Special Treatment?

A second wave of wellness center construction has hospital administrators talking about a continuum of care - and some club owners charging unfair competition.


The number of hospitals building state-of-the-art wellness centers - those incorporating diagnostic and rehabilitative elements within a framework of recreational components normally found in health clubs and community centers - has doubled in just three years, and more are on the way. Almost a decade after the wellness center concept was nearly KO'ed by bottom-line-watching hospital CEOs, health-care systems around the country are re-entering the fitness business in force.

This time around, the centers are bigger, more multipurpose and frequently stand-alone centers on or off hospital campuses. They are apt to have more pieces of equipment, and more kinds of equipment, than their forebears. Stand in their lobbies, swim in their pools, shoot hoops in their gyms, and you'd swear you were in a municipal rec center or an upscale club.

The difference, say hospital administrators and the architects and consultants creating these facilities, is that you might also be able to undergo arthroscopic surgery on-site and then rehabilitate your injury under the supervision of a medically trained staff. Yet, with many more health clubs and community rec centers adding medical components and partnering with health-care systems and individual physicians, the lines between all these facilities are becoming increasingly blurred, medically speaking. The most high-volume, high-turnover, hard-body fitness factories are investigating joint-venturing possibilities, and some are clearing room for new health-care services. Even the Bally's chain of clubs, as Neil Sol, president of Denver-based Health Vantage Inc., notes, is putting in physical therapy centers. "Everybody sees an opportunity here," says Sol.

As with the rise in city/YMCA joint ventures (see "Togetherness," October 1996, p. 31), the hospital wellness center movement - more specifically, some hospitals' tax advantages - has some in the for-profit club industry seeing red. Mike Talla is pushing his Los Angeles-based The Sports Club Co. toward several hospital/club partnerships, but is wary of becoming an unequal partner.

"Obviously, anywhere you can build a wellness center or health club is good for people, good for the industry and good for business," Talla says. "Doing them is a no-brainer. It's a matter of who you do business with, really, and what are their motives? A number of hospital administrators we've dealt with are very honorable and forthright and will say up front what their intentions are. But I believe at least 90 percent of them are just fishing for free information under the disguise of looking for a partner."

Says Jeff Bensky, whose St. Louis-based The Benfield Group Inc. performs feasibility studies and assists with joint-venture facility design and development, competition in this arena cuts both ways.

"Commercial clubs have a set of retail competencies that the hospitals sometimes do not have, and hospitals have image equity that clubs could not duplicate unless they re-formed, started talking like health-care providers and waited for 60 years to pass," says Bensky. "Joint-venture facilities work when there's a mutual respect of those two core competencies. They break down when the club says to the hospital, 'We want to use your deep pockets to help us achieve our dream of building a bigger facility,' or when the hospital comes across as saying to the club operator, 'We really could do this on our own, but we'll let you manage our facility.' "

Akron General Health and Wellness Center sits a full 12 miles from the main campus of Akron (Ohio) General Hospital. Its 197,000 square feet include an exercise floor featuring state-of-the-art fitness and audiovisual equipment, a lap pool and whirlpool, a full-size gym and jogging track, a children's fitness area and play area, and two aerobics studios. Both men's and women's locker rooms include saunas and steam rooms. The building's lobby control desk is outfitted with an electronic check-in system.

Still in its first year of operation, it is widely seen as one of the country's premier models of integration of recreational and clinical services - including facilities for sports medicine, physical therapy and cardiac rehabilitation programs, as well as a mammography clinic, physicians' offices and an outpatient surgery area. And Akron residents have noticed; approximately 4,200 people have membership privileges through LifeStyles, the fitness portion of the facility. Participation in physical therapy programs this spring was up 260 percent over last year, and the number of diagnostic procedures performed had doubled.

Who are these new patients? According to David Fenn of TC Architects in Akron, which designed the facility, demographics played a key role in the hospital's decision to locate the new facility in a rapidly growing suburban area.

"More and more, the new hospital wellness centers we're hearing about are moving away from the conditions typical of urban hospitals, the parking decks, that sort of thing," Fenn says. "At Akron, there's about 40,000 square feet of office space for doctors. Patients like the safety of it and there's lots of parking, so it's more comfortable for them even if they have to drive a couple miles further to get there."

Fenn refuses to characterize the move as hospitals going to where the money is. Rather, he believes hospitals' object is to increase their territory, with the new satellite facility serving as a feeder system to the main hospital.

"They are reaching into areas that they didn't feel they served before," he says. "It's one of those situations where if you're not growing, you're dying."

Interestingly, though, Akron's wellness center represents both a reaching out into the suburbs from an urban core facility and a consolidation of existing outpatient services. Prior to building the new facility, Akron General had been leasing space for a variety of suburban satellite clinics, according to Doug Ribley, who almost two years ago left an 18-year career in the commercial club industry to run the new wellness center. Those far-flung clinics were closed and the various outpatient services were brought into the new facility.

Where other hospitals gain by creating a presence in a number of markets, there is a substantial benefit to Akron General in pulling all these services into one location.

"One of the beauties of integration is that all the costs - building expenses, depreciation, utilities - are shared by each of the hospital's divisions," Ribley says. "As a result, we're able to offer a high-end product at a middle-of-the-road price. It's a major breakthrough as it relates to the delivery of preventive services."

A hospital can center its outpatient services in an upscale neighborhood and still accomplish its goals elsewhere, Bensky says. Akron General, he says, has consolidated services but kept its outreach program very active.

"Anytime you plan a commercial facility that has a retail component, you have to put it in a place where the discretionary income is sufficient to support membership in the retail component," Bensky says. "Akron General found a place where the discretionary income was reasonable, but they continue to reach back into underserved communities in a sort of hub-and-spoke arrangement with local schools and churches. We probably have 15 clients who are doing that right now."

As suburbs become even more spread out, communities can support any number of wellness centers, suggests Mike Stein of OWP&P Architects Inc. in Deerfield, Ill., a firm that has helped the Chicago area maintain its reputation as the nation's hospital wellness center hotbed. (Its suburbs are home to 50 of the roughly 350 centers currently in operation in the United States.) "The capture area for these centers is relatively small," Stein says, "usually anywhere from a five- to eight-mile radius. People are sensitive when it comes to driving long distances for outpatient services."

One of OWP&P's newest centers, Northwest Community Healthcare Wellness Center in Arlington Heights, Ill., is more typical of hospital-based centers than Akron General, both in terms of its location (on a suburban hospital campus) and size (85,000 square feet). Stein says that, yes, hospitals like Northwest seek "upscale areas that yuppies are flocking to," but that hospitals' motives go a lot deeper than revenue generation.

"Northwest, as a non-profit entity, did not get into this to make money, although they wanted it to turn a profit so they could use the money to fund community education programs," Stein says. "For so many years, hospitals have been reactive, just taking care of sick people, and since they've started to become more proactive they'll probably save themselves money in the long run by keeping people healthy. But believe it or not, a lot of hospitals are building these centers because it's the right thing to do."

Those with long memories will recall that a lot of hospitals tried this about 15 years ago and got burned, which raises the question: Is altruism merely a more lucrative proposition now than previously, or are hospitals doing something different this time around?

"Hospitals are more motivated by profit now because their other businesses are not as profitable as they used to be," responds The Sports Club's Talla. "They can't carry these things like they used to, which is good - they're starting to think the right way."

True, says Sol, things have changed substantially.

The first wave of hospital wellness center construction occurred in the mid-1980s. A move away from fee-for-service types of health insurance led hospitals to empty their beds as a way to control costs, which naturally cut into revenues. Wellness centers, seen as a way to diversify revenue streams, were expected to be profitable, but most weren't. "The problem was they did it with physical trainers and nurses who didn't have a clue about running customer-retention businesses," says Sol, voicing a prevalent view.

Wellness centers were small and typically relegated to the lower levels of existing hospitals, limited in scope by those older buildings' infrastructure and design. In addition, while hospital administrators' stated purpose was to use the centers as conduits to capture incremental patients (the 80 percent of Americans without physician relationships), few understood the necessity of creating value in the marketplace by charging market rates for such services. Although they'd supported creating wellness centers as loss leaders, hospital CEOs looked at what was spent on hospital health promotion and decided it was a losing venture. Many centers were closed.

Then, in the early '90s, the concept of managed care came to the rescue. Suddenly, hospitals had an actual financial incentive not to attract more patients to the hospital, but to keep people from becoming patients in the first place. As health-care reform was becoming the new decade's dominant social issue, facility construction was viewed as hospitals' best chance to capitalize on changing times.

Not all hospitals have gone the construction route, however. Some have purchased existing clubs and upgraded them, as happened in Cape Girardeau, Mo., where Universal Physique, a bodybuilding gym, became the St. Francis Health and Wellness Center. Other smaller, more rural hospital systems have created cooperative programs with for-profit clubs and YMCAs. What's clear is that whatever route they have taken, hospitals have learned some of last decade's harder lessons.

"The second time around, hospitals are bringing in people who have expertise in this area," says Ribley. "This time it's for real. Every hospital in the country right now is at least talking about this kind of project."

Some think that now, as then, most talk of construction is just talk. "Trends are trends; they're cyclical," says Scott Chovanec, corporate director at Advocate Fitness, a division of Advocate Health Care in Park Ridge, Ill. "I'm seeing an opportunity for hospitals that cannot afford to build these facilities looking to partner where they can. But we've probably created more partnerships than we've ever built facilities for."

The problem, in Chovanec's view, is threefold. First, the possibility of further changes to the American health-care system makes it difficult for many hospitals to commit capital toward construction. Second, he says, the kind of capital necessary to build state-of-the-art, standalone facilities is beyond the reach of most hospitals. Third, construction in many cases may not only be unnecessary, but unnecessarily competitive. "Many hospitals would rather partner than build," he says. "We're partnering with a large family-owned private club. Why. For one thing, they've got a great reputation in our area. It would be foolish for us to try to build anything to compete against them."

The Benfield Group's Bensky says that 22 years in the business will give just about anyone a sense of déjà vu. ("I've watched the waves," he says.) But several factors have convinced him that this hospital wellness center boom will succeed where the last one failed.

"There is still a very thin layer of competent hospital-based wellness center management types, but the number has expanded dramatically over the last five years as we've started recruiting people from the commercial side and training them in health care," Bensky says. "Also, there's a revolution in health care. Twenty years ago, customers had to come to hospitals because they had no choice, but now hospitals are much more responsive to their target markets. This business niche - integrated wellness services - fits that orientation to a tee."

If Akron General had one concern about opening a large satellite facility, it was whether the wellness center would simply siphon off patients from the main hospital. Asks TC Architects' Fenn, "If you build a facility and business goes gangbusters, where's the business coming from. Are you just draining it off the hospital, or is it new business?" Preliminary figures (including a record first quarter in 1997 for the main campus) indicate Akron General is drawing many new referrals from doctors who didn't do business with the hospital prior to the wellness center's opening, but as Fenn says, "You can do all the studies in the world beforehand, but until you open the doors you never really know."

The center is tracking other numbers in the hopes of countering the commercial clubs' argument that non-profit hospital wellness centers are in direct competition with existing for-profit facilities. Ribley reports the average age of his primary members is 49 years old. Seventy percent exhibit high-risk factors (orthopedic or cardiovascular), and half have never been a member of a club before. "I think we're seeing what we've been reading about for years - an older, deconditioned population who know they should be exercising but feel uncomfortable going into a traditional commercial setting," Ribley says. "There are several commercial clubs that have been in existence for many years right around us. I talk with them on a regular basis, and they seem to be doing just fine with their group of members. We're getting the people that they've been banging their heads against a wall trying to get for years."

"That's a smokescreen," counters Talla. "The average age of our members is 41. There's probably a crossover with our membership of at least 70 percent. Non-profit's are building big multipurpose centers with a swimming pool and tennis and basketball courts that cater to the whole family. They say they cater to the deconditioned market and the older market, but we cater to both those markets too."

Obviously, estimates of the percentage of crossover membership vary. Bensky says the number is "no more than 20 percent and probably closer to 15 percent," while Chovanec places the number between 25 and 40 percent. "Quite honestly, we attract a fair number of people who could go to another facility," Chovanec says.

Regardless of the overlap, Bensky says, the recent success of hospital wellness centers across the country is proof that the clubs were not sufficiently serving these markets.

"They have not been doing it to this extent and with this kind of medical credibility," Bensky says. "The reason they haven't managed to capture this demographic is because the commercial club has an image in the marketplace that's different. Hospitals can say to the underserved market, 'We have the medical credibility, we're a strong community representative, we're going to be here for a long time, we are safe, plus we can give you all the things that a commercial provider is going to give you.' I think we're right smack in the middle of a revolution, or an evolution. When it's all said and done, we're going to have a totally different wellness model."

The way Chovanec sees it, while the present situation offers a tremendous opportunity for partnerships, the future is far from assured.

"Hospitals are going to have to proceed cautiously," Chovanec says. "If you build it, will they come? Not necessarily; you've got to meet needs that aren't being met. The new hospital wellness centers are making money now, but can their success be sustained. Is there enough population in this market to support all these ventures?

"Even though we have more people using fitness centers than ever before, we still haven't made a dent in the health of ordinary Americans," he adds. "Only time will tell if the things that hospitals are doing will have an effect."

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