When Club One, San Francisco, was hired in January 2009 to manage the membership and fitness operations for St. Mary’s Center for Health & Fitness, Reno, NV, the three-year-old facility was in trouble. Membership attrition was at 53 percent, and programming at the center—including medical and personal training programming revenue—was stagnant.
Part of the problem was the havoc that the recession had wreaked on Reno’s economy. Area unemployment had been hovering between 13 percent and 14 percent, according to the Bureau of Labor Statistics. It still sits around 13.2 percent. Nevada’s foreclosure rate was, and still is, the highest in the United States with one in every 35 homes in foreclosure, according to an April 13, 2011, article in the Reno Gazette-Journal.
St. Mary’s administrators considered closing the center, says Nicholas Tejeda, who was vice president of hospital and ambulatory operations at the time. (He is now COO of another hospital in San Luis Obispo, CA.)
“The club had not been profitable consistently for a number of years,” Tejeda says. “In the realm of the hospital industry, reimbursement continues to be pressured downward, so you couldn’t afford to have a noncore business be unprofitable.”
Instead of closing the facility, the hospital chose to switch management companies to Club One. The decision came down to profit and loss rather than value and potential downstream revenue for the hospital, Tejeda says.
“At the time, we weren’t educated enough as hospital partners to know the right questions to ask and how to truly identify the value,” Tejeda says. “We didn’t have enough insight at the time into the brand awareness and the value of that.”
The hospital executives wanted a management company that had the discipline to run a profitable, high-end fitness center. They also wanted a company with experience appealing to an employee base because the hospital employees were a big target market, and they wanted a group with the organizational discipline to start developing medical integration programs after establishing a profitable fitness center, Tejeda says. Club One fit the bill, primarily because the company has operated and owned high-end clubs on the West Coast and has proven its ability to appeal to employees through the corporate facilities it manages, he says.
Club One began by evaluating the center’s membership sales, fitness operations, member experience, ancillary revenue, group exercise participation and the integration of the wellness center with the rest of the hospital organization. Club One put in place a different sales process, restructured and retrained membership staff, created a strategic marketing plan to grow net membership based on the marketplace and competition in the area, and implemented best practices in new member integration while also focusing on engaging existing members. Club One tracked participation metrics and improved the member experience and communication. In the back office, the management company changed around the accounting/budget management system. Beyond the fitness center itself, Club One built collaborative relationships with the other hospital departments, which helped them put together a multi-dimensional medical integration plan. That plan helped to expand the continuum of services for the hospital as well as improve participation.
So far, St. Mary’s decision has paid off. The medical fitness center has an EBITDA of $1.4 million per year, and the wellness center operations generated $8 million in outpatient revenue to St. Mary’s Regional Medical Center during the past 24 months. The center’s attrition has decreased to 29 percent, membership units have increased 12 percent, personal training revenue increased 28 percent, massage revenue increased 36 percent, overall training and medical exercise revenue increased 60 percent and participation/usage increased 15 percent.
The more success Club One shows with the center, the easier it will be to get funding for the center and new equipment, Tejeda says.
“It’s an interesting paradox,” he says. “To the extent they are successful in doing that—increasing membership, increasing retention—then you are actually able to make a compelling case as a hospital to fund new equipment because you do see it as profitable and it is leading to the augmentation of a key service line and brand awareness.”