer looking to cut costs. The payer created policies over the past year that reduce payments to hospitals for unneeded ED visits and imaging at hospitals.

Insurance companies will continue to push for appropriate care in the most appropriate locations. That could be difficult for all hospitals — regardless of size. No matter how much cost micro-hospitals take out of the system, they’re still more costly than ambulatory services, Hafner said.

Another issue for micro-hospitals is making sure that consumers, payers and regulators understand what they offer and how they differ from acute care hospitals and other types of facilities like standalone EDs.

Consumers must also understand micro-hospitals offer a different level of service than ambulatory settings. Branding a micro-hospital with a well-respected health system brand is one way to set it apart from other facilities in the industry.

Hafner warned that increasing hospital capacity isn’t the answer to finding the lowest cost solutions for care.

Though micro-hospitals have found success in suburban areas, Schmerbeck said they could find a home in rural locations. They could be seen as a better alternative to critical access hospitals. He said many critical access hospitals operate like a micro-hospital already, but in much larger physical plants with higher costs and too many service lines. That hurts critical access hospitals’ finances.

“There is more work to be done on this point to determine the best healthcare alternatives to serve rural communities going forward,” Schmerbeck said.

Whether building smaller makes more sense depends on geography and situation. Nevertheless, healthcare consumerism and growing concern about meeting patient care expectations may ultimately decide whether micro-hospitals become a way to effectively grow a health system’s footprint, while also enjoying hospital-based payer reimbursements.

“I think that more and more as we try to transform how we deliver care to push it out toward our patients and better serve our communities and be more consumer-centric in the way we look at patient care, these have a clear role in facilitating our ability to do that,” Sanborn said.

Article Originally Posted on Healthcare Dive