Caremark International's purchase of the Friendly Hills HealthCare Network marks the company's most aggressive move yet into the untapped physician-practice management market.
However, analysts are finding it difficult to assess the deal because Caremark is secretive about its purchase price.
"It's hard to analyze how favorable the deal is for Caremark and FriendlyHome care
Hills without knowing how much Caremark paid for it," said Randall Huyser, a healthcare investment analyst with San Francisco-based Furman Selz & Co. "Although the physician practice management industry is one of the last bastions in healthcare, the real question is (determining) the most appropriate prices companies should pay for these groups."
The Northbrook, Ill.-based alternate-site healthcare company declined to reveal how much it had paid for Friendly Hills. However, executives did say it was more than the $125 million Friendly Hills paid in 1993 to transform itself from a for-profit organization to a not-for-profit foundation (Aug. 15, p. 6).
La Habra, Calif.-based Friendly Hills HealthCare Network includes a group practice of more than 180 physicians and 1,800 employees. The network has a prepaid enrollment of more than 100,000.
Caremark's current network of practices includes Kelsey-Seybold, a 165-physician group practice in Houston, and a 100-physician network in Oklahoma City.
Ultimately, the success of the deal will depend on whether Caremark will be able to utilize Friendly Hills' group-practice management model to attract additional group practices in developing managed-care markets-a strategy Caremark hasn't ignored.
In addition to the Friendly Hills purchase, Caremark also agreed to buy Strategic HealthCare Management, a Friendly Hills subsidiary that organizes physician groups in markets where managed-care systems are developing.
Strategic HealthCare Management's president and chief executive officer, Thomas Mayer, M.D., has acted as a consultant for physician group practices looking to establish a group-practice model similar to the Friendly Hills network.
Its most serious competition, Mr. Huyser said, will come from not-for-profit hospitals that will try to buy the group practices as a means of ensuring future revenues and steady patient referrals to their facilities.
It will also have to contend with negative publicity.
Last month, Caremark, along with five individuals, was indicted by a federal grand jury for allegedly paying a Minneapolis physician more than $1.1 million in illegal kickbacks. Sources said the company is under investigation on similar charges in several markets nationwide.
Caremark has denied any wrongdoing and says it will be vindicated in court.