With $40 million in debt and private equity, San Diego's Scripps Clinic is in the market to buy or merge with a few academically oriented, "high-quality" physician group practices before going public in the next 12 months.
As a publicly traded company, Scripps would occupy a special niche in the increasingly crowded physician practice management field.
Breaux Castleman, Scripps' president and chief operating officer, said the clinic is negotiating with four practices across the country, but no letters of intent have been signed. The aim, he said, is to brand those practices with the Scripps name, which carries weight as a high-quality establishment.
"Locally, it's perceived as a very well-run organization," said Gary Stephany, president and chief executive officer of the Hospital Council of San Diego and Imperial Counties.
Some observers think Scripps' cachet approaches that of Rochester, Minn.-based Mayo Clinic. The name could fetch plenty of cash and covered lives if executives succeed in their plans to sell stock to the public.
"Having the marquee Scripps name and trademark," the clinic is "better positioned" than some physician practice management companies, said Gary Frazier, a managing director at Bear, Stearns & Co.
In a session closed to the press, Scripps Chairman and CEO Thomas Waltz, M.D., recently presented the company's strategy for national expansion at Bear, Stearns' annual healthcare conference in New York. Such sessions are part of the drill that companies go through to help investors become familiar with their story as they are about to become publicly traded.
Scripps has not picked an underwriter for the stock offering or determined where the stock will be traded. The company also has not yet disclosed recent financial performance figures.
Founded in 1924, Scripps Clinic represents 290 multispecialty physicians. A veteran of Southern California's managed-care battleground, it has years of experience dealing with utilization issues and capitation. In 1974, Scripps created a not-for-profit medical foundation, called Scripps Clinic Medical Group, which split off from ScrippsHealth, a four-hospital system, late last year. Simultaneously, it established Scripps Clinic Management Services Organization, a for-profit organization that provides administrative services to the group.
Waltz, a neurosurgeon, was responsible for the negotiations that led to Scripps Clinic's independence and to attracting outside investors, according to a report by Bear, Stearns.
Castleman, former president of Caremark International's physician resources division, said Scripps has a $20 million credit line from Bank of America and another $20 million in private equity.
Enterprise Capital, one of the equity holders, has taken a 40% stake in Scripps. "This is not a me-too (PPM)," said James H. Berglund, a general partner with the venture capital fund's La Jolla, Calif., office.
He said Scripps is the "first multispecialty-led, brand-name, high-quality physician group" poised to enter the physician practice management business.
Although the immediate focus is on acquiring or merging with other medical groups, executives also are looking at ways to participate in the single-specialty business, particularly in areas where it has expertise, such as cardiology and orthopedics, Castleman said. He said the clinic also is looking to capitalize on its in-house expertise by showing independent practice associations and physician-hospital organizations how to effectively compete under managed care. This, he said, could be done on a fee basis through a joint venture or by acquiring the group.