How big of a threat can a 13-bed hospital really be?
In a state with a glut of empty hospital beds, what health system would think of pitching yet another medical center?
Well, this one is tiny. It's a micro-hospital, a concept that has taken off in other parts of the country but has yet to take hold in Illinois. A proposal by Mercyhealth to build a 13-bed hospital in far northwest suburban Crystal Lake would be a first for this concept in the state, and it's drawing fierce blowback from neighboring rivals worried about losing patients.
Micro-hospitals can be alluring for health systems for a host of reasons. They expand a network's footprint more quickly (and cheaply) into new communities compared to full-service hospitals. They're shiny and new for patients and keep them within the system as insurers hold hospitals more financially accountable for the care they provide. These facilities can charge consumers more for visiting their emergency departments than at an urgent care center or doctor's office.
But Illinois operators haven't been biting. State law requires that licensed facilities have at least 100 patient beds, though Illinois regulators have a track record of approving controversial projects that don't meet the state's standards. (Mercyhealth acknowledges that its plan falls outside of requirements.) Plus, the market is saturated with medical centers—95 in the six counties in and around Chicago alone—already saddled with empty beds. With an eye toward prevention, health systems are wooing patients by adding more clinics and outpatient surgery centers, not extravagant new hospitals.
"I would imagine a lot of traditional hospital administrators would look at a (micro-hospital) and say, 'We can't run that efficiently,' " says Fred Bentley, a vice president at consultancy Avalere Health in Washington, D.C. "There are just basic operating costs that you have to have. You're not going to bring enough patients in to pay for it."
The cost of maintaining a 24-hour freestanding emergency department is a lot more than an urgent care center with extended hours, says Dr. Robert Pryor, a senior vice president at consultancy Kaufman Hall in Skokie. He's a former Texas health system CEO who opened micro-hospitals there.
TREND ACCELERATES ELSEWHERE
Micro-hospitals have popped up in places where there's a perceived gap in care, including Arizona, Nevada and Colorado. They look like general hospitals, but on a smaller scale: a dozen beds or so, an emergency department, a lab and a pharmacy. They take on patients who might need to stay overnight (think dehydration or chest pain short of a heart attack) but transfer more complex cases to bigger hospitals.
Experts say these small facilities started to crop up in the last decade or so as an outgrowth of freestanding emergency departments. Systems would open a stand-alone emergency department, then add a small hospital, then an outpatient building full of doctors' offices. Ultimately, they created mini campuses, boosting their market share.
In Illinois, the smallest hospitals typically operate in rural areas, places where the next closest medical center is at least 35 miles away. They're kept afloat financially with help from the federal government.
In January, Rockford-based Mercyhealth, a five-hospital network, proposed a 13-bed micro-hospital along with an adjacent medical office building in Crystal Lake. It's the system's second pitch to regulators in six years to open a hospital there (regulators approved rival Centegra Health System's Huntley hospital plan instead). The $81.7 million hospital would not add beds to the area. Instead, Mercyhealth plans to shift 13 beds from its hospital in Harvard to the Crystal Lake proposal. A $23.8 million medical office building would be connected to the building.
In its application to state regulators, Mercyhealth says it's targeting those who need outpatient care, Medicaid patients and a growing baby-boomer population that now leaves the area to find doctors.
During a February public hearing on the proposal, Mercyhealth CEO Javon Bea said the micro-hospital would lower medical costs and improve patient care, according to a transcript. "We understand this is a new concept in Illinois, yet many other states across the country are succeeding with the micro-hospital model," Bea said. "We have effectively been doing the same with our small Lake Geneva and Harvard critical access hospitals."
He declined to comment for this story.
Neighboring rivals say the project isn't needed and puts patients at risk if they're seriously injured and don't realize that a micro-hospital doesn't have the capabilities to treat them. Crystal Lake-based Centegra has three hospitals less than 10 miles from Mercyhealth's proposed micro-hospital. Advocate Good Shepherd Hospital in Barrington is just as close.
Hadley Streng, a Centegra senior vice president, says in an interview: "The application that they have truly is just another attempt at trying to get a larger facility in Crystal Lake where we don't believe one is needed."
If Mercyhealth wins approval, it can look to Dignity Health for tips on how to run these tiny facilities. The San Francisco-based hospital network, one of the largest nonprofit health systems in the nation, has been a pioneer in the concept. It has one 16-bed micro-hospital in Phoenix, with plans to open another in Phoenix and four in Las Vegas by year-end.
So far, the Phoenix facility has helped attract new patients to the system and kept them seeing doctors within the network, says Peggy Sanborn, a Dignity Health vice president. But the concept hasn't been a money-maker. Though it's a lean operation, Sanborn says the facility has a small monthly operating loss.
"How big of a threat can a 13-bed hospital really be?" originally appeared in Crain's Chicago Business.
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