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How to know whether a micro-hospital is the right investment

September 11, 2018

    As inpatient volumes lag and profit margins shrink, hospitals have continued to look to alternative sites of care—such as the micro-hospital—to capture growth.

    Health systems have turned to micro-hospitals as a way to expand their geographic footprint, tap into outpatient demand, and generate downstream revenue while avoiding the overhead associated with full-scale facilities. But how can you judge if the site is right for you? Here are 3 questions to ask yourself before adding a micro-hospital to your system portfolio:

    1. What are your goals?

    2. If you're looking to expand your geographic footprint, fill care gaps, or fend off competition, the micro-hospital could be an effective strategy.

      For example, Dignity Health partnered with Emerus to build four "neighborhood" micro-hospitals in Las Vegas. Their North Las Vegas facility filled gaps in primary and specialty care, and offered flexibility in responding to market demand. Their South Las Vegas micro-hospital helped defend against competition with consumer-oriented care. Dignity also saw success downsizing some of their full-scale hospitals to micro-models.

      If your primary goal is to control the cost of care, generate downstream admission revenue, or guard against regulation uncertainty, alternative ambulatory sites may be a better fit.

    3. Are there better alternatives?

    4. Now that you know your goals, consider if a different site is a better alternative.

      Ambulatory surgery centers (ASCs), freestanding EDs, urgent care centers, and medical offices are models to consider when scoping a micro-hospital investment. These facilities vary in their potential to generate revenue, control costs, influence quality, avoid regulations and undercut future risks:

    5. Can your market support the investment?

    6. If you're still thinking "micro," size the opportunity by estimating latent demand and considering what business you're able to divert from competitors.

      Then, account for the dynamics of your population and region. Micro-hospitals have seen success in urban, suburban, and rural markets as long as they are tailored to specific inpatient needs. Your ability to derive an ROI will largely depend on your population's demographics. Areas with higher incomes and high projected population growth relative to nearby markets offer a more favorable and immediate return on investment.


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