Can Complementary Healthcare Clinics Make it?
Published: Wednesday, November 01, 2000
With backing from eager venture capitalists, Edelberg's business evolved into a nationwide chain of nine holistic healthcare centers spread among Chicago, Denver and Boston. But over the remainder of the decade, return on investment came too slowly to satisfy investors. By May 2000, American WholeHealth had closed or sold its clinics. Edelberg now owns two of the Chicago centers, which operate under the name WholeHealth Chicago. (American WholeHealth now offers benefits management services and launched a website, WholeHealthMD.com.)
“I don't think anyone foresaw the complexity of the undertaking,” Edelberg says today. The chain was hamstrung by a scarcity of trained integrative physicians. The difficulty of luring alternative practitioners to work at the clinics posed yet another formidable obstacle, as did the reluctance of insurance companies to cover alternative healthcare therapies, and the reluctance of patients to pay out of pocket for services, he says.
Despite American WholeHealth's lack of success with stand-alone clinics, there is a market out there for complementary and alternative healthcare centers. Indeed, some $30.7 billion will be spent on complementary and alternative medicine (CAM) in 2000 by more than 83 million Americans.
“Capital is looking at the market and saying, 'How do we take advantage of it?' But I don't know if extractive thinking does very well in primary care or for the fertilization of alternative care,” says John Weeks, publisher and editor of The Integrator, a Seattle-based newsletter that covers the business of alternative medicine.
CAM is not a business for the typical private equity investor, Edelberg agrees. “Venture capitalists require rapid escalation of income. This is a slow-growth industry. Whole Health Chicago is seven years old and is profitable, but like most primary care offices, once we pay our expenses, there's not a lot left over for the venture capitalists,” he says.
Instead, the model for a successful CAM center seems to be one that starts small and is affiliated with a hospital—in essence, one that grows much like a conventional medical practice.
Stanford University School of Medicine's complementary medicine clinic is one example. The clinic, which has been open for about two and a half years, started with a business plan that surveyed patient demand in the geographic area surrounding Stanford. “We started at 2,000 square feet and grew based on demand rather than on 'build it and hope they will come,'” says Kenneth Pelletier, M.D., a clinical professor at the Stanford School of Alternative Medicine.
Building big facilities ahead of demand was one of the mistakes American WholeHealth made, Edelberg admits. “Building large … costs too much for a type of care where the margins are too small,” he says. “When patients see me, they are often in a preferred provider organization (PPO) and my reimbursement is the same as my colleague down the street. But if his rent is half of mine, he makes more money than I do.”
American WholeHeath also made the mistake of not first investigating what kinds of care insurance companies will pay for. The big healthcare dollars, as Weeks notes, are in high-end-tertiary care procedures such as surgery for cancer or heart disease.
Pelletier says the Stanford clinic now is breaking even and sometimes seeing slight profits in its nonprofit hospital environment—an environment that has its pluses and minuses, he admits. Positives include the air of legitimacy lent to alternative therapies by their association with a university hospital. On the negative side, real estate near hospitals tends to be very expensive, and hospitals bring with them policies and agreements that are often cumbersome.
Pelletier also says that the clinic runs on a cash-and-carry basis, another potential negative. Patients generally don't expect such a system at hospitals. And at the clinic, patients, rather than staff, have to shoulder the responsibility of filing insurance claims.
Which brings us to insurance companies, the traditional bane of all healthcare practitioners. Not only do they dictate what and how practitioners will be paid, most HMOs and PPOs don't cover CAM healthcare.
However, some observers argue that the question of reimbursement is really in the hands of the business community rather insurance providers. CAM clinics will flourish only when they can prove to businesses that their brand of medicine saves mainstream healthcare costs, argues Weeks of The Integrator.
Edelberg agrees: “When you're the benefits person, you can buy any plan you want. It's all in convincing the benefits person.”
The alternative healthcare industry would benefit greatly, Weeks and others say, if recent increases in funding at the National Institutes of Health (NIH) Office of Complementary and Alternative Medicine in Washington, were spent to research the cost effectiveness of CAM. NIH has ponied up more than $61 million to conduct CAM research at 15 universities across the United States. Currently, however, none of it is aimed toward CAM health services research.
According to Weeks: “We need to examine questions such as: Are we increasing [employee] productivity? Are we decreasing costs? The arrogance of the mainstream has kept it from actually seeing the phenomenon at hand.”
CAM clinics also need to overcome the negative perceptions of many alternative practitioners. Bureaucracy and higher overhead that are inherent in healthcare clinics are sticking points for practitioners accustomed to running their businesses their way. “Someone else dictates when you come to work, how long you stay and how much you're paid,” notes Adela Basayne, past president of the American Massage Therapy Association based in Evanston, Ill. That often means the most experienced practitioners are less likely to be involved in clinic environments.
In addition, the HMOs that are the financial life blood of mainstream heathcare centers pose inequities for the alternative practitioner. “The system empowers the medical doctor and obstructs the nontraditional practitioner,” says John Triano, D.C., Ph.D., director of chiropractic at the Texas Back Institute. “If I perform an examination on the same complex case that in the medical community would warrant a high reimbursement level, I will be paid less.”
Ultimately, the success of CAM healthcare clinics may lie in emulating the slow and steady style of their conventional medicine counterparts.
“The future of complementary medicine is to become part of everything else,” says David Novey, medical director of the Center for Complementary Medicine at Lutheran General Hospital in Park Ridge, Ill. “You build for the long haul, not for the quick buck. That's how medicine, alternative or conventional, operates.”