Micro-Hospitals: A Unique Opportunity to Deliver Care to Underserved Areas Amidst the Transition to Value

Micro-Hospitals Defined

While the health care industry continues to shift from volume to value, costs of inpatient care continue to rise, averaging $2,346 per inpatient per day. Consequently, payers and providers are seeking new ways to reduce hospital length of stay (LOS) and deliver care at less costly locations. One such mechanism is the emerging trend of “micro-hospitals,” sometimes referred to as “neighborhood or community hospitals.” Categorized as small-scale, inpatient facilities with 8-15 short-stay beds, these facilities can perform some simpler acute and emergency services that are commonly performed at larger hospitals, while offering a more convenient, less costly point of care.

Location, Location, Location

Micro-hospitals began appearing within the last ten years as an outgrowth of freestanding emergency departments (EDs). To meet demand, hospital systems often open freestanding EDs and then begin to build a mini-campus that includes a small hospital and outpatient buildings with doctors’ offices as additional services are needed. As of Q1 2017, there are micro-hospitals located in in 19 states, typically appearing in underserved urban or metro areas that are farther away from large hospitals. These hospitals have been successful in markets where there are service gaps but the population is too small to support a full-service facility. The hospitals are typically affiliated with a larger health system that is roughly 20 miles away in case a transfer is necessary for high-acuity needs.

The growth of the micro-hospital trend depends largely on local dynamics: geography (rural vs. metropolitan areas), whether a state has a certificate of need (CON) process, and the level of hospital competition. In 2016, Illinois-based Mercyhealth applied to build a 13-bed micro-hospital in the Chicagoland suburbs. Prior to this new micro-hospital proposal, state-regulators had twice rejected expansion proposals submitted by Mercyhealth. The system is hoping that its latest proposal to shift 11 medical-surgical beds and two intensive-care beds from one hospital to another, rather than creating new patient beds (in a state with many vacant beds), will be approved.

Although some systems like Mercyhealth are approaching the micro-hospital concept alone, elsewhere these hospitals are popping-up via partnerships and joint-ventures (JVs). Both Dignity Health (Nevada) and Memorial Hermann (Texas) have entered into JV relationships with Emerus, a micro-hospital company. As of April 2016, Emerus operated 16 micro-hospitals and had more than 20 additional in development.

Going Small: Advantages and Disadvantages

As the fee-for-service (FFS) model of health care moves to value-based payment programs that put providers at financial risk, hospital systems can leverage micro-hospitals as access points in the community to offer convenient care at a fraction of the cost of going to the hospital. Additional advantages, and disadvantages, are outlined below.

Advantages of Micro-Hospitals

  • Less costly to build: generally ranges $7-$30M
  • Quicker way to expand geographic footprint
  • Higher reimbursement rates than an urgent care or doctor’s office
  • Customized sites that fit the needs of a particular population
  • Reduced ED wait-times
  • Patient is less likely to experience their attending doctor or specialist to be pulled away
  • Accessibility: open 24-hours, 365 days a year
  • Increased patient convenience
  • Decreased physician burnout, compared to higher-acuity setting
  • Subject to the same rules and regulations as traditional hospitals and as such, are exempt from the site neutrality rules that traditional ambulatory surgical centers (ASC) or urgent care centers are subject to

Disadvantages of Micro-Hospitals

  • Not equipped to handle extreme medical situations (e.g., heart attacks) or massive influxes of patients (e.g., multiple vehicle accidents)
  • Tend to be lower-grade trauma centers (levels IV-V)
  • Some may not generate revenue enough to immediately offset the expenditure
  • No two, even when owned by the same parent system, may be alike and cause patient confusion
  • Sites may lack necessary care for some patients (e.g., pediatrics or maternity)
  • States may have a Certificate of Need (CON) process: in order to build a micro-hospital in states with a CON process, the same steps to construct a full-service hospital must be undertaken, which may lengthen construction time.


Amidst political uncertainty over the future of the American Heath Care Act (AHCA) and that it may leave 23 million more Americans uninsured, micro-hospitals present an opportunity for health systems to bring critical services – such as primary care – to underserved areas in a way that is unique to a specific market’s need. In addition to closing care and geographic gaps, micro-hospitals can play an important role in a system’s overall value-based care strategy by shifting patients away from costly points of care while keeping them within the system.

To read more about additional interesting opportunities to support the transition to value, please visit additional Leavitt Partner’s blogs on the Comprehensive Care for Joint Replacement (CJR) model, or bundled payments.