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The Microhospital: Coming To A Site Near You?

Picture a typical hospital experience: You get lost in the massive parking garage and then lost again on the massive campus. In the crowded emergency room, you flip through ratty magazines and hope to fend off everyone else’s germs.

After a few hours, you get put into a room and an overworked nurse finally brings you some Jell-O. You thought your loved ones would visit, but no — they took a wrong turn down a corridor near radiology, never to be seen again.

The Microhospital: Coming To A Site Near You?
Texas-based Emerus helped develop this microhospital, Dignity Health St. Rose Dominican North Las Vegas Campus

Texas-based Emerus offers something much different: the microhospital. 

“In 15 minutes or less, you’re in a room talking to a doctor, not a tech or a nurse or anyone else,” said Daniel Probasco, Emerus' vice president for strategy and development. “If you’re treated and released, from the time you enter to the time you leave is an hour and a half.”

Patients and families can park right by the front door. If patients stay, they check into one of about 10 or 15 beds. The Jell-O comes fast.

Emerus, which partners with existing health systems, has been expanding throughout the U.S., in Texas, Pittsburgh, Las Vegas and Wisconsin. As free-market advocates like the Koch brothers seek to repeal certificate of need laws — state-level regulations that control how many hospitals can open, and where — concepts like Emerus’ will have more room to proliferate.

Florida's recently repealed CON law will be a prime topic of conversation at Bisnow's South Florida Healthcare Real Estate event Aug. 8.

The definition of “microhospital” is fuzzy; some people might say a hospital with up to 50 beds would qualify. But generally, they are free-standing buildings that range in size from about 30K to 60K SF.

Microhospitals stay open 24/7 and typically offer the same services as an emergency department, plus labs, a pharmacy, a full radiology suite and inpatient capabilities. They do not accommodate surgeries. One emergency physician is present and in charge at all times, and other staff can be scheduled as needed.

Ninety-five percent of conditions that typically drive people to a hospital can be treated at a microhospital, Probasco said. They are ideal for people who need to be monitored overnight or have two-to-three-day inpatient stays. If patients present with very serious conditions, such as stroke or heart attack, they can be quickly triaged and sent to a major facility, he said.

Microhospitals can be built for $7M to $35M in construction costs, in as little as 12 to 14 months, according to Building Design & Construction. They can also bill patients at the same rate as acute care hospitals, and their insurance reimbursements are generally higher than urgent care, free-standing emergency departments and other outpatient facilities.

The Microhospital: Coming To A Site Near You?
Inside an Emerus microhospital.

This year, Florida repealed its CON rule, through which regulators sought to control the number and location of hospitals. CON had been instituted out of the fear that if too many hospitals are built, maintaining all of them will be expensive, and costs passed on to insurance companies and consumers. Chasing dollars, hospitals would build facilities in affluent areas and leave poorer ones as healthcare deserts, regulators worried.

With CON regulations in place, though, hospital systems are often in court, battling regulators and one another as they jockey for market share. Free-market advocates have argued that the CON system actually keeps prices high because it stifles competition. While Florida this year repealed its CON program, it remains in about 35 states — although Georgia could follow quickly behind its southern neighbor.

Hospitals are under pressure to make careful real estate decisions amid the fast-changing dynamics of the healthcare landscape. While there has been consolidation in the industry, The Wall Street Journal reported that the U.S. has more hospital beds than it needs in most markets, with the average hospital occupancy rate at 62% in 2015.

In El Paso, Texas, a company called Complete Care closed a microhospital just six months after it opened because insurance companies changed the way they reimbursed healthcare providers, and receipts suddenly dropped by 30%, the company said.

Probasco said Emerus takes all insurance, including Medicaid and Medicare, and also treats uninsured patients. Even with Obamacare again being challenged in the courts, Emerus is able to succeed because it exploits operational efficiencies, he said.

Emerus looks at potentially attractive markets, starts talking to the major systems there, and shares its analytics, Probasco said. Both sides commit capital, and they create a joint venture that carries the hospital's licensure. The microhospital is branded with the partner’s name.

“Nobody knows who Emerus is,” he said. “But they know Baptist, Baylor, Dignity. It would be silly to brand anything Emerus.”

Emerus then contracts with a developer who will construct a building and lease back the location, typically for 10- or 15-year terms. Emerus plays a role in site selection, facility design and managing construction costs. Once the team takes delivery from the developer, Emerus oversees its setup, supplies, training and opening, then runs it.

“Florida has been on our road map for a long time,” Probasco said. “There are a ton of access gaps where we can add value. With the repeal now, it’s very exciting. We can more aggressively approach the market … In every single market, there are at least two parts of town that are grossly underserved.”