James Zechman and Richard Sarnat are turning healthcare on its head.
The Chicago natives--the former a businessman, the latter an ophthalmologist--teamed up in June 1998 to found Alternative Medicine, an independent practice association that melds Eastern holistic therapies with traditional managed care. Their goal? To hold down healthcare costs by making alternative medicine a first-line therapy instead of a last resort.
"What we call healthcare in this country is a misnomer. It should really be called disease care," says Zechman, the Highland Park, Ill.-based company's chairman and chief executive officer. "Before our healthcare system can become truly cost-effective, there needs to be a paradigm shift from treating illness to focusing on wellness and prevention."
Zechman and Sarnat started their quixotic campaign in their hometown by persuading a large managed-care plan to broaden its definition of a primary-care physician.
Under a unique alliance signed with Alternative Medicine last year, HMO Illinois, owned by the state's Blue Cross and Blue Shield licensee, allows its 700,000 members see a chiropractor as their front-line medical practitioner, without paying more than the standard copayment.
Members visit their chiropractors for regular spinal adjustments, acupuncture, massage therapy, homeopathy, cranio-sacral therapy, stress management and herbal and Chinese medicines, in addition to such routine procedures as blood tests, flu shots and Pap smears. If the chiropractor detects something that requires more traditional treatment, such as appendicitis or a broken bone, the patient is referred to a specialist within the network.
In Illinois and 43 other states, chiropractors have equal licensing to diagnose as medical doctors, though they must work in tandem with physicians in prescribing drugs, delivering babies and performing surgeries. Alternative Medicine contracts with 2,500 specialists and a dozen hospitals.
"This is a truly integrated approach to medicine, one that starts with the least-invasive intervention and moves forward," says James Winterstein, a chiropractor and president of the National University of Health Sciences.
With Americans shelling out $27 billion per year on nontraditional care, Alternative Medicine isn't alone in embracing a more integrated approach. According to a 1999 study by Landmark Healthcare, two-thirds of HMOs offer members access to at least one form of alternative therapy.
But insurers still largely consider these therapies as out-of-network, out-of-pocket expenses and require chiropractors to be on the receiving end of a referral from a traditional physician. The concern, some say, is that chiropractors may lack the comprehensive training necessary to effectively manage a patient's care.
Zechman, though, points out that Alternative Medicine requires its chiropractors to pass a rigorous credentialing process run by Blue Cross and Blue Shield medical doctors.
And the company's outcomes have been impressive. In its first 12 months, Alternative Medicine slashed hospitalization rates by 65% among its HMO Illinois patients, Zechman says. The program has also seen an 85% reduction in outpatient procedures and a 56% drop in pharmaceutical use during the same period.
Armed with this dramatic data, Alternative Medicine has since launched a similar PPO product for large self-insured employers.
The company recently signed its first PPO contract with Commonwealth Edison, northern Illinois' main electricity provider, and has at least three other deals in the works. Zechman says he has received requests from employers to expand the PPO into Colorado and Florida.
As gatekeepers, Alternative Medicine's chiropractors do what other primary-care physicians do for HMOs--ensure necessary care while reducing costs. But unlike other network doctors, they encourage frequent visits to achieve the company's preventive goals.
While the national average for seeing a traditional physician is once every 16 months, the average in Alternative Medicine's network is once every month. Such regular contact, Zechman says, helps patients avoid high-cost operations, hospitalizations and prescription drugs down the road.
And Zechman is so confident that proper preventive care will mitigate downstream costs that he's prepared to shoulder the financial risk. Alternative Medicine operates under shared-risk contracts, in which the company receives half of whatever the client saves annually through its program. In other words, if the client doesn't save money by year's end, Alternative Medicine doesn't get paid.
The company is profitable on its current products and is on target to pass the seven-figure revenue mark this year, Zechman says, though he declined to give specific figures.
Before launching Alternative Medicine, Zechman, 50, served as head of sales at UtiliMed, the nation's first diagnostic imaging management company. Sarnat, 47, graduated from Chicago's Rush Medical College and completed his residency at Northwestern University.
Alternative Medicine has already won the financial backing of some big-name private investors including Marshall Field V, former chairman of Chicago's Rush-Presbyterian-St. Luke's Medical Center.