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CHILLICOTHE, Ohio-In a small town where managed care still is a futuristic idea, the Mead Fine Paper Corp. grew tired of doctor shortages and painfully high health care costs and set out to solve the problem.

The Mead Family Medical Center, built not far from the Chillicothe, Ohio, paper mill that employs 2,600 area residents, has been open seven months and now serves 12,000 workers, relatives and retirees. The clinic-pharmacy cost about $2 million to build, but Mead is expecting annual savings of $1.1 million on its health care costs after the first year, said Amber Garwood, medical center manager. Drug costs alone have dropped to $25,000 a month from $60,000 for Mead, a unit of Dayton, Ohio-based Mead Corp.

At a time when managed care premium increases are generally accelerating, some self-insured employers are looking anew at an idea that gained attention in the early 1990s: employer-owned health centers located either at the plant site or nearby that practice family medicine at nominal cost to employees.

Companies owning such centers include Goodyear Tire & Rubber Co. in four states; USX-U.S. Steel Group in Merrillville, Ind.; American Marine Corp. in Fond du Lac, Wis.; Bethlehem Steel Corp. in Bethlehem, Pa., Quad/Graphics Inc. in Pewaukee, Wis., and Adolph Coors Co. in Golden, Colo.

To contractors that manage and staff corporate clinics, these contracts represent an opportunity for lucrative long-term profits at a time when traditional managed care is rising in cost. Although analysts are skeptical that an upswing in managed care rates would prompt many companies to fend for themselves with mortar and shingles, contractors report a consistent level of interest among buyers.

In Mead's case, opening a company-owned clinic has been a rousing success and the facility is brimming with users, Ms. Garwood said. Two doctors staff the 10,300-square-foot clinic, which was the culmination of about five years of planning and building.

"We're getting killed-we're so busy we don't know what to do with ourselves," Ms. Garwood said. Demand is high partly because of the scarcity of primary care doctors taking new patients in town; before the clinic opened, about one in six workers had reported not visiting a doctor in 10 years.

Employer-owned primary care clinics are a "creative option" both for employers in rural areas and those in cities where managed care costs are rising or quality and access problems are becoming vexing, said Dr. Michael Hardies, chief executive officer of Troy, N.Y.-based Corporate Health Dimensions, which manages company primary care clinics.

Dissatisfaction with health maintenance organization pricing or care is generating new interest in do-it-yourself clinics, he said, because employers often have become dissatisfied as to "what the HMOs have promised and what they've delivered."

In addition to running the Mead clinic, CHD recently announced contracts to run new work site clinics at the Gaylord Container Corp. in Bogalusa, La.; USS Fairless Works in Fairless, Pa., and Prince Corp. in Holland, Mich.

For Prince, a manufacturer of auto interior products, the completion of a family medical clinic in January was a way to exert long-term control over health care in the region, which had few primary care doctors and virtually no HMO penetration.

"We made the decision to take a quantum leap forward," said Chris LaFave, manager of health and wellness. The need to innovate was made urgent when the company's employee base more than doubled to 5,000 from about 2,300 three years ago.

"We didn't do this as a knee-jerk reaction to our health care costs being out of whack," according to Mr. LaFave.

"Our average age is around 31. We did this as an investment in our future." Having a clinic onsite is innovative and will help attract and retain employees, he said.

The $2 million investment in the project was supposed to be paid back through cost reductions within three years, but because of extremely high clinic usage it appears the clinic will have paid for itself in less than two years, he said. After that, it is expected to save Prince $2 million a year; the company's current annual health care budget is $12 million.

The 12,000-square-foot clinic, which is partly new and partly renovated from an existing portion of the company's tennis club, is staffed by three full-time, salaried doctors. About two-thirds of employees use the center for family care-twice what the company had expected-while about 93% are using its pharmacy, Mr. LaFave said.

"Initially, we were understaffed, and we could not meet demand the first month we were open," he said. "That's the good-and the bad-part of it."

While it may be too early to judge the efforts of either Mead or Prince, one corporate clinic that has been open two-and-a-half years is still getting high praise from its owner. Sterling, Ill.-based Northwestern Steel & Wire's center (BI July 3, 1994) has been used by 50% to 60% of its workers for primary care at least once since it opened, said Andy Moore, vp of human resources. About half of the users are employees and half are retirees and relatives.

After seeing health care costs rise about 15%, Northwestern Steel & Wire contracted with PHP Healthcare Inc. of Reston, Va., to build a company clinic on a former parking lot downtown, near the plant. In the first full year, health care costs dropped 6%, Mr. Moore said. Costs increased in the second year but only due to a number of catastrophic medical claims, he said.

"It's done all we expected it to do," he said. The clinic's doctors "are able to handle almost everything, and they do a better job of finding anything before it becomes a major problem."

Demand for services has been so high that a coalition of other employers in the region, which were turned away by Northwestern Steel & Wire when they asked to use the clinic, has drawn up plans to build a medical center of its own in nearby Rock Falls. It is to be owned collectively by the River Valley Health Care Coalition, a group of smaller businesses.

But employer-owned clinics are not a cure for every company's health care financing headaches.

They are probably best suited for rural, self-insured companies that lack access to primary care physicians and that can rally the support of employees and unions around the new clinic, said Tom Boshell, senior vp of Liberty Healthcare in Bala Cynwyd, Pa. "It takes a unique company with a large concentration of employees in one area for this to make sense," said Mr. Boshell, whose company has won seven contracts for health facilities in eight years. All are family care centers integrated with occupational medicine centers. But many other employers have taken pains to separate occupational health clinics from primary care clinic, fearing that workers' traditional mistrust of "company doctors" and worries over a loss of privacy might cause employees to shun family care facilities.

Clinic contractors also have learned that today's employers have an insatiable hunger for data once the centers open-information to prove that quality standards are being met and outcomes are being achieved, Dr. Hardies said. Clinic users are periodically surveyed about their satisfaction, and as part of its contract CHD must demonstrate annually to clients cost savings goals are being met.

In addition to wanting basic services such as laboratory tests, emergency care, minor surgery and wellness programs, employers also are expecting clinic contractors to screen and construct a network of preferred specialist providers from area physicians. A cardiologist from the local hospital may visit the clinic twice a week, for example.

While a very large company may have ready access to managed care networks and no need for worksite clinics, those with fewer than 5,000 users most likely will not have the critical mass to sustain a facility, consultants say.

Employers in recent years have been hesitant to own their own health center, fearing the medical liability exposures it might bring them. They also are discouraged by logistics, such as how to mesh the clinic with a preferred provider network to allow optional outside provider usage. Arranging for clinic doctors to be accepted on staff at local hospitals may also be a challenge, Mr. Boshell said.

Industry consultants also pointed to a host of hurdles and start-up expenses that have apparently discouraged most businesses from starting clinics, and said they see no general trend to attempt such projects.

"My sense is more and more employers are critically evaluating if they should be in the business of providing medical care, and it seems more companies are trying to get away from it," said Janet Snow, a principal in William M. Mercer Inc. in New York.

The market for corporate health clinics probably will be small if HMOs learn how to respond to employers' insistence on quality at a fair price, said William Lubin, chief executive officer of commercial managed care for PHP, which has not had a client for a corporate clinic since Northwestern three years ago. On the other hand, he said any HMO rate increase sustained over a few years could reinvigorate his industry.

Markets for corporate health clinics also may exist in foreign countries, Dr. Hardies of CHD said. His company will open a facility soon in Argentina.