According to data from the Kaiser Family Foundation, about two in five hospitals (39%) are operating with negative margins, while nearly one in five (22%) have margins of less than –5%. Even more staggering, the American Hospital Association’s (AHA) “Costs of Caring” report shows that the number of days of cash on hand for hospitals and health systems has declined by 28.3% since 2022.

These ongoing capital constraints limit health systems’ ability to build new hospitals or invest in real estate, despite the ongoing need for more access to community-based healthcare services. This poses challenges for hospital systems’ financial and operational performance, contributes to nurse and physician burnout due to labor shortages, and ultimately affects patient care.

To help offset development costs, expand capacity and build new facilities closer to patients in their communities, health systems are turning to the neighborhood hospital model. These freestanding facilities are designed to bridge the gap between urgent care centers and larger medical centers by providing emergency care, inpatient care and other essential medical services.

By partnering with neighborhood hospital operators, hospital systems are able to create more integrated and comprehensive care networks while building out their footprint. This efficient and effective use of capital enables hospital partners to extend their geographic reach and market share at a fraction of the cost of going it alone.

Through this type of joint venture model, health systems fund 10% of the start-up capital costs of each facility yet earn 51% of operating net income. Hospital developers and operators handle site selection, patient demographics, construction, staffing, operations and marketing—requiring minimal effort for the health system partner. In addition, leveraging a partner’s already established brand name, recognition and reputation in their community makes it easier to open new facilities, drive growth, extend reach, and deliver care in the neighborhoods where people live, work and play—all while accelerating speed to market. Each facility is strategically located in convenient, retail-centric areas and brings nearly 90% of patient care needs into the community, many of which are underserved or rural areas.

From a financial perspective, the risk is spread out to ensure strong cash flow to all stakeholders and consistent reimbursement rates based on hospital system payer contracts. The model also provides clinical and operational efficiencies to drive lower episodic and total cost of care.

Hospitals are staffed by emergency medicine physicians and highly trained nurses. For inpatient care, many of these neighborhood hospitals are designed as a 100% virtual physician model. Inpatient treatment is led by a hospitalist and supported by a team of physicians across a variety of disciplines. This provides access to specialty care experts such as cardiologists, intensivists, infectious disease and mental health professionals to ensure that patients receive high-quality care without the need for costly travel. Not only does the patient spend less time traveling and being seen at a facility, but this model also optimizes staffing and reduces overhead costs for healthcare systems, as well.

A study from AHA shows telehealth is now considered a routine way for patients to access health care services and for providers to treat patients in their local communities and beyond, with nearly 87% of hospitals utilizing this service—up nearly 15% from five years prior.

In each of the communities we are privileged to serve, our hospitals take on the brand of our health system partner, integrated with the broader care delivery system as well as their EMR. In most cases, our health system partners co-locate other ambulatory services in support of the community. While the hospitals may look different on the outside, what’s inside is the same. Each facility has 16-24 rooms and beds and provides seamless access to emergency care, inpatient, short stay care and observation care, as well as diagnostic services including ultrasound, computed tomography (CT), X-ray and laboratory services. They are open 24 hours a day, seven days a week and the inpatient bed capacity allows patients to stay closer to home when lower-level admissions or recoveries are needed.

It may come as no surprise that these factors—including private rooms, 24-hour family access, and the ability to transition to higher levels of care—have led to inpatient satisfaction scores in the 85th percentile.

As health systems consider growth opportunities, traditional facility options such as ambulatory centers, urgent care sites and freestanding emergency departments are not always sufficient, or economically feasible. Neighborhood hospitals are quickly emerging as an innovative and efficient solution, providing entry points into markets where demand would not be able to support a full-scale hospital.