Former Grocery Store Takes on Healthy Look
Quad - State Business Journal
March 1, 2006
By Peter Heerwagen
(highlights from the article)
While Valley Health sees synergy between its two units at 525 Amherst Avenue, it is less sanguine about the third tenant, the Winchester Eye Surgery Center. Looking for more control over scheduling of patients for cataract and other eye surgeries, ophthalmologists Dr. Frank "Hank" Reuling, Dr. John Stefano, and Dr. Nancy Eisele have joined forces to open their own surgical center.
Last year, the Winchester Eye Surgery Clinic applied to the Virginia Department of Health for a certificate of public need (COPN). Despite receiving a letter of opposition from Winchester Medical Center, which has its own Surgi-Center, at which cataract removals are performed, the state agency granted the COPN on December 22.
"We opposed it because it was a duplication of the services we provide," said Larry Van Hoose, [then] vice president for Valley Health. "Duplication tends to drive health care costs up.
Chamberlin said the ophthalmologists will invest $1.5 million in the center, and "Dr. Reuling is the largest equity owner."
Valley Health Plans to Build Wellness CenterQuad - State Business JournalMarch 2006 by Peter Heerwagen
Valley Health is ramping up its wellness offerings with a $17 million. 55,000- to 60,000-square-foot wellness center, complete with fourlane pool and running track, to be located on the campus of Winchester Medical Center.
Because it is greater than $1 million, the project needs a Certificate of Public Need (COPN) from the Virginia Department of Health. That is expected to be received by next month or in July. "The center should open in the winter of 2008, the first quarter of that year," said Dena Kent, executive director of wellness and rehabilitation at Valley Health.
In the jargon of the health-care industry, wellness centers owned by hospitals are called medical fitness facilities. Many of them, including the proposed Valley Health center, are run as non-profit businesses, so they don't pay income, property and sales taxes.
That status has raised objections from owners of for-profit commercial fitness facilities such as Nautilus, Gold's Gym and others, although none of the local operators has complained about Valley Health's proposed project to the Virginia Department of Health.
Not-for-profit hospitals have for-profit subsidiaries when they establish businesses like home care, pharmacies and physical therapy that compete with the private sector. However, when it comes to wellness centers, hospitals argue that promotion and improvement of the health of the communities they serve is part of their mission statement, so the centers should also be non-profit.
"There are over 1,000 of them [medical fitness centers], and they are primarily part of the health-care mission of preventive care," said Kent. "A lot of commercial clubs have tried to make an issue of it, but we go back to our mission and how much free care Winchester Medical Center provides, which is the second highest of all hospitals in Virginia [University of Virginia Medical Center is first]."
The $17 million cost projection includes the building, equipment and furniture, but that figure could change. "That was based on a 2005 price estimate," said Kent. "We're not going to get it re-bid until the COPN is received and the architect's plans are done." She said the Hughes Group is doing the architectural work, having designed a number of recreational wellness facilities, including university-based ones with pools.
The wellness center will include a 25-yard/meter pool, and a 10-to 15-lap-to-the-mile running track. It will include space for occupational and physical therapy outpatients now receiving services at other locations. Cardiac rehab might also move to the center at a later time.
An issue addressed by one of the oversight agencies reviewing the COPN request, Northwestern Virginia Health Systems Agency, Inc., was the "immediate and long-term financial feasibility of the project," as set forth in its Staff Report/Analysis, as amended March 22, 2006. The answer given in the report was, "The project would be funded from VHS [Valley Health System] cash reserves. FY 2004 year-end balance sheets show cash, cash equivalents and investments in excess of $170 million, easily sufficient to finance the capital costs of the project."
Craig Lewis, CFO for Valley Health, said that $170 million figure has gone up in the last year. "It represents our accumulated reserves, and it helps give us our AA bond rating. We have done well over the years due to the support of the community and our providing quality health care."
The wellness center will fall directly under Valley Health in the organization chart and not be part of Winchester Medical Center. "The wellness department, which serves all our hospitals, has always been under Valley Health, as we run outreach programs, exercise programs and others," said Kent.
Helping Valley Health plan the wellness center is Power Wellness LLC, a Chelsea, Mien.,-based company that manages a dozen large medical fitness centers. "They are a consultant and did the feasibility study and market research for us," said Kent.
"Although they operate other facilities, we will operate ours. They will be doing things that hospitals normally don't do. They will help with small segments such as billing for membership, which we will sub out to them. We are experienced in billing to insurance companies, but not for memberships."
In projections used for COPN approval, Valley Health said it is looking at a membership of 4,000 persons, targeting the 35- to 80-age group, especially people who don't exercise, said Kent. By comparison, Rockingham Memorial Hospital in Harrisonburg, which has operated the RMH Wellness Center for a number of years, has 5,000 members paying $49 a month, said Director Tommy Hodge.
"We have 3,000 of our own employees in Winchester," said Kent. Valley Health is projecting that one third of them will join the wellness center.
"We looked at the current market, and 82% of the people within a 15 minute drive of the hospital do not belong to a health or fitness club," said Kent. Based on a survey, 4,741 of the 12,475 households who are not club members, or 38%, said they would definitely or probably use the Valley Health facility.
"I have met with owners of the local clubs, and some say we will take members away from them," said Kent. "But we are hoping to attract people who don't exercise. In most markets, commercial clubs did not go out of business; their memberships actually went up because of the increased awareness of fitness."
Memberships are slated to cost $50 for a single person and $80 for a family. "We will be more expensive than any other facility in the area because we'll have more staffing," said Kent." We will set the pricing before we open. Our current pool membership is $30 [at the Cork Street rehab center]. Pools are expensive because you need lifeguards and it must be clean.
"This is not just an exercise membership, although exercise is one part of the package. It is nutrition, understanding personal health issues through a health assessment program, and offering other programs like smoking cessation. And, for example, bariatrics, those persons who are overweight, are not comfortable going into a health club. We're not going to be just a workout club; we'll be open to all.
"We hope that businesses will give incentives and discounts to their employees to join the center. We're also interested in working with area industries in the areas of diet, diabetes, all of which drive up health care-costs."
One issue raised by the International Health, Racquet and Sportsclub Association in Boston, in a January letter to Valley Health's board of directors, is that "to justify a hospital-affiliated fitness facility' tax exempt status, it must restrict membership to hospital patients; or if non-patients will be members it must be available to the entire community and be able to document that its membership is representative of all economic classes in the community. The tax exemption of several hospitals has been challenged, often successfully, because hospitals have failed to meet theses guidelines."
Kent said financial aid would be available to some people. "We will do health assessments on every member and develop individual plans for them. If they have a medical condition that needs attention, then they can get a scholarship [if they are needy].
"There will be a number of health outreach programs, where anyone can come at any time and there are no fees."
Valley Health is projecting the wellness center business will break even in its second year, and after the third year will throw off cash flow of almost $1.3 million. Funding the cost of the center from Valley Health internal resources means there is no requirement for debt service.
"The money will go back into programs like the emergency room and other services delivered by the healthcare system," said Kent. "The amount of health care that we give away is far more than the taxes we would pay [as a non-profit].
"If it [wellness center] is such a big money maker, others would have come into the market."