Employment-based health clinics are the latest casualty of the ongoing recession, as corporations push off plans to open on-site and near-site clinics and some existing clinics are being considered for the chopping block, industry experts said.
On-site and near-site clinics have become a hot emerging trend among large employers—especially the self-insured—as a way to reduce healthcare costs and improve worker productivity. These clinics typically offer primary-care, pharmacy and preventive services to employees and their families at the work site. Some offer radiology, vision and dental care and laboratory services as well. But leading benefits consulting firms that work with employers on planning and implementing these clinics say corporations are hitting the brakes as they seek ways to immediately cut costs.
Towers Perrin, a Stamford, Conn.-based benefits consulting firm, is seeing a serious drop-off, said Jeffrey Dobro, senior care-management consultant at the firm. Out of the firm’s 12 active clinic projects, nine companies have frozen their plans. Of the three still moving forward, only one is on track. The two others have scaled down specifications or slowed the planning process, Dobro said. He declined to name the companies, citing confidentiality.
“This really is a capital expenditure, and the approval process takes a very different route than say a disease-management or wellness program,” Dobro said. “The facilities and finance departments are very involved in the planning. Even when everyone was more flush, the attention to review was high.”
Some large employers that have taken a financial beating are reassessing what to do with their clinics. Merrill Lynch & Co. has long been a leader in providing on-site healthcare to workers. But its sale to Bank of America has put that future in doubt, said Helen Darling, president of the National Business Group on Health. Officials from Merrill Lynch and Bank of America did not return phone calls.
“We are seeing some closures,” Dobro said, referring to the general climate. Bruce Hochstadt, a principal at Mercer, another benefits consulting firm, agrees. Hochstadt heads Mercer’s on-site health consulting practice. “We’ve seen some slippage,” he said. “There’s an initial commitment, but then they make the decision” to ride this recession out.
Committing funding upfront has been a “big challenge” said Dobro, whose firm has worked with more than 100 large companies on on-site clinic projects over the years. Starting a clinic from scratch can cost between $1.5 million and $2.5 million, he said.
Although not all employer-based clinics require bricks and mortar, a full-time, modestly sized clinic of between 500 square feet and 800 square feet has an annual operating cost of about $250,000, without the startup costs, Hochstadt said. And clinics require skilled staff and equipment.
“In this economy, it’s not surprising employers are reassessing,” Hochstadt said. Some major employers are pushing ahead anyway, saying the advantages of cutting healthcare spending and improving productivity are so great that they are willing to put in the upfront expense of opening a clinic.
Caterpillar, based in Peoria, Ill., will open its first near-site clinic this year. The clinic will be near a Caterpillar engine manufacturing plant in the Midwest (the company declined to name the location), and will serve 2,000 employees and a total of 5,000 covered lives, said Steven Goldman, corporate medical director for Caterpillar. None of the plant’s workers are in a bargaining unit, so the company did not have to negotiate with unions to change the benefits structure. The clinic will offer primary and urgent care, a pharmacy, radiology and specialist referrals. The clinic will not do occupational health. Workers will have a $15 copayment for services at the clinic but will still keep their health insurance and access to physicians and hospital care in the community, he said.
“We are convinced better quality will bring us cost savings,” Goldman said.
These clinics aren’t just plug-and-play, however, said Eva Lynne Disbro, vice president of human resources at McKee Foods Corp. of Collegedale, Tenn., the maker of Little Debbie snack cakes and other foods. McKee Foods has 11 clinics at various locations, and has experienced mixed results. “Some years, they didn’t make a difference in healthcare costs,” she said. Now the company is refocusing the design of the clinics on cost and convenience and has changed its operating vendor.
Paul Crowley, a consultant at Hewitt Associates, a benefits consulting firm, said he thinks the slowdown in employer-based clinics is temporary. “Some capital expenditures have pulled back,” but the number of requests for proposals submitted by employers looking to start on-site clinics are “off the charts,” he said.
Some employers are forging partnerships with retail health clinics nearby for preferred status instead of starting their own clinics, Hochstadt said. Employers are also linking up with one another on regional clinics for their workers. Caterpillar says it is partnering with another employer for its upcoming clinic to share costs, though it declined to name the partner.
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