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Wellness centers, no longer hospital gimmicks, become money-making population health engines

Wellness systems improve overall health, a lucrative incentive as value-based reimbursement takes hold.

Strength training at a medical fitness center. (photo by the Medical Fitness Association)Strength training at a medical fitness center. (photo by the Medical Fitness Association)

Hospital-based wellness centers, once seen as marketing tools for innovative health systems, have become a major part of a hospital's population health management program in the era of quality over quantity of care.

"The wave of the future is to focus less on illness and more on prevention and wellness," said Joan Phillips, vice president of Clinical Services at Beaumont Health in Troy, Michigan. "Our community and our employees want and need a place to focus on both fitness and wellness."

Wellness centers attached to hospitals have evolved far beyond the local gym toward a medically integrated model. Most use exercise physiologists and other ancillary medical specialties offering a broader range of services. This also lets them set specific goals for their customers, holding them accountable for their own health.

"We provide many services that the $10 a month gym doesn't," said Scott Kashman, chief administrative officer for Cape Coral Hospital in Florida. "We can look at health risk factors and are well-trained to provide a program to help mitigate those risks. We also assess everyone annually to follow changes and provide accountability."

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Most centers are designed to make money. Studies by the Medical Fitness Association suggest wellness center construction offers returns on investment between 6 and 10 percent with contribution margins around 30 percent. However, that can be contingent on operational decisions made by hospital administration.

"Being medically based, we invest more in staff and their competencies than most local gyms will to make sure that we can help the overall wellness of a person," said Benjamin Spense, chief financial officer of Lee Memorial Health System.  "We know we need to invest some dollars for our participants to play an active role in all aspects of their health, with exercise being one of many."

Wellness centers are being integrated into employee benefit plans at host hospitals. The self-insured nature of most healthcare systems means they save money right along with the rest of the community. They can also be used to tie a facility closer to employers in the area by hosting their employee wellness programs.

Although organizations such as the Medical Fitness Association provides benchmarks, standards and general guidance, there are as many ways to structure and finance wellness centers as there are participating hospitals.

Some larger hospitals are able to internally fund these centers. Others, especially the smaller regional and rural facilities, may have to find an equity or retail partner. Current resources also play a role, as it is cheaper to repurpose existing buildings and infrastructure than to build from scratch. If a new structure is needed, hospitals would look at buying versus leasing.

[Also: New healthcare facilities put big money into wellness features]

"Hospitals that understand the future are beginning to talk about the wellness center being the new front door to their health system," said Robert D. Boone, president and chief executive officer at the Medical Fitness Association in Richmond, Virginia. "Hospitals and doctors are being told they have the responsibility to manage their patients' lifestyles. They obviously can't do it in a couple of 15 minute visits every year, so this is where the medically integrated fitness centers come in."

The rise in popularity for wellness centers also plays right into the shift from fee-for-service reimbursement to value-based.

"As payment systems change to a fixed rate for bundled services or capitated types of arrangements, wellness becomes more critical for the hospital," said Spence. "With fee-based reimbursement you get paid only when somebody uses your services. In a value-based world, we can keep much of the difference between costs and what we get from the payer."

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That means keeping people out of the hospital for as long as possible actually can make more financial sense them having them utilize care. Facilities will need to help people in the community actively manage their health and give them the resources to do it. They will begin looking at wellness centers from a different financial perspective.

"We believe that if hospitals don't own or have a relationship with a medically integrated fitness facility, they will have to develop one as we move forward with accountable care organizations, population health or whatever payment type we end up with," said Boone. "Helping people create accountable programs focusing on their healthcare risks and on prevention may be the only sustainable model out there from a cost perspective."

He notes wellness centers have been benignly neglected as long as they were making money. This should change as administrators begin to understand the impact of population health on hospital finances.

The wellness center will also have an impact on capital needs. If you can keep enough people out of hospital beds, then you won't need to build those beds in the first place.

"Every bed that we need costs our system over $1 million," said Spense. "To the extent we can lower the total demand for beds long-term, we can greatly decrease the capital expenditure needs of the organization."

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