Looking for a hot mutual fund? A new personal computer? A deal on auto insurance? Or perhaps a cheap rental car?
Look no further than the American Hospital Association, the American Medical Association or the Healthcare Financial Management Association, all of which are more than happy to recommend a product or service to their harried members and make a buck for themselves in the process.
Those associations as well as others in and out of the healthcare industry increasingly are turning to endorsement arrangements to bring in extra revenue to bolster dues income. But despite the recommendations from on high, some members remain skeptical of the blessing.
"Most of those deals are really about the money," says Ken Boggs, vice president of quality and resource management at five-hospital Moses Cone Health System, Greensboro, N.C.
For example, the not-for-profit system hasn't placed any of its endowment dollars in any of the investment funds recommended by the AHA. Instead, the system has opted to place the bulk of its money into funds of its own choosing. "We're not going to use a certain company just because one of the associations blesses it," Boggs says. "It's still about price, and so those decisions really get made locally."
In the past Moses Cone has used an insurance broker recommended through its state association, the North Carolina Hospital Association. That is, until the system got a better deal from a broker it found through a bidding process, Boggs says.
Scouting out the best deal on a rental car may seem a far stretch from the primary mission of the HFMA, yet with the click of a mouse, association members visiting the HFMA's Web site can get a 25% discount at Budget Rent A Car. Such partnership programs, which may include discounts, educational offerings, or access to tailored services, are intended to supplement the HFMA's own offerings, says Lee
Guthrie, the association's vice president of marketing and development.
Guthrie says the HFMA's partner program, which is several years old, has become increasingly important to the organization during the past couple of years. For the fiscal year ended May 31, membership dues of nearly $6 million made up 39% of the HFMA's $15 million in total revenue, down slightly from the year before when it accounted for 40% of total revenue of $14.6 million.
Other healthcare associations have been in the game for years but also are stepping up and expanding their efforts as they look to supplement declining membership dues.
An AMA Web site, for example, links its logo to IBM Corp.'s and offers its members savings on a "huge selection of IBM equipment and accessories."
Endorsing products or services, and often lending an association's reputation, name and logo to items that sometimes have little to do with healthcare is a growing business for associations looking for new revenue streams. Whether the focus of these efforts is getting the best deal for their members or getting the best deal for the association is not always clear.
From the vendor's standpoint, wooing associations makes good business sense. Having such relationships with associations such as the AMA or the AHA can provide a large boost to market share, so vendors actively seek out associations, often with sales calls or at trade-show appearances.
Bryan Wine, an assistant vice president at First of Omaha Merchant Processing, a credit card-processing firm that has an endorsement relationship with the AMA, says about 50% to 60% of his company's business comes through association endorsements.
Serving all needs at the AMA store
The AMA offers two portfolios of products for its members, one for their practices and the other for their "lifestyle needs," both under the name AMA Solutions.
AMA Solutions, formed more than a decade ago, was a for-profit subsidiary of the AMA until this year, when it was merged back into the AMA "in order to achieve business efficiencies," according to the association's 2000 annual report. Robert Musacchio, the AMA's senior vice president of publishing, business and membership services, says changes in the federal tax laws combined with the growth of the AMA in recent years made it unnecessary to continue to separate AMA Solutions' revenue for tax purposes.
IBM is the AMA's official computer supplier, says Fern Lentini, director of marketing and sales for AMA Solutions.
"IBM has offered us the best discount they offer to the market," Lentini says. "Is it possible a member gets a better price by digging and searching? It's possible, but . . ." she trails off, implying it would be tough to find a better deal.
Each contract is different, but the AMA gets a flat fee for its endorsement of IBM products, Lentini says. She declined to say how much that fee is.
For the past several years, the AMA's membership-and overall dues revenue-has been declining, while its non-dues revenue has been increasing, according to its annual report. In 2000, membership dues fell 6.8% to $57.7 million. More than 75% of the AMA's $257.1 million in revenue was non-dues-based, according to the report. Musacchio says the endorsements are not a growth business for the AMA, and they provide only about $3.5 million in annual revenue, but he hopes to increase the range of offerings, such as online health education products tailored to physicians' needs.
When the AMA first got into the affinity business, it primarily offered financial products, but as physicians became more budget-conscious to cope with managed care, the AMA expanded its product line into other areas, including home computers, residential telephone service and magazine subscriptions.
Associations generally decline to discuss the specifics of the methods they use to choose the products they endorse, although most say they use some form of due diligence to get the best deals for their members. Rarely do they offer any guarantee to members that what they endorse will be the best or least expensive service.
For the AMA, the choosing process varies by type of service, Lentini says.
"We usually try to identify the top vendors in the field, whether it's a dozen, a half-dozen, whatever the number," she says. "We then send out requests for proposals and get background information on vendors, so we know they're financially viable and that they have a commitment to the healthcare industry and our members."
These relationships, Lentini says, are different from product endorsements for the general public. The AMA has shied away from these since its controversial 1997 deal to endorse the healthcare products of Sunbeam Corp. in exchange for royalties. That failed deal attracted a barrage of criticism and a subsequent shakeup at the AMA, which pulled out of the contract and paid nearly $10 million to Sunbeam in a breach-of-contract settlement. Musacchio says the discounted products offered to members differ from the Sunbeam deal in several ways.
"That was for consumers, and we didn't have control or input into product design," he says. With AMA Solutions, the association has a say about the products and tries to tailor them to members' needs, Musacchio says.
AHA in the business since 1979
The AHA has bought into the endorsement business for far longer. Its for-profit subsidiary, called AHA Financial Solutions, is responsible for providing AHA members with various insurance, financial, technological and employee benefits products.
The AHA formed the subsidiary in 1979 as a risk-bearing insurance company to provide insurance products to AHA members. Last year, it changed its name from AHA Insurance Resource to AHA Financial Solutions to reflect an expanded line of financial products and resource management services.
"If you think about it, what we are really marketing is the credibility of the AHA," says Anthony Burke, president and chief executive officer of the subsidiary. "What we offer to our members is access to these valuable products through an association with the credibility of the AHA brand."
In 2000, AHA Financial Solutions brought in $5.1 million in revenue, or about 5.3% of the AHA's total revenue, according to tax records and officials. Burke wouldn't disclose the profitability of the subsidiary.
Unlike the AMA, the AHA's dues revenue actually increased slightly last year. In 2000, dues revenue was $52.9 million, or 67.7% of the AHA's $78.2 million, up slightly from 1999, when it was $52.9 million, or 65.4%. Richard Wade, the AHA's senior vice president of communications, says dues revenue has inched up along with membership.
"We never will have enormous expectations of any subsidiary to supplement our revenue," he says.
Dixie Arthur, Burke's predecessor and now executive vice president and chief operating officer of ASAE Services, a wholly owned for-profit subsidiary of the American Society of Association Executives, says some endorsement programs have amounted to as much as a third of some professional associations' net income.
"I can tell you that for-profit subsidiaries of associations, if they are run properly, can achieve double-digit after-tax profits," she says.
Arthur, who jokingly refers to herself as the "queen of endorsements," helped launch the AHA's endorsement program but left it to run a similar one for the ASAE in 1999. Not only does she run the endorsement arm for the association executives' group, she also has written articles about how to make the most of such programs. In one, titled "Leveraging Partnerships to Inspire Trust and Foster Growth," she advises associations to put members-not profits-first. She also recommends that associations use Web sites and other means to encourage members to think of their association first when shopping for products.
"If you can find a way to get revenue for your association through a business relationship with somebody that keeps you from having to raise your membership dues, that's a wonderful thing," she says. "(Members) like it because you're not raising dues, and they're getting a product or service they might not be able to get on their own."
Keep members' interests paramount
Arthur has one caveat for associations looking to get into this game. No matter how important the money aspect of the business is, an association that does not put its members' interests first is "selling its soul to the devil," and in the end will only hurt its credibility, she says.
If they are not careful, associations can even get into legal trouble if they attach their name to a product that does not follow through for members, Arthur says.
For example, if an association endorses an employee retirement program and sets up a trust to house the program and then the investments are not handled properly, members who have invested in the retirement funds may seek legal recourse.
"I don't know that any association has ever been sued for that," she says. "But in that case, the association has a fiduciary liability, because their name is on the trust."
Most associations interviewed for this article, however, say they use hold-harmless clauses or other contractual language to ensure that liability rests with the vendor, not with the association, when things go wrong. But they still have to field complaints from members who are dissatisfied. The AHA's Burke says he takes pride in the selection process that goes into choosing products for the AHA.
The association makes sure partner organizations are financially secure, assesses the market, and looks at the philosophical alignment of the potential partner with the AHA. Generally the association steers clear of products unless they offer a service tailored specifically to the needs of hospitals.
"It goes beyond a request for proposals," he says.
In return for the endorsement, the AHA usually gets some form of flat sponsorship fee to pay for its marketing of the product or service. Then the association gets paid a share of the revenue generated by its members who buy into the endorsed product.
Although the AHA does not promise members that products bearing the AHA name are the least expensive or the most valuable, "what we're looking at is the indication that the AHA brand on a product really represents that we've spent time in picking a partner we believe offers a good and valuable product to the marketplace," Burke says.
About 3,900 of the AHA's 5,000 member hospitals use one or more of the products offered through AHA Financial Solutions, Burke says.
Through the program, the association offers its hospital members a suite of investment products called AHA Investment Funds. CCM Advisors, an affiliate of Convergent Capital Management, manages the funds and their roughly $200 million in assets though a contract with the AHA.
The funds-tailored to not-for-profit hospital foundations and endowments, building funds and institutional accounts-are relatively conservative, including both stock and bond funds.
The AHA now has four funds, AHA Balanced Portfolio, AHA Diversified Equity Portfolio, AHA Full Maturity Fixed Income Portfolio and AHA Limited Maturity Fixed Income Portfolio. In the most recent year, Chicago-based Morningstar, an investment research firm, gave two of the funds its highest rating, and the other two its second-highest rating. The funds are all invested in socially progressive, tobacco-free investments, in keeping with the hospital association's members' wishes, Burke says. Only about 50 hospitals have a stake in these funds, says Timothy Solberg, director of investment consulting for AHA Investment Funds. Similar to its other endorsements, the AHA, which attaches its logo to the funds, gets a flat sponsorship fee and a percentage of the assets of the funds, although it does not sell them itself. The AHA would not provide a list of hospitals invested in the funds, citing a federal securities law that prohibits the association from sharing such information.
Not everyone is buying
Some association members, as it turns out, prefer to do their own investment legwork.
"I think a provider should look at what the true expertise of that association is in assessing any given product they come out with," says Robert Broermann, chief financial officer for five-hospital Sentara Healthcare, Norfolk, Va.
While the AHA may provide a valuable financial product for small hospitals that do not have much investment expertise, a large system may be able to tailor its investments better through its own in-house financial team, he says.
Burke says the AHA is soon going to expand its investment offerings to try to appeal to more of its members. There will be three new fund offerings, including an international fund, and they will be open to retail investors, not just institutions, so hospitals will be able to offer the funds to individual employees through retirement plans and other investment vehicles.
Some associations have shunned the endorsement game altogether. One of them is the Federation of American Hospitals, which represents roughly 1,700 for-profit hospitals around the country. Much smaller than the AHA, the federation, with $7.3 million in annual revenue, has enough on its plate without getting into affinity programs, says spokesman Richard Coorsh.
"I suspect it's because we really concentrate on dealing with public policy issues," he says. "That's our primary focus."
Nevertheless, with the number of affiliations, endorsements and discount programs offered by associations that may have overlapping members, there can be significant competition for customers. State hospital associations sometimes vie for the same members courted by the AHA.
Craig Becker, president of the Tennessee Hospital Association, says his organization has its own for-profit subsidiary that handles endorsements, the THA Solutions Group.
He considers the AHA a friendly competitor when it comes to getting members to take advantage of association-endorsed products or services.
The THA receives a fee ranging from about 2% of sales to 10% for lending its name and endorsement to a product, he says. The THA's annual dues revenue is about $2.5 million, while non-dues revenue, which includes both endorsed products and a large database the THA compiles and sells to its members, is about $2 million, Becker says.
In some cases, the association has provided a service to members even when they don't sign up for a THA-sponsored service. For example, the association tried to buy natural gas on a bulk basis for its members. Once it got a price and a contract with a vendor, the hospitals were able to go back to their own providers and leverage the association's bargaining power to lower their individual rates in the face of potential competition.
"We didn't get any money out of it, but at least from members who used it to get a better price from their providers, we got credit for doing it," Becker says.