Corporate Practice

MedPartners Plans To Abandon Physician-Management Business

According to a recent report in The Wall Street Journal, MedPartners, Inc., is abandoning the business of buying and managing physician practices, in the strongest sign yet of gloom in what until recently was considered a hot growth market.

The nation's largest physician practice management, or PPM, company announced plans to shed its 238 physician clinics and more than 10,000 affiliated doctors within the next 12 months through sales, a spin-off to shareholders or some combination of the two. Those businesses account for about 60% of the company's current revenue. MedPartners will focus on its pharmaceutical services business, which brings in about $2.5 billion in revenue a year, they said.

In analyzing these events, The Wall Street Journal noted that only a year ago, PPM companies were among investors' favorite health-care plays and were viewed as one key to bringing medical costs under control. Companies like MedPartners and PhyCor Inc., the county's second biggest PPM, bought doctors' practices across the country, vowing to streamline costs and operations and negotiate better contracts with health-maintenance organizations. About 7% of the nation's 600,000 doctors sold their practices to PPMs, often for generous sums.

But the industry's prospects dimmed earlier this year when the nation's largest PPMs—MedPartners, PhyCor and FPA Medical Management, Inc.—each began disclosing losses or lower-than-expected earnings and difficulties integrating some of the physician practices they were buying into their organizations. Doctors chafed at working for outsiders and in some cases were alarmed by steep drops in personal income. Some physician groups tried to break their contracts with the PPMs.

AAEM Viewpoint

by Robert McNamara, MD FAAEM

The exit of MedPartners, which has a large EM presence through Team Health, reflects the turmoil of the PPM industry. The battle is far from over in EM and may actually get worse if the specialty continues with its complicity by silence and passivity. Most of the failings of the PPM industry relates to their inability to profit from the acquisition of office practices and not from problems with ED contracts. ED contracts are much simpler equations for PPMs as opposed to the complexities of running an office. The staffing and equipment needs are minimal and there is the added benefit of dealing with revenue producers (the EPs) who have been convinced by their "leaders" that they have no right to see what income they generate.

Look for FPA to retreat, much as Coastal did, to the sure bet—ED contracts. Expect Laidlaw (EmCare) to carefully keep itself mainly in EM and away from the losing office practices. The EM contracts of Team Health will be highly sought after as there is still considerable profit potential. AAEM and EM as a whole must not become complacent because of these PPM struggles, in fact, our own problems may become worse as the industry reorganizes.