Micro-hospitals: Smaller facilities with a big future
Convenience, according to a November Retail Wire report, is the make-or-break element that brick-and-mortar retailers need to succeed in today’s next-day-delivery economy. It should be no surprise then that this on-demand generation of consumers — which has expanded to include more than just the millennial demographic — wants its healthcare delivered as easily and as painlessly as possible.
In Modern Healthcare’s annual Construction & Design Survey, respondents echoed that sentiment, saying that healthcare industry growth would be especially strong in outpatient and retail clinics. And despite best guesses about how the Trump administration’s attempts at healthcare reform will shake out, all indications are that smaller is better, even in the eyes of large health systems.
Pennsylvania-based Highmark Health, for example, announced plans last month for a $700 million Pittsburgh-area expansion, which not only includes a 160-bed hospital but four 10- to 12-bed micro-hospitals, each with a 24/7 emergency room and primary and specialty medical services. The micro-hospitals will be 15,000 square feet to 60,000 square feet. According to U.S. News & World Report, the average size of a large hospital is 74,600 square feet.
James Crispino, director of health and wellness at Gensler, said most hospitals are designed for an 85% occupancy rate, reserving the extra space for natural disasters, mass casualty situations or other events that require space flexibility.
However, Crispino said, that occupancy rate has been trending toward the mid-60% range for the last three or four years. “What this is telling the healthcare industry,” he said, "is that we don't really need as many beds.”
What is reducing demand? According to Crispino, the average length of a hospital stay has dropped from seven to eight days to four to four-and-a-half days because, for starters, a greater number of procedures can be done on an outpatient basis.
For example, hip or knee replacements used to require as much as a week’s stay in the hospital. But now some of those procedures can be performed in the morning, with the patient back home by the afternoon. "Now it is about getting them up on their feet,” he said.
Another major driver in the shift to outpatient care is that the same consumer who is looking for a convenient retail experience also is searching for a relatively easy, accessible doctor’s visit.
To achieve that experience, Crispino said, healthcare systems may take on some new, unconventional directions and pointed to this week's announcement of the proposed purchase of Aetna by CVS. While CVS is not a traditional health provider, it has made inroads into the space with onsite medical clinics. But beyond that, the Aetna/CVS deal is an example of pairings that just a few years ago would not have been an obvious fit.
State Requirements Rule
Most new hospitals are subject to state and local regulations. Missouri, for instance, requires any health care facility that costs $1 million or more to be evaluated and approved by the Missouri Health Facilities Review Committee. In order to meet state regulations, the Patients First physician group in Washington, MO, in 2012 kept its three-bed facility’s costs to less than $1 million ($953,750), according to the St. Louis Business Journal. A large area hospital filed legal challenges in an attempt to scuttle the project, but Patients First ultimately prevailed.
Dr. Tom Davis of Tom Davis Consulting worked for Patients First through December 2015, and said the three-bed facility did well financially while he was there. However, he said it was no easy feat keeping costs in check. Davis said he views the micro-hospital concept as more of a “loss leader” that is a feeder system for larger health systems that want to attract patients to more profitable major medical centers.
"Without carved-out regulatory requirements, micro-hospitals do not generate enough value to justify their ongoing operating costs in most cases," Davis said. "Without the benefit of scale, it is simply too expensive to deliver inpatient services through these small hospitals. Add in the liability risk incurred by the limited services provided, and the value generated is in no way worth the costs.”
But as a feeder system, or “hub and spoke,” said Robert Garcia, vice president at national real estate firm Transwestern, micro-hospitals can be of real service to rural communities where distance keeps patients from getting to a far-away hospital in times of emergency or simply for a well visit.
One frustration, Garcia said, is that regulations governing big hospitals apply to micro-hospital applications. For example, Texas regulations require that hospitals set aside an office each for IT and medical records. In a large hospital setting, it’s easy to make space for those functions, but, with a limited footprint, two offices take away from valuable space.
However, future construction of micro-hospitals, Garcia said, will likely be more affected by location. “I think we’re becoming more intelligent about assessing the needs of the community,” he said. “Everyone’s becoming more strategic.”
Garcia added micro-hospitals, for example, might cater to orthopedics in an area with a younger demographic or to cardiovascular specialties in a community with a large population of aging baby boomers.
Other Hospital Construction Trends
EIR Healthcare in New York City has taken the micro-hospital concept and paired it with another trend in the construction industry — prefabrication. EIR provides a turnkey solution for health systems that want to construct smaller facilities with modular components, fabricating the pieces in industrial shipbuilding facilities in Italy and Finland. EIR CEO Grant Geiger said shipbuilding technology is very precise, which he added is what the patient rooms – the modular portion of the micro-hospitals – require.
As important, Geiger said prefabricating can shave as much as six months off the typical ground-up construction schedule and save 10% to 20% on the budget, depending on the finishes and the equipment the end-user wants. Consistency and cost savings, which are easier to achieve with modular components, the EIR executive said, make for a happier customer.
“[Each micro-hospital] will be the same everywhere,” he said. “They can build technology into the system so that when you open the facility, it’s there day one.”
But don’t expect micro-hospitals to look the same across the U.S. To a regional health system, a micro-hospital might translate to seven or eight beds. For a larger health system that’s trying to downsize from several hundred beds, micro might mean 50 beds. “The definition of it will evolve over time,” Geiger said.
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