Positioning and Power Continues to Plague Chiropractic Providers

To understand the situation with American Specialty Health Plans, Inc. (please see "ASHP Drops Reimbursement to $30 Global Fee" on the front page of this issue), you have to travel back in time to see exactly what transpired at ASHP and how. As Santayana said (paraphrasing Hegel): "Those who cannot remember the past are condemned to repeat it."

The current situation with ASHP (and other managed care organizations) was created by power positioning. In essence, the ability of ASHP to position itself between payers and providers or between providers and their patients has given the managed care organization the power to influence and control those relationships. Let's look at how it works:

According to ASHP's revenue statement for the year ending June 30, 1999, ASHP was paid $74,024,163 in premiums, from which it paid the providers $32,030,140. This is essentially the same as getting $7 from the payers for chiropractic care, but only giving $3 to the DC.
Now that ASHP has access to "24 million members" who are also chiropractic patients, they are able to sell them health goods (and services?) that would normally be sold by their doctors of chiropractic. ASHP's website (http://www.HealthyRoads.com) sells: vitamins; herbs; homeopathic products; sports nutrition products; aromatherapy products; books; videos; and foot/body care products.

ASHP promises that patients will "save up to 45%" on these health and wellness items. At the same time, ASHP doesn't reimburse for almost all of these items when provided by the DC.

How did this happen? What events transpired to the point that one out of every six DCs is dependent on ASHP for patients and income? How did ASHP (and other managed care companies) so effectively position themselves between the DC and the payer and the DC and their patients?

The strategy was ingenious. The company began by soliciting well-known, well-respected chiropractic leaders in an effort to gain advantage among chiropractic organizations and gain influence among doctors and students. A number of chiropractic leaders were invited to join advisory committees. These prominent DCs accepted their posts with the assumption that they would be in a position to influence the organization and help guide its decisions for the benefit of the chiropractic providers and the profession.

But as you can read in the front-page article on ASHP, chiropractic reimbursement has dropped sharply, despite the efforts of the chiropractic leaders who are, at the very least, professionally embarrassed and, at worst, hated by DCs who may mistakenly hold them responsible. Both the chiropractic leaders and the DCs they serve can't help but feel betrayed.

The Next Evolution

With the internet revolution comes new opportunities and danger. In talking to internet start-up companies over the last couple of years, I've discovered several of them have similar goals and tactics as ASHP.

Once again, it's about positioning. Using the promise of internet services, these start-up companies are poised to provide services to DCs that allow them the opportunity to position themselves between the DC and the payer, the DC and their patients, and the DC and the companies they buy from.

The strategy is relatively simple. Under the guise of providing you "web services," they are in a position to make money on every reimbursement you file, everything you buy, and everything you sell to your patients. Such an internet start-up wants to slip in, make a large enough profit to attract buyers (or go public). It's all part of a three-year "exit strategy."

One start-up company is already contacting chiropractic suppliers to convince them to sell their products through them to you (and to your patients) using "free web pages." In return, the chiropractic suppliers pay a:

• "Slotting Fee" - Up to $1 per item per month

• "Transaction Fee" - 2.5% plus $.10 per transaction

• "Marketing Service Fee" - as high as 10% for sales under $10,000

These expenses will either be passed on to you or reduce the profit margin of any company that works with them. In addition, DCs who use these web services to sell to their patients are charged as much as $295 for set up and $99 per month. This means that the start-up gets the first $1,500 of your annual profit from your sale of goods to your patients, plus as much as 13.6% of the sales price of those items.

This positioning puts them between you and the patients, and between you and your suppliers. While chiropractic companies may believe they will get new customers by this strategy, one prominent supplier I talked to suggested they would only be getting less money on products sold to existing chiropractic customers. He, of course, turned them down.

Another company I've talked to is doing something similar. They offer impressive web services, but with an eye toward strategic positioning. As one of their people put it: "We want to own the doctor's waiting room."

Not only do they intend to take a percentage on what you buy and sell to your patients, they also plan to offer electronic processing of claims. It seems like a great idea, but doesn't this put them in much the same position as ASHP? And while they won't be taking $4 of every $7 paid, they will get a fee or percentage from the payers - a fee or percentage you won't get.

This start-up company must have been taking notes from ASHP. They have already decided to form an "advisory board" in an effort to find chiropractic leaders who will give them credibility with the profession and certain advantages with chiropractic organizations and colleges.

But their plan has a little more spice to it. Instead of paying these advisors, they are offering them shares of stock (not just hundreds of shares, but 5,000 to start with and more to come). Obviously, these shares have little or no value until the company sells or goes public (which is expected to happen in three years). Owning this stock immediately creates a substantial vested interest in the success of this start-up company for the "advisor." A vested interest of this magnitude quickly becomes a conflict of interest in many cases.

The "A" list of invitees is already being circulated. It includes national association leaders, chiropractic college presidents and other prominent people in the profession. They will be wined, dined, and offered 5,000 shares of start-up stock in hopes that they will allow their names and positions to be used to make you feel more comfortable about joining. (It would be unfair to publish the list now; we have not had time to contact all of those on the list. But I am happy to report that none of those I've contacted feel comfortable with the offer, and a few have refused to meet with the company.)

While a few on the list could possibly escape this conflict, most could not. Obviously, an association officer or college president couldn't be paid for their position and get the stock incentive to help encourage their members or students to join the start-up. And what happens in three years when the company sells and a new group controls the start-up, a group that may have absolutely no allegiance to chiropractic?

A third company I met with is just interested in names and information. They want your name, your patients' names and any other names to create and sell alternative care provider and patient databases. To get that information, the company offers free web pages, directory listings and other services. When the company gets enough names, it will "roll up" the alternative care market and sell it to an interested retailer.

These are just a few examples of the many types of start-ups looking to position themselves in your practice. Don't confuse them with viable companies that offer internet services for a fee without expecting a percentage, or trying to get between you, the payers, your patients and companies you buy from.

Please use extreme caution when a company wants you to enter the names of your patients, sell products through e-commerce pages they create for you, or offers to process your insurance reimbursement.

Make sure they are a company you know, trust and are certain will not make other uses of your patients and practice in the future. My recommendation is that you pay for all of your web services, but don't give away percentages of your practice income. Remember, your patients become their customers once a transaction includes them.

DMP Jr.
Publisher/Editor