Why Health Care Systems Are Building Micro Hospitals

Feb 26, 2018

At the northeast corner of US Route 30 and Agnew Road in Westmoreland County, there’s a sloping, nine-acre lot of mostly gravel and overgrown brush.

“Most people think ‘hospital,’ think 150, 200, 300 beds,” said David Goldberg, executive vice president at Allegheny Health Network. “Our hospital will take up about 23,000 square feet. And when you put that in perspective, it will be about 10 beds for inpatient care. And about eight to 10 bays for emergency services.”

David Goldberg, executive vice president of Allegheny Health Network, stands at the site of a future micro hospital in Westmoreland County.
Credit Sarah Boden / 90.5 WESA

Goldberg is spearheading AHN’s venture into micro hospitals. These stripped-down facilities have been cropping up around the country; the one slated for the corner of Agnew and US 30 will be among the first in Pennsylvania.

Micro hospitals offer more limited care than regular hospitals, which generally offer a broad range of services, including maternity wards and surgery. Patients won’t be able to get angioplasties at micro hospitals, but they will be able to get treatment for broken bones or pneumonia. There’ll also be primary care and offices for various specialties, like perhaps cardiology or orthopedics.

“Bringing care to the community reduces the burden on the family, reduces the cost to the family, and to those who insure our patients and the copays they layout,” said Goldberg. "[Patients] can heal closer to home."

Tory Wolff, the co-founder of the Massachusetts-based firm Recon Strategy, which specializes in health care regulations and trends, said this expansion by health care organizations into suburbs and exurbs is, in part,  driven by patient preferences.

“You want to be readily accessible so that patients will want to, when it’s appropriate, come in to and see a doctor or see nurse so they don’t wait and wait and wait and end up in an [emergency department] with something that’s very serious,” said Wolff.

This convenience benefits not only patients, but also hospital systems looking to tap into more affluent markets.

Corner of US 30 and Agnew Road in Hempfield Township, Westmoreland County, the site of a future AHN micro hospital.
Credit Sarah Boden / 90.5 WESA

“This might be a market that has a lot of commercially insured patients, and commercial insurance tends to pay much higher than Medicare and Medicaid,” said David Muhlestein, chief research officer at Leavitt Partners a health care consulting firm with offices in Salt Lake City, Chicago and Washington, DC. “It allows them to...attract some of those better-paying patients.”

AHN said it choose Westmoreland County due to a larger concentration of people with Highmark insurance; parent company Highmark Health also owns the AHN hospital system.

However, there’s already a hospital in the area that accepts Highmark insurance. Just three miles to the east on US 30, sits a 373-bed hospital owned by Excela Health.

Back in December Excela's CEO  Bob Rogalski told the Tribune-Review, “I think it's predatory...There's no need for this development. None whatsoever.”

Allegheny Health Network's illustration of a proposed neighborhood hospital. The first of four will be located in Westmoreland County.
Credit Allegheny Health Network

AHN’s David Goldberg said the new facility won’t be redundant, pointing to Highmark analysis that shows residents in Westmoreland County spend $140 million dollars on medical services outside the county.

“We hold [Excela] in high regard," said Goldberg. "We don’t believe its competition. We believe it’s enhancing the health care fabric.”

Research analyst David Muhlestein said that larger hospitals are more expensive to run and health care systems often look to increase revenue by developing other service lines such as micro hospitals, which are cheaper to both build and operate.

“When you have a facility, particularly if you are able to operate it at a lower expense, you’re still getting the same hospital payments for that,” said Muhlestein. “That kind of makes it a very financially favorable facility to create.”

AHN plans to announce the locations for three more micro hospitals in the near future. And if the model proves successful, other medical systems might follow suit.

WESA’s Bridges to Health covers the well-being of Pennsylvanians and is funded by the Jewish Healthcare Foundation.