Medical franchising starts second wave
Iatrophobia, or the fear of doctors, is a reasonable phobia given the pinpricks and backless gowns often faced in a doctor’s office. These same neuroses are similar to what’s kept so many facets of the American healthcare system controlled by the existing medical establishment, rather than opened up to the efficiencies that come from innovative smaller-scale providers.
Even though it can be scary or painful to get a medical franchise started, franchising is proving to be one of the most consequential developments in U.S. healthcare since the signing of the Affordable Care Act. Years after the first wave of franchised clinics, chiropractic centers and senior care centers attracted their first entrepreneurs, medical franchising is exploding with new brands and an expanding array of medical services.
These days, everything from acupuncture, urgent care, lab tests, eye care, dentistry and many others are giving high net-worth individuals a chance to mix it up with the big players in established medicine. It’s great news for both patients and providers seeking more choices in treatment or employment, but complex regulations and age-old hassles with insurance companies are slowing the growth of franchised medicine.
One of the primary speed bumps in medical franchising are requirements that limit non-licensed individuals from owning medical facilities, which complicates the process for individual or institutional franchise owners who aren’t doctors. Such regulations are especially burdensome for some franchised medical providers, which tend to appeal to franchisees with deep pockets, but no formal medical training.
“When it comes to health law and physician-based franchises, the primary ‘legal’ barrier that a franchisor faces relates to state-specific laws such as ‘corporate practice of medicine,’” said Christine Dura, chief development officer at OrthoNOW, an orthopedic urgent care franchise. “Although every state is different, generally the corporate practice of medicine doctrine refers to a series of state-specific regulations that prohibit a corporate entity from maintaining control over a licensed physician’s delivery of medical services.”
In these states, which are referred to as corporate practice and medicine states, non-licensed individuals who participate in or have an economic interest in a facility that treats and sees patients is required to establish a management service organization, which legally separates the actual caregiving from the back-end functions like scheduling, accounting, HR and billing.
In Florida, where OrthoNOW is headquartered, any clinic is required by state statute to be licensed from the state’s Agency for Healthcare Administration. Across the border in Georgia, though, providers aren’t required to get any similar type of license.
OrthoNOW has five locations between its home state and Georgia, and the brand has seen significant interest from practitioners who are frustrated with the common pitfalls of the medical system, including patients needing to see multiple doctors in order to obtain a referral to a specialist.
“This is a very natural progression for them,” said Dr. Alejandro Badia, OrthoNOW’s founder and chief medical officer. “Also, I would say executive professionals, that early adopter, pioneer change agent type of individuals—we’re looking for somebody that has healthcare experience even though it is not required.”
In explaining the difficulties in working with insurance providers, Dura said Blue Cross and Blue Shield of Florida alone has three separate contracting managers—one example among many, she said, that have led the franchisor to navigate insurance contracts so franchisees don’t have to.
Badia added the current, widely grumbled about state of the U.S. healthcare system is driving exasperated doctors and opportunistic investors into the brand, which he expects to quickly grow beyond its first two states.
“Healthcare, more than one would think, lends itself to franchising,” Badia said. “You want to get into a space that obviously needs to be fixed, so you almost have to do something like this.”
Five years after opening his first acupuncture and dry needling clinic in Maryland, Structural Elements Founder and CEO Doug Bertram remains focused on helping patients overcome painful injuries, while devoting increasing brain power to building a franchise brand in a medical category that, itself, is a bit of an outlier.
While many are familiar with acupuncture, a key component of traditional Chinese medicine, Structural Elements also practices dry needling, which is a more modern therapy involving the use of hollow hypodermic needles to reduce pain and ease injuries—all with the goal of restoring the body’s proper structural balance.
After partnering with Jason Knicley, a doctor of physical therapy, they formed a franchise company to give patients an option that doesn’t make them feel like “a cog in a wheel.” Because Structural Elements is a cash business that doesn’t work with insurance, its patients can avoid the multiple visits and copays required to get an MRI.
“We don’t have to play the modality game of doing the insurance dance,” Bertram said. “We actually step back and solve problems, people get better and they get better fast, so we really see this unserved niche in healthcare in general.”
The way he sees the traditional U.S. medical system is already-big players buying out smaller brands to increase their market positioning, while focusing on profit motive above patient wellness, which has maintained his motivation to make a good living “through ethical means that are based on helping people.”
“We really identified this broken system, especially in physical therapy,” Bertram said. “The big clinics and hospital groups have negotiated rates with insurance companies down to next to nothing, and the only way you can play in that game is high volume.”
While state regulations differ on the requirements for dry needling practitioners, Bertram said varying requirements to hire licensed professionals means the brand could only offer what he called a half-baked version of its service offerings in Pennsylvania.
In Virginia, they can only treat patients for 30 days before being required to refer them onto another provider, which is part of that state’s medical practice act. In Florida, physical therapists and chiropractors can’t administer dry needling at all.
“There are a lot of state-by-state variables as we’re doing business in all of these states,” he added. The company’s branding on helping athletes perform better, for example, is very intentional to fall into what he described as wellness and performance providers under certain direct-access regulations.
Managing these complex rules led Structural Elements to track every treatment provider’s credentials and licenses, as well as have a copy of their personal practice insurance, to ensure the company is listed on the policy and to take some of the back-end work off of its franchisees’ plates.
With only two franchisee-run units operating, Bertram said he is particularly focused on attracting owners of boutique fitness concepts, who often have unused space available and are likely already working with licensed professionals.
“It’s just part of what we have to solve for,” Bertram said, making an analogy that restaurant franchises have their own challenges with health and safety codes. “Every industry has its challenges.”
Building a new structure
Denver-based 24/7 AvaRe Healthcare is franchising yet another arm of traditional medicine, focusing on wound and ostomy care, IV medication administration, post-hospitalization rehab and chronic disease management. Founded in 2011, after its founder survived an acute illness that nearly claimed his life, 24/7 AvaRe sees itself as an alternative to assisted living or skilled nursing facilities.
“The healthcare industry is a huge challenge for society because the system needs significant improvement,” said CEO Azat Akhmetov. “Our goal is to create a new structure, with the help of passionate franchisees, that offers affordability without sacrificing the quality of service. We’re looking to be the solution to healthcare’s biggest challenges.”
Akhmetov wasn’t initially planning to franchise the company, but said he started the franchise arm in 2017 after exploring several ways he could positively impact a shortage of clinicians and managers in the space. It has three operating locations, with two more opening soon.
“Nothing is a pure negative or positive,” he said about franchising, noting that he also owns a mortgage holding company. “Financial work is heavily regulated, but it’s nothing compared to healthcare—it’s like kindergarten versus university.”
Taken separately, each individual regulation isn’t overly challenging, he said, but combining them all and taking into account state-by-state variations and insurance requirements means juggling a lot of moving parts other industries don’t face.
In-home health professionals, like a physician assistant or nurse practitioner, can’t sign home health orders, which puts constraints on 24/7 AvaRe’s process and increases the turnover time of providing care.
Akhmetov said prospective franchisees are required to pony up $500,000, of which $200,000 is working capital to deal with the lag in receiving payments, which is a primary challenge when launching a new franchisee-run clinic.