Rush is on for healthcare providers
Healthcare and medical businesses are growing at close to a double-digit pace annually, reflecting those firms’ adaptability to the franchise business model.
Overall, franchise and company units in the healthcare industry had a compound growth rate of 10 percent in 2013 from 2008, reports FRANdata, an Arlington, Virginia-based research and consulting firm. As of 2013, FRANdata reported 13,150 of those units, the latest figure available.
Conservatively, FRANdata analysts project the annual growth rate for all units in the category at 8 to 9 percent for 2014.
FRANdata says brands in the franchised healthcare and medical industry include providers of home healthcare, medical/dental products, optical products and services, healthcare equipment and general health. They include the likes of Fyzical Therapy and Balance Centers, OrthoNow, The Joint Corp. and Men’s Vitality Center.
Doctors who dominate
More than doubling its number of franchise locations since it began franchising in 2013, Fyzical Therapy and Balance Centers had 97 of those sites in 23 states as of June. The Sarasota, Florida-based brand expects to have 150 locations and revenue of $150 million by the end of this year.
Claiming it’s the nation’s fastest-growing physical therapy franchise, Fyzical was founded two years ago by entrepreneurs Jim Abrams and Terry Nicholson as well as physical therapist Keefe Fugleberg and doctors Dan Deems and Rhonda Deems.
Fyzical co-founder Jim Abrams has been involved with franchising since the early 1970s, a reason franchising is the brand’s growth model. “Our model is specifically designed to make the private practice owner a dominant player in the future of healthcare, while simultaneously offering consumers the best care available,” Abrams says.
The average total cost of starting a Fyzical franchise is about $52,000. Franchisees pay a monthly royalty fee of 6 percent of sales on a sliding scale over a five year-year period.
A makeover awaits another brand. All AFC Doctors Express locations across the country will boast a new name—American Family Care—by late 2016.
The Doctors Express brand will disappear after starting up in 2009 and becoming the nation’s largest urgent-care franchise. AFC plans to convert 85 existing AFC Doctor Express stores and add 15 new stores. They will join 61 existing AFC-owned sites along with five additional new stores. All told, the brand will invest more than $10 million into the re-branding effort for corporate and franchise clinics.
Randy Johansen, president of Birmingham, Alabama-based AFC, is pleased with the growth. But he cites helping franchisees understand how to get paid promptly by insurers and finding qualified doctors to staff those facilities given a national doctor shortage among AFC’s biggest difficulties.
Johansen says AFC is fighting through those obstacles. Many of its franchises are now being opened by existing operators, often entrepreneurs from other industries. The total investment to open an AFC franchise runs around $1.1 million. Franchisees pay a 6 percent royalty fee and 1 percent into a national marketing fund.
In general, urgent-care clinics have not been using franchising as a model to increase their number of locations, says Tom Charland, CEO of Merchant Medicine, a Shoreview, Minnesota-based research and consulting firm that covers urgent-care and walk-in retail clinics.
Charland suggested AFC’s re-branding effort might be a move to close or take over some franchised locations. “The acquisition of Doctors Express closed two years ago,” he says. “By now they have a very good idea of what they have in terms of operator performance. This is a good time to make adjustments.”
Running a healthcare or medical franchise is not a cakewalk. There are many potential drawbacks franchise operators need to be aware of as they grow.
The two biggest concerns involve legal and marketing complexities, says Mark Siebert, CEO of iFranchise Group in Homewood, Illinois. From a legal perspective, Siebert says medical-related franchises must be accountable for many laws that fall outside of traditional franchising. A franchisor needs to consider laws governing physician self-referral, fee splitting, HIPPA, Medicare Anti-Kickback statutes, corporate practice of medicine and other matters.
Siebert says the good news is all of those issues can be answered by simply hiring the right attorney. The bad news? There are fewer than a dozen attorneys who are experts at applying medical laws to franchising.
On the marketing front, Siebert says it is difficult to sell a franchise to healthcare professionals who associate franchising with McDonald’s or Burger King. As more providers take the franchise route, that problem is likely to ease.
For OrthoNow, calling itself the nation’s only orthopedic urgent-care franchise, a growth challenge has been ensuring the patient experience is similar at all of the brand’s locations. “To achieve that, the company is applying uniform operations for such functions as culture, clinical operations, customer service, marketing training for staff and brand look throughout its franchise system,” says Dr. Alejandro Badia, OrthoNow’s chief medical officer and CEO.
OrthoNow invests marketing dollars to educate consumers on how its treatment differs from a general urgent care or emergency room visit. Its flagship location is in the Miami suburb of Doral, where it recently added a rehab center. By year’s end, the brand plans to sell nine franchises in Florida to join an existing one in Weston. On average, it runs $250,000 to $600,000 to open a franchise.
Chiropractic clinic franchisor The Joint Corp. is targeting Florida, North Carolina, New Jersey, Ohio, California and New Mexico to sell additional franchises, and focusing on Pennsylvania and Alabama to sell units for the first time. The Scottsdale, Arizona-based company had more than 260 locations in 28 states as of June.
Going after a larger chunk of the nation’s $80 billion chiropractic care market, The Joint is differentiating itself from rivals by offering a private pay, membership approach that costs patients significantly less than what they would pay using traditional insurance coverage.
The strategy helped the nation’s first publicly owned chiropractic company double the number of chiropractic adjustments to 2 million in 2015 from 1 million in 2014. The brand says 20 percent of its clients had never been to a chiropractor before.
CEO John Richards says The Joint’s biggest obstacles include maintaining consistent operating standards and hiring high-quality, service-oriented chiropractic doctors to staff a growing number of franchised and corporate-owned clinics. The total investment to open a franchise ranges from $141,900 to $337,200. The royalty fee is seven percent of weekly gross revenue plus two percent of weekly gross revenues to a national marketing fund.
More fledgling players
Looking to open its first franchise location this year, Men’s Vitality Center has ambitious plans. Founded in 2010, the company started out of a small office in Tempe, Arizona, serving 75 patients weekly. Over the past five years, Men’s Vitality Center has grown to five corporate- owned locations, all in Arizona, serving 1,200 patients weekly. Negotiations are underway for several additional franchise locations and additional corporate-owned offices.
To control growth before opening in 2012, Realief Neuropathy Centers studied mistakes made by firms that preceded it and structured its business to avoid those pitfalls, says CEO Phil Walter.
The St. Louis Park, Minnesota-based franchisor that provides therapy for peripheral neuropathy aims to not over-saturate any market with centers. “Furthermore, we are an evidence-based company and make no medical claims that are unsupported by legitimate data,” Walter says.
With five franchise centers in the United States, the brand plans to open four more this year and an additional one in Dubai. Entry fees, including capital equipment, average under $50,000. Recurring fees range from $00 to $2,400 weekly on average revenue of $6,000 per week for each system.