An odd-looking trophy adorns the desk of Stanley R. Gold, M.D., founder and president of American Emergicenter Inc., a chain of publicly owned walk-in medical clinics in Orange County, Calif. The statuette, a gift from a former staff member, is a crude rendering of McDonald's famous golden arches. But twisting upward between the arches is a serpent clearly borrowed from the caduceus, the ancient symbol of the medical profession. Another doctor might find such mockery offensive; Gold sees it as apt and even amusing.
"It used to bother me when they called these centers 'McMedicine," says Gold, a 52-year-old emergency physician who also serves as president of the Dallas-based National Association for Ambulatory Care, a four-year-old umbrella organization for walk-in clinics. "Not any more. I think it's accurate. Just like the fast-food chains, we're offering a service that's efficient, accessible, and economical. And I'd be delighted if we became as successful financially as McDonald's."
It is not as whimsical a notion as one might think. The American health care system is in the throes of a revolution, and founders of such clinics as Gold's are among the shock troops. A decade ago, few people took seriously the concept of walkin medical centers, unaffiliated with any hospital, that stayed open 14 to 18 hours a day to serve patients with routine health problems as well as non-life-threatening medical emergencies. Today, there are some 3,000 so-called freestanding emergency clinics (FECs) across the country, a number expected to double by the end of the decade.
But to an observer familiar with the troubled history of American Emergicenter and some of the other FEC chains, the snake in Gold's sculpture has a double meaning. It also stands for the hidden perils of this new kind of medical entrepreneurship, especially for physicians who are innocent of business experience. "This type of health care delivery is the wave of the future," says Neal F. Bermas, formerly the national director of health care planning and productivity services for Arthur Young & Co. and now president of the forprofit operating company of Forbes Health Systems. "But there's a second wave -- a wave of concern. There have already been a number of failures in the field, and it's too early to decipher the trends."
Perhaps the most severe challenge faced by walk-in clinics is developing management talent. Although medicine is a lucrative profession -- according to the American Medical Association, U.S. physicians in patient care earn an average of $106,300 a year -- doctors haven't traditionally needed many business skills. The doctor-entrepreneurs who are starting walk-in clinics must, by contrast, know about financing, multisite management, marketing, personnel, billing, and all the other aspects of running a successful business.
Most don't -- and like Stanley Gold, they are learning the old-fashioned way. They are making a lot of mistakes.
If heredity were destiny, Stanley Gold would have turned out to be the opposite of a medical entrepreneur: a traditional physician, perhaps in a teaching hospital. That is what his father, a professor of clinical pharmacology at Cornell University's Medical College, was. His mother was chairman of the physiology department at Hunter College. It was a background, says Gold, of "intellectual snobbery." He resisted the family medical tradition at first, ending up with a degree in electrical engineering from Columbia University. Eventually, pushed by his father, Gold got his M.D. from New York University's School of Medicine.
Gold trained in internal medicine and surgery, but had trouble deciding what to do with the training. "I did a lot of surgery," he says, "but I wasn't turned on intellectually." By this time, the Vietnam War was heating up. In 1967, to avoid being drafted into the Army, Gold joined the Navy and shipped out to the Marine Corps base in Camp Pendleton, Calif.
What seemed at first like dismal luck soon revealed itself to be serendipity. "The only sick calls were malingerers," Gold recalls. "I felt like I was on perpetual vacation." To fill up the time, he began moonlighting -- "and even daylighting" -- in local emergency rooms.
In the past, emergency medicine had been regarded as a subspecialty of every medical service, part of the regular rotation for hospital staff. But in the 1960s, the passage of Medicare and Medicaid legislation created a class of consumers who used hospital emergency rooms as their primary source of health care. As a result (and for a variety of other reasons), hospitals began staffing emergency departments with fulltime physicians. And Stanley Gold, at last, discovered a specialty he found challenging. "I was interested in critical care," he says. "I'd discovered that most doctors were affraid to deal with matters of life and death. I wasn't."
After his tour of duty, one of the facilities in which he had been moonlighting -- St. Jude Hospital, in Fullerton, Calif. -- asked him to head its emergency department. The common practice was, and is, for one physician to contract to provide a team of emergency-room doctors. The contracting physician pays the hospital a percentage of what patients are billed. Gold was much in demand; at various times during the 1970s, he had contracts with five Southern California hospitals.
In 1972, while serving as editor of the Journal of the American College of Emergency Physicians, he received a paper that described a freestanding walk-in clinic in Massachusetts, proposing such clinics as alternatives to hospital emergency rooms. Gold declined to publish the paper. "I thought it was absurd for an individual physician to do this," he says now. "And from a political standpoint, the American College of Emergency Physicians found it inappropriate to align with entrepreneurial efforts."
Then, in 1975, Gold was asked to participate in a $2 million study, funded by the U.S. Department of Health, Education & Walfare, of more than 10,000 patients in Los Angeles County who entered the emergency medical system through calls to police and fire departments. The study sought to determine how many patients had actually had life-or-death emergencies. "We had anticipated that the figure would be 10%," says Gold."It turned out to be less than 2%." In other words, they may have looked sick, acted sick, and scared the doctors, but very few people who called the police or fire department were in truly life-threatening situations.
The implications bothered Gold. "We make people wait up to two hours in a hospital waiting room," he says, "and then charge them inordinate sums for routine medical care -- broken bones, cuts, sore throats. And people don't feel satisfied. The attention they get is curt, even officious." These were people, Gold realized, who should have been getting medical care from community clinics -- "but there was nothing out there for them."
He tried to make changes from within. Gold met with the administrator of St. Jude and proposed that the hospital "do something" for these patients. "She said, 'You should do that outside. The hospital can't do it. Why don't you open up something?"
Gold laughs. "The trouble was, I was scared! I had opened huge emergency departments, but I'd always had a hospital to put up the funds. I didn't know where I could do it on my own."
He began observing established clinics. By now, there were about a hundred FECs around the country, some of them prospering despite the derision of the medical establishment and the media, which had dubbed them "Doc-in-the-Box" and "McMedicine." Actually, the comparisons weren't far from the mark. Like fast-food outlets, walk-in clinics are easy to reach (they are often in shopping centers), upbeat (no automobile-accident victims or junkies), convenient (open 14 to 18 hours a day, seven days a week), attentive (some boast that patients are "waited on" within three minutes), and economical (a sprained ankle that would cost $150 to treat at an urban hospital's emergency room will set you back about $75 at a walk-in center).
Gold didn't share the concerns that many doctors were voicing -- that walk-in clinics were out to make a fast buck at the expense of quality health care. He focused instead on the positive contributions clinics could make, convinced that FECs were the logical middle ground for "the other 98%" of emergency medical patients. Still, he held back from action. Then, in February 1981, he got a call from Brennan Cassidy, M.D., another emergency-services director in Orange County. When the two doctors met, Cassidy announced plans to open a walk-in clinic -- and said he wanted Gold to be his partner.
"I realized at that moment," says Gold, "that I was going to talk about it forever if I didn't take this opportunity." That day, he shook hands with Cassidy to seal their commitment. And he placed a call to Bruce Flashner in Chicago.
Bruce Flashner, M.D., is -- in his own words -- "a surgeon by training, an emergency physician by design, and an accountant by accident." He was also something of a Pied Piper for Stanley Gold.
Like Gold, Flashner served in the Vietnam-era military. Later, he became Illinois deputy director of public health and was co-founder of the first statewide emergency medical system in the United States. Flashner's experience with the state of Illinois involved working closely with accounting firms; in 1973, he accepted a job with Arthur Young, and eventually became a partner. But in 1979, deciding to give medicine another shot, he opened a convenience-care clinic in the Chicago sururb of Arlington Heights -- the first of 29 Doctors Emergency Officenters in Illinois, New York, California, and Minnesota.
By 1981, Flashner had built a reputation -- "some good, some bad," -- as a guru of the walk-in clinic industry. Known for his flamboyant, even abrasive manner, Flashner was helping to support his clinics by conducting seminars for would-be clinic owners. "I called him," Gold recalls, "and said, 'I want to do a freestanding emergency department.' And Bruce said, 'No you don't. You don't know anything about it." Within a week, Gold and his attorney were in Florida listening to Flashner talk about FECs to an audience of about 50.
"It turned me off like you wouldn't believe," Gold declares. "I'd had this grand picture of serving people in a new way. What I learned was this is a tough, tough business. You've got to watch pennies and count Band-Aids, and you've got to advertise, and people are going to bad-mouth you. The commercial quality horrified me. I'd never heard a doctor say that medicine is business.
"But it's the truth," Gold continues. "Besides, I'd already spent the $2,000 for the seminar. I'd made up my mind, and every obstacle was just another problem to solve."
Gold's attorney/accountant, David Brady of Los Angeles, barely saw the obstacles."He thought this business was a gold mine," says Gold. "What he heard was that every patient over the break-even point cost very little to treat. Frankly, I thought I'd never succeed in business -- I was a doctor, after all. I left the business end to him." The two returned to California prepared to forge ahead.
There were problems almost from the time they got off the plane, however, and two months after Gold and Cassidy's first meeting, their partnership dissolved. Gold blames it on a dispute over pension-plan systems. His ex-partner cites, among other reasons, the fact that "Stan wanted rapid expansion, whereas I wanted to expand slowly." Cassidy has since opened two FECs; both seem to be doing well.
Out on his own, Gold managed to spend several months finding a site for his first clinic. "I wanted a freestanding building on a major thoroughfare," he says. "Once I got it, I planned to do a demographic survey to see if it satisfied my other requirements -- a population of at least 50,000 within a three-mile radius." After he finally found it, "it took another four months for the lessor to agree to lease the building to us. They were afraid we might be an abortion mill or a drug rehabilitation center, or that we might have ambulances and fire engines in their parking lot."
Gold's obsession with location was probably naive. "Site is just one of the variables in this industry," says Neal Bermas of Forbes Health Systems. "Equally important are contract negotiations with industry" -- a possibility Gold ignored. "The ability of FECs to joint venture with HMOs and PPOs [halth maintenance organizations and preferred-provider organizations] is a key to their eventual success," Bermas explains. Freestanding clinics, he emphasizes, "aren't just physicians' offices with shopping-center locations. They aren't just business as usual."
Not being "business as usual," walk-in clinics may require innovative approaches to financing -- something Gold steered clear of. He was following Flashner's pro forma business plan, which called for a bank loan with personal assets as collateral. Yet Gold's only assets were his personal income -- $14,000 a month from two hospital contracts -- and his two houses, a residence in Newport Beach and a vacation house in Monterey, together worth about $1 million. For a more conventional venture, that might have impressed a lender. But FECs were still an unknown quantity. "I must have gone to 20 banks," Gold recalls. "None of them felt I had sufficient assets."
Eventually, he scraped up a $200,000 line of credit. "But the money didn't come through until the week after we opened. By then, I'd put up $50,000 of my own savings and income into the center." Worse, the prime rate hit 21% while Gold was negotiating the leases on medical equipment, and his loan was two or three points above prime. (he has since renegotiated.) "We were in a state of monetary hemorrhage. For someone who knew nothing about business, getting control was a nightmare."
There were other ways that the Flashner model didn't work for Gold. Most clinics are open very long hours. "I thought Southern California could handle a clinic open seven days a week, 18 hours a day," he says. "As it turned out, we were offering a service the public wasn't seeking."
On the first day of business, he opened his doors at six o'clock in the morning. Four hours later, despite a $20,000 marketing campaign that had included direct mail, discount coupons in local newspapers, and a $50,000 grand opening ("my father was probably turning over in his grave," Gold says), not a single patient had crossed the threshold. For the first three months, the clinic averaged just 13 patients a day.
Some of those who finally did show up were turned away because of another bad decision: not to accept third-party billing. "One day, three or four patients were turned away," Gold says. "The next hour we were in the insurance business."
One aspect of running an FEC did prove relatively easy: hiring doctors. There were plenty to choose from, attracted by the steady hours and steady wages (now $28 to $40 an hour), unencumbered by the risks of a solo practice. The problems arose after they were hired.
Doctors aren't factory workers; Gold's new employees were used to being independent professionals. They were also used to doing things as expensively as possible. "From the beginning, we ran into the difficulty of standardizing care without controlling the doctor in an unethical way," says Gold. "For example, should a would be cleansed with Betadine [a brand-name iodine solution] at $40 a gallon or with the generic equivalent at $20? Or should you clean wounds with Ivory soap, which costs a fifth of that? Well, the doctor says, 'You can't prep a wound that way' -- not because he knows, but because he's used to [doing things that way]. It's very difficult to get procedures standardized if they're inconsistent with the doctors' experiences, even when they are valid."
On the personal level, too, Gold was discovering that doctors didn't always grasp what walk-in medicine was all about. "I wanted them to project an image of concern," Gold says. "It's not that doctors don't care -- it's that they don't convince patients that they care. Doctors are horrified when you tell them they need to be good salesmen. But it's true."
Yet another Flashner prescription -- rapid expansion and volume business -- led to yet another dubious Gold move. In August 1982, a real estate broker called to tell Gold of another vacant building in the nearby city of Orange, Calif. Gold's first center had not yet broken even, and the building in Orange was bigger than he needed. But it was available at a bargain rate, and Gold had to say yes or no within 24 hours. He said yes. As with the first center, financing proved nearly impossible; he finally borrowed $250,000 from his mother.
Two more centers were on the drawing board in May 1983, when Gold decided to take American Emergicenter public. It was a gamble that seemed promising at the time. Urgent Care Centers of America Inc., an Orange County-based chain of FECs, had recently made a successful public offering. "I saw Urgent Care's prospectus," says Gold," and I thought we had a superior product in terms of emphasis on quality and experience." With coattail-riding on his mind, he called Van Kasper, a San Francisco stockbroker and a member of the underwriting group in the Urgent Care offering.
"Urgent Care was a hot stock," says Kasper, who left Loeb Rhoades & Co.'s San Francisco office in 1978 to start his own brokerage firm. "It set the mood for others to follow, and a number did. The window in the new issues market was rapidly closing. Our choice was to abort or to go ahead on a much smaller scale." American Emergicenter finally went public in January 1984, with an offering that had been chipped away from about $4 million to $1.8 million.
Gold, who confesses he had never before been interested in the stock market, looks back on the IPO as a major lesson in business hardball. "The costs of going public were inconceivable," he says. "There was the legal staff, the financial officer, the costs of filing for registration in 35 states. During the process, one of our former officers sued us, claiming he'd been unfairly fired. One member of the syndication group pulled out two days before we were scheduled to go public, forcing us to scale down the offering. I was spending two thirds of my time with shareholder and interested-spectator communication, and much of the rest trying to allay the underwriter's fears about my ability to survive. It was devastating."
In the end, nearly $800,000 of the American Emergicenter offering went to cover direct and indirect costs. David Brady, Gold's attorney and friend, quit the company and sued Gold and the company for legal fees related to the offering. (Brady would not comment on the matter for publication.) Because of the company's poor performance during 1984, the stock was dropped from NASDAQ.
In hindsight, Gold might have been well advised to skip the public offering entirely. But why stop there? In hindsight, he might have been better off investing in rutabaga futures or Nicaraguan swamp-land. In the walk-in clinic business, however, mere survival may be a sign of success. And as the bleak winter months of early 1984 turned into spring, summer, and fall, it began to look as though the worst of times was over for Stanley Gold. His first two centers began showing a profit. By early 1985, the newer two were approaching the break-even point. Perhaps most significantly, a sadder but wiser Gold began making fundamental changes in his business organization.
The first thing to go was the name. Like a growing number of FEC operators, Gold had to acknowledge that the word "emergency" in the name of a center was not the best public relations. Since August 1984, the company has been doing business as AmeriCARE 1 Immediate Medicine.
Also put on hold were further plans for expansion -- despite a promise in the prospectus that four or five new centers would be open by the end of 1985. Instead, the company began looking for other ways to grow: by managing other FECs, through stock acquisition, by economies of scale.
In August, Neal Reitz, Gold's CPA since Emergicenter's inception, became the company's chief operating officer. "The public money was running out," says Reitz." I told Stan we'd better some drastic cuts." At Reitz's suggestion, the clinic's hours were cut from 18 to 16 hours a day Monday through Friday, and to 12 on weekends. "We were averaging a half a patient per month in the 6-to-7-a.m. period," Reitz says. "We weren't listening to our patients. They don't think of us as a hospital -- they don't want to use us at that hour."
Reitz also combined and redefined the two positions of chief financial officer and chief operating officer. "We didn't need high-priced people like that," he says. "This is a retail business." He cut such perks as corporate cars. He also streamlined the staff doctors' insurance plans, compensating for the cuts by offering them nonqualified stock options with an exercise price of $2.
Gold was concerned about his doctors' extravagance. Reitz took a hard look at the other side of the coin." A doctor's charges should average $52 to $57 per patient in our centers. There were some doctors who didn't want to run up bills; their charges averaged maybe $35 or $40. That means something's wrong. Maybe they're skimping on X rays or lab tests. These things are necessary," Reitz argues. "They serve the patients." They also serve the bottom line.
Reitz also dropped the expensive advertising campaigns of the early days. "We had advertisers sell us gimmicks at outrageous prices," he says, "when all along, Stan felt that personalized letters were the best way to bring patients in. He was right."
Despite the bitterness of the parting between Gold and his longtime attorney, David Brady, it provided some financial relief. "We're charging decreased legal fees in exchange for some stock options," says Gold's current attorney, Rick Schneider of Schneider & Staffer, in Santa Monica, Calif. Noting that legal fees for the IPO alone ran close to $300,000, Schneider says, "I can't see it running more than $125,000. You have to be a tiger to hold down legal fees, and Stan isn't. In fact, he's one of the nicest people we deal with."
But do nice guys finish first in this tough, new business? That is the question everyone connected with AmeriCARE 1 must be asking. Last November, Bruce Flashner agreed to sell Doctors Officenters for $17 million to Humana Inc., owner and operator of about 90 hospitals in the United States, England, Switzerland, Canada, and Mexico. Flashner, through his Flashner Medical Partnership, continues to provide the medical services in the centers. "I don't know if the sale was a good thing or not," he says. "It was the best we could do for our stockholders."
According to Neal Bermas, such takeovers will become common. "It's really a smart move to develop a group of centers and then look to be acquired," he says. Stanley Gold turned down a merger offer just before he went public, and a buyout proposal in the fall of 1984, both from Urgent Care. "It would have looked like a bailout," Gold says, "and I would have gotten out with less than half my investment." By the spring of 1985, a merger seemed much more appealing: Gold joined forces with U.S. Medical Enterprises Inc., which operates seven occupational and ambulatory-care clinics in Los Angeles and Orange counties.
Perhaps the key factor is time. "The biggest problem FECs all have is underestimating the length of time it takes for public acceptance," says Kasper. Neal Reitz offers a familiar-sounding metaphor. "Just a few years ago, people rarely went out for breakfast. Then McDonald's and others started offering fast-food breakfasts. Suddenly, people discovered they needed to go out for breakfast." Reitz, Gold, and company are betting that people will find out that they need fast-access medical care just as badly.
If he had to do it over again? "I'd probably make the same mistakes," Gold admits -- but he remains relentlessly optimistic. And it should come as no surprise that when Stanley Gold talks about the future, he, too, uses a golden-arches analogy.
"When McDonald's went into Germany, they had a hard time," Gold says. "They had to explain to people what a hamburger was. That's the situation we're in now. The world may not be ready for what we have to offer, but it will be soon."