FPA Medical Management will acquire Sterling Healthcare Group in a $200 million stock swap, bringing more consolidation to the physician practice management industry.
The combined company is expected to have annual revenues of $370 million and 3,200 physicians under management in 28 states.
The deal is eclipsed by last month's announced $2.5 billion acquisition of Caremark International by MedPartners/Mullikin, but it represents part of the same trend (May 20, p. 2).
"Two weeks ago, there were 23 publicly traded physician practice management companies. I would suspect in another year we may be down to 10," said Stephen Dresnick, M.D., Sterling's chairman, president and chief executive officer.
San Diego-based FPA operates independent practice associations with 1,950 physicians in nine states, mainly in the West and Northeast. It also employs 250 clinic-based physicians.
Sterling, based in Coral Gables, Fla., mainly contracts with hospitals to manage about 1,000 emergency physicians in 19 states, primarily in the Southeast.
In 1995, FPA had revenues of $52.7 million, and Sterling took in $112 million.
Sterling's regional offices and sales force will help FPA enter and expand its IPA business in those markets, said FPA President and CEO Seth Flam, M.D.
Sterling also will enable FPA to manage care at every entry point in the healthcare system, Flam said. He said FPA is "bullish" on emergency department services, although IPAs are expected to grow much faster.
FPA has grown steadily by acquiring physician networks and expanding them. Last month, it bought 40 medical centers in Florida for $23 million from Physician Corporation of America, a Miami-based HMO (May 13, p. 29).
Sterling is by far its largest acquisition yet. FPA will have annualized revenues of about $420 million, compared with $18 million when it went public in October 1994, said Stephen Lash, FPA's chief financial officer.
Sterling wanted to become a full-service physician practice management company but decided it couldn't develop the required medical management expertise quickly enough on its own, Dresnick said.
"We've acquired clinics in the past, and the problem is it's very tough to get capitated contracts unless you can demonstrate expertise in that area," Dresnick said.
He added, "We're having opportunities pass us by where hospitals we're contracting with are asking us to help them develop these (capitation) strategies, and we're not in a position to do that."
Under the deal, each share of Sterling stock will be exchanged for 1.4 shares of FPA stock, subject to adjustment. FPA expects to issue between 10.2 million and 12.5 million shares of its common stock in the transaction.
On May 20, the day of the acquisition announcement, FPA stock closed unchanged at $17.75 in NASDAQ system trading. Sterling stock was up $1.62 to close at $20.87, also in NASDAQ trading.
Dresnick will become vice chairman of FPA's board of directors and president and CEO of FPA's hospital services division.
Herbert Wertheim, vice chairman of Sterling, is expected to join the FPA board.
The transaction, which is subject to regulatory and shareholder approval, is expected to close in the third quarter.