- March 28, 2024
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REVIEW SUMMARY
Organization: Hazelden
Industry: Health care
Key: Partnerships among healthcare providers could boost revenues and control expenses.
The last time a major healthcare provider came to Naples, it didn't end well.
The Cleveland Clinic opened in 2001 there and pulled out five years later after local providers prevented it from opening a cardiac surgery center.
Mark Mishek is blunt about what happened: “They got run out of town.”
The lesson was not lost on Mishek, president and CEO of Hazelden, one the nation's leading addiction-treatment centers. Minnesota-based Hazelden opened a 48-bed treatment facility in Naples last year, working closely with a local hospital system and carefully making friends in the area.
“It's important to work with the medical community here,” says Mishek. Hazelden partnered with local hospital operator NCH Healthcare System and discussed its plans in advance with the David Lawrence Center, another addiction-treatment center in Naples.
Mishek's message to local providers: “We weren't coming in to compete with them.”
Hazelden is a giant in the addiction-treatment world. Besides its sprawling campus near Minneapolis, the nonprofit has six other locations around the country. In 2009, from the latest available tax filings, Hazelden's revenues grew 11% to nearly $97 million over 2008. Of that total revenue, most of it came from treatment services and publishing of self-help materials. Hazelden's total assets were $223 million as of Dec. 31, 2009.
To be sure, Hazelden presents less of a competitive threat than Cleveland Clinic because it's bringing new medical tourists to town. Mishek estimates that within a few years more than half the patients in Naples will come from outside the area. And the partnership with NCH will help it trim expenses and offer lower-priced treatment programs in a pricing experiment.
As healthcare providers struggle with costs, such examples of industry cooperation are likely to occur more often than the go-it-alone approach. “Let's see if this partnering can work,” Mishek says.
Cleveland Clinic lesson
The lesson Mishek learned from the Cleveland Clinic was blunt: You can't build a hospital without making friends first.
Local hospital operators argued Cleveland Clinic was skimming the best-paying patients, leaving them with a greater share of indigents. And Cleveland Clinic lost a crucial political battle when the state denied its application for a license to open a highly profitable cardiac surgery center. In early 2006, Cleveland Clinic conceded defeat and sold its 83-bed Naples hospital to rival Health Management Associates.
While Hazelden's focus is more narrowly confined to substance-abuse treatment, its strategy differs from operators such as Cleveland Clinic because it seeks out partners in new markets. “We want to have partnerships with large systems,” Mishek says.
For example, as it was considering its Florida expansion, Mishek started working with BayCare Health System, a 10-hospital system based in St. Petersburg, to explore sites in the Tampa Bay region.
Meanwhile, Mishek was also discussing a partnership with NCH in Naples. Ultimately, Naples won because of its location and lack of significant competition. “There's really nothing on the Gulf side of Florida south of St. Pete,” Mishek says.
One side benefit of working with a large health system is smoothing relations with residents who don't want a treatment center near their neighborhood. “People don't want us around,” Mishek says. (In a first for the organization, the nonprofit opened a coffee shop in its Naples building near U.S. 41 called Hazel's Cup that's open to the public with an outdoor seating area.)
Besides NCH, Mishek visited with executives of the David Lawrence Center in Naples, a mental-health facility that specializes in helping people with substance abuse. While Hazelden will bring most of its patients to Naples from outside the area, David Lawrence treats local residents who often can't afford expensive treatment.
“We are strictly devoted to citizens of Collier who may not be able to afford Hazelden,” says David Schimmel, CEO of David Lawrence. “We have seen no impact for demand for our services.”
Wealthy substance-abuse patients often prefer to recuperate away from home, which makes destinations such as Naples appealing. Hazelden, which spent nearly $3.2 million in 2009 on advertising and promotion, is targeting physicians and patients on the east coast of Florida and around the Southeast to attract patients to Naples. “We've had a number of patients from New York,” Mishek says. “At least half our patients will come from outside Naples.”
NCH benefits from the medical tourism too. Allen Weiss, NCH's president and CEO, says one of every eight patients at its hospitals comes from outside the Naples area.
And David Lawrence's Schimmel says he's not concerned that Hazelden might suck away fundraising dollars from David Lawrence, also a nonprofit organization. Hazelden held a fundraiser with movie star Louis Gossett Jr. on March 24 in Naples, but Mishek says Hazelden also will support David Lawrence's fundraisers. “We go all over the country to raise money,” Mishek says. In 2009, Hazelden received $5.7 million in contributions and grants.
Controlling costs
Hazelden is not immune to the cost pressures in health care. Salaries and executive compensation comprised nearly half of the $94 million in expenses in 2009, tax filings show.
At $26,600, Hazelden's four-week treatment at its main residential campus in Minnesota isn't cheap. Unless you work for a large self-insured company with generous benefits, insurance often doesn't cover the entire cost of a stay.
But Hazelden is trying new pricing in Naples, another key to its partnership approach. Instead of building its own detoxification and fitness facilities, Hazelden will rely on existing facilities a few blocks away at NCH's Naples Community Hospital.
Mishek says the Naples center treats people with less acute substance-abuse problems because it doesn't operate a detox center, and patients must walk a few blocks to the fitness center, passing an Italian restaurant that serves alcohol. “We don't have that capital cost,” Mishek explains. (People with more serious cases will still be urged to travel to Hazelden's more-isolated Minnesota campus.)
The result of the partnership with NCH is that Hazelden can charge $16,800 for a four-week program, a 37% discount to its Minnesota facility. “We're looking longer-term,” Mishek says. “We have to address the cost of care.”
Meanwhile, NCH can get higher use out of its existing detox center. “NCH bills the patient for detox,” Mishek says, adding Hazelden pays NCH a fee for use of the fitness facility.
So far, the arrangement is working out. “We are working well with Hazelden,” says NCH's Weiss. “They can't do everything themselves and nor can we.”
Mishek says occupancies have reached 60% in less than a year and expects to reach 90% within the next three years. Mishek is already discussing acquiring additional property surrounding its Naples campus, on which it has spent about $8 million so far.