In 1989, Steve Dietz arrived at Pro-Health and Fitness in Melbourne, FL, to find a medical fitness center that was floundering. The 50,000-square-foot center, owned by hospital system Health First, Rockledge, FL, had been open since 1983 to serve the community, but it was losing the hospital money.

That’s when the CEO of the hospital, Mike Means, charged Dietz with turning around the facility in hopes that the not-for-profit health care system could expand and add additional Pro-Health and Fitness medical centers at its other hospitals. Dietz went to work, improving programming, staff training, marketing and integrating other departments of the hospital with this facility. Today, Health First has four medical fitness centers, the latest opening two years ago in the planned community of Viera, FL, despite being in the midst of a recession in a county with unemployment at 11 percent. The four facilities serve 40,000 members and are profitable departments of the hospital group, Dietz says.

Health First is not the only health care system adding medical fitness centers. Statistics show that the number of these types of facilities is growing despite the recession. The growth stems from the obesity epidemic, increased health care costs and the federal government’s Affordable Care Act.

These trends create an opportunity—and some might say an obligation—for hospitals to open medical fitness centers to improve the health of their community and for fitness management companies to add more medical fitness centers to their portfolios.

In 2009, the United States had 5,008 hospitals, and 1,214 reported having medical fitness centers, according to the American Hospital Association. A 2010 report from the Medical Fitness Association (MFA) identified 1,083 U.S. medical fitness centers, serving an estimated 3.3 million members. (The difference in figures stems from varying definitions of a medical fitness center.) The number of these types of facilities has increased by 6 percent per year since 2003, and membership numbers are expected to exceed 4 million by 2015, according to the MFA.

The biggest growth in this market occurred in the late 1990s and early 2000s, say many people in the industry, but they add that they see stirrings of growth again.

“Clearly this area of wellness prevention is growing,” says Doug Ribley, vice president, health and wellness services at Akron General LifeStyles, a department of Akron General Health System, Akron, OH. “You just look at our organization, for example. We have two multi-million dollar centers, one on each side of town. We broke ground on a third $35 million center in the southern part of our county and just announced our fourth—which is a partnership with a local municipality in the northern part of our county. Our medical center will be surrounded by our outpatient delivery health and wellness center model.”

Health Care Reform

Much of the expected growth in medical fitness is due to the Affordable Care Act. Debra Siena, president at Proactive Partners, a division of TCA Holdings, Chicago, calls the act a “momentum changer.”

“Employers, employees and health systems all realize that no matter how this health care reform act evolves in the next five years, they are going to be affected,” says Siena, whose company develops and manages both corporate and medical fitness centers. “The best way to get ahead of it is through prevention.”

Ribley says health care reform is motivating health care systems to change.

“We clearly understand that we need to be in the business of prevention going forward,” Ribley says. “As more and more health care organizations through health care reform are going to have to accept responsibility for and accept the risks of various populations and groups through health care reform, it only makes sense that rather than waiting for people to have a physical train wreck, we need to be in the business of helping to prevent that train wreck from occurring.”

Ribley estimates that within the next 10 to 15 years, every health care organization will have a facility and program dedicated to the prevention and treatment of lifestyle-related disease, illness and injury. To do so requires adding a fourth component to the continuum of care that had traditionally only included diagnosing issues, treating them and rehabilitating patients. That new component is prevention.

NEXT PAGE: OUTSOURCING

The Affordable Care Act will compel more health care organizations to assume the risks of their community. Hospitals will be paid a flat fee for treatment of a particular disease, illness or injury, and if that person has a re-occurrence within 30 days, the hospital will not receive additional reimbursement, Ribley says. Keeping people in the community around each hospital out of the health system by keeping them healthy is the solution to the whole health care cost crisis, he adds.

“By having a fitness center, you have community goodwill, community brand extension, a feeder system for patients, a post-rehab continuation of recovery and disease management,” says Bill McBride, president and COO of Club One, the San Francisco-based company that manages corporate and hospital fitness centers in addition to operating its own clubs. “All the things we thought should make this a good fit between fitness and preventative medicine and recovery, now it appears that there’s going to be some movement in regard to creating financial justification for some of this to happen.”

Outsourcing

With this new focus on prevention, hospital administrators must take a look at how to operate their medical fitness centers. Some, like Akron General LifeStyles and Health First, have determined they have the expertise to manage these centers in-house. However, about 20 percent to 30 percent of hospitals outsource the management and operation of their medical fitness centers, estimates Ken Germano, executive director of the MFA, Richmond, VA. He expects that number to increase as the number of medical fitness centers grows.

Whether a hospital outsources the management of its facility or keeps it in-house depends on whether the hospital has the acumen, the speed to market and the expertise to manage this type of facility, Germano says. Hospitals that keep management in-house are those that make prevention a strategic part of their business, have performed the proper market feasibility studies and possess the resources, time and human capital to support it. If they don’t have that, the most efficient way to operate a medical fitness center might be to outsource to a management company that has had success with these projects.

Nicholas Tejeda, vice president of hospital and ambulatory operations at St. Mary’s Center for Health & Fitness in Reno, NV, says that to the extent that the competitive landscape allows it, hospitals will run their own medical fitness centers, but he adds that the future is probably in facility management companies that can take lessons from one hospital-based facility and apply integrative principles to other fitness centers. Besides, he says, hospitals know how to manage the sick but not how to promote wellness.

St. Mary’s outsources the management of its medical fitness center to Club One.

“That is one area that hospitals don’t understand and probably won’t understand on their own for quite some time,” Tejeda says. “That’s why a partner becomes so important because it is such a distinct business from managing a hospital.”

However, Ribley says that organizations looking at true clinical integration where clinical services are blended with the preventive portion of the centers may prefer to manage their own centers because it is part of their core strategy of extending their continuum of care to include prevention.

“Bottom line, it’s going to create a number of different scenarios and an expanded range of opportunities,” Ribley says.

Skin in the Game

Those different scenarios could mean that several new facility development and management businesses will find opportunity in this market. But those businesses will need to pony up some cash in the future. As equity remains difficult to attain due to the recession, many hospital CFOs are asking management companies to invest in the facilities for shared risk in the outcomes rather than simply manage them. In the last few years, clients have been requesting this of Power Wellness, says Tom Rhind, president of the Addison, IL-based facility development and management company that manages 20 medical fitness centers with two more in development.

The investment can be worthwhile. Medical fitness centers are generally profitable if they are run right, says Gary Reidy, managing partner at Fitness and Wellness Professional Services, a development and management company in Princeton, NJ. The typical return on investment for hospitals ranges from 10 percent to 35 percent.

Health care systems don’t want to interfere with facilities that require subsidization. Ribley’s centers stand on their own. In fact, Akron General LifeStyles made $12.4 million in 2010, according to its Club Industry Top 100 Clubs list form.

NEXT PAGE: NEW MEMBERS

“As tight as health care dollars are and the competition for capital with new expensive technology—MRIs, CT scans and other equipment that’s needed—clearly there is a case to be made for the financial success of these centers if organizations are moving forward with them because the competition is fierce for capital,” Ribley says. “So that says a lot in and of itself if we are on our fourth and other organizations are going down this path and developing centers. They are looking for ways to enhance the health of their community and do it in a way that doesn’t put a financial burden on the organization.”

Revenue is the easiest return to measure. Indirect returns are more difficult. Medical fitness centers often enhance the performance of the hospital’s ancillary services (physical therapy and cardiac rehab), and they can eat away at competitors’ market share. Hospitals with a medical fitness center set themselves apart from competitors who don’t have them because they position the hospital as a “health improvement company,” a concept pioneered by Riverside Health System in Newport News, VA, says Bob Stauble, chief development officer of Healthtrax Fitness & Wellness, a Hartford, CT-based company that owns and operates 17 medical fitness centers. This concept suggests that regardless of a person’s current level of health and fitness, the hospital can make that person healthier.

“If a wellness center can help eat away at a half percent of market share, it can send millions of dollars to the top line and a few percent of that to the bottom line,” Stauble says.

Types of Members

Today, more hospital administrators realize that their medical fitness centers really are actually commercial health club businesses, which means they must put up $3 million or $4 million of extra capital and be well run so they can compete with other clubs and be profitable, Stauble says. For that to happen, they must do more than pull existing members from other clubs; they must pull in people who have never belonged to a fitness center or they are not doing what health care reform asks hospitals to do, which is to make their communities healthier.

“Let’s go up to people who don’t typically join health clubs and get them to change their eating, exercise and emotional well-being so they are less likely to get disease or injuries,” Stauble says.

More than 50 percent of medical fitness center members have never been a member of a commercial health club before, and many join through physician referral, Germano says. The population tends to be older, and many have some medical issue that brings them into the club.

However, that does not mean that only the old and rehabilitating are members. Reidy says that his Fitness and Wellness centers include members from 14 years old to 95 years old.

“Are these people going to be fanatics? Probably never,” Reidy says.

However at Fitness and Wellness, the members get the hand-holding, testing and evaluating that they need to get the health benefits they desire, he says. Attrition rates at the Fitness and Wellness locations range from 17 percent to 25 percent annually.

“There are a lot more people who trust a medical fitness center to be the first club they join,” McBride says. “They are people who might not be in the market otherwise.”

The Future

And reaching that market may be the most important and lasting effect of medical fitness centers, as the majority of commercial health clubs so far have not been able to do so.

“I see the hospital-based fitness and wellness industry growing very rapidly over the next 10 years,” Reidy says. “It is a segment that if put together right and having the right mission statement is something that will be around for a long time. I don’t see this being a fad or gimmicky.”

That growth should translate into growth for fitness facility management companies, who must guide hospitals in prevention efforts. It may also mean growth for individuals who work in the industry, as medical fitness centers will require staffs with degrees, Rhind says.

“This is an exciting time for the health and fitness industry,” Rhind says. “We’ve just made a scratch in the opportunity in health care and medical fitness center growth.”