In an effort to obtain cozier relationships with doctors and other providers, some pharmaceutical giants and other healthcare vendors are quietly investing in physician practice management companies and other delivery systems.
Others are joining the movement as a way to provide new sources of capital to companies that manage physicians or have close ties to them.
"There's no doubt that pharmaceutical companies*.*.*.*are trying to align themselves with the care-delivery system for multiple reasons," said Marty Silverstein, M.D., a vice president with Boston Consulting Group.
Drugmakers want "laboratories" for research and disease management studies. They also want an understanding of how physicians work and access to data, he said. "These are strategic investments," he added.
One example is Ciba-Geigy Corp., a Swiss pharmaceutical concern that last year became an investor in Pittsburgh-based Med3000 Group, a physician practice management and clinical research firm.
Neither company would disclose the amount of the investment, only confirming that Ciba is not a majority stakeholder. But the investment was large enough to earn John H. Brown, senior vice president of Ciba's pharmaceutical division, a seat on Med3000's eight-member board.
Med3000 has formed one management services organization with 42 doctors and has in development seven more, representing 230 to 240 physicians. It also is negotiating with a half-dozen independent practice associations that include 400 to 500 physicians.
Another player reportedly is Johnson & Johnson. According to sources familiar with the New Brunswick, N.J.-based company's financing activities, one of its divisions, Johnson & Johnson Finance Corp., has from time to time funded physician practices, hospitals and other providers in conjunction with product purchase agreements.
Calls seeking confirmation of the division's existence and its activities weren't returned at deadline.
Analysts cite another example. In April 1995, Salick Health Care, a Los Angeles-based provider of cancer diagnosis and treatment, merged with Zeneca Group, an international bioscience company with a strong focus on cancer drugs. Through the deal, Zeneca acquired 50% of Salick's common stock in exchange for cash and other considerations, including certain obligations to buy and rights to acquire Salick shares.
Salick doesn't own physicians but has relationships with them through its 11 cancer centers. What Zeneca gains is information on how cancer care is delivered and the unmet needs of cancer patients, Silverstein noted.
A Zeneca spokesman declined comment on this story.
The amount of money being plowed into ventures such as these is a drop in the bucket for an industry that, according to New York-based Wilkerson Group, was projected to spend $15 billion on research last year. But it's major cash to expansion-minded physician practice management companies.
Med3000 isn't buying or controlling physicians outright, and neither is Ciba, cautioned Patrick Hampson, Med3000's chairman and chief executive officer. One reason Med3000 partnered with Ciba was its desire to learn from physicians, not control them, Hampson said. "There was never an intent to buy a physician," he said.
Ciba's goal is to learn more about how healthcare delivery is changing in the United States as a result of managed care, according to Brown. As the company learns more about how patients are treated, it obtains leads on new research, he said.
Other companies have different ideas. While searching for a capital partner, Hampson said he spoke with a number of pharmaceutical executives who sought closer doctor ties.
"They wanted control. They wanted to get more involved in the inner workings of physician offices," he said.
Another unstated effect of provider-vendor partnerships-the potential to sway providers' prescription-writing behavior-raises at least the appearance of conflicts of interest.
"If you think conceptually, the financial power of the pharmaceutical companies is enormous," said Ed Kroll, a managing director and senior healthcare services analyst at Furman/Selz. "By and large, the physicians control how the scrips get written," he said.
Ciba's Brown dismisses that notion. "To the extent that we would try to interfere with prescribing practice, we would destroy everything that we're trying to learn in the first place."
Pharmaceutical companies aren't the only vendors trolling for opportunities to invest in integrated delivery systems. Information systems and, reportedly, medical device companies are jumping into the fray.
Bruce A. Johnson, a consultant with MGMA Management Consulting Services in Boulder, Colo., the Medical Group Management Association's consulting arm, said he knows of one computer support organization that expressed interest in helping set up an MSO. He's also heard of other vendors seeking to build physician groups.
"I think there are a number of different variations of the relationship," but generally the motivation is to create a closer connection between the vendors and the products they offer and the users, he said.
Clinical research organizations may be next, according to David H. Talbot, president of HealthReform Partners, a New York-based healthcare investment manager. He thinks CROs could "greatly strengthen" their positions by aligning with providers of care.
An example is Cleveland-based Collaborative Clinical Research, which hopes to expand its network of research sites through exclusive arrangements with healthcare providers. Jeffrey A. Green, the company's president and CEO, said Collaborative is pursuing investments in academic medical centers, physician practices and managed-care organizations in exchange for stock ownership in the publicly traded company.
Last month, Collaborative announced a preliminary letter of understanding to explore a possible alliance with Avanti Health Systems, which manages 140 medical-care providers in 54 locations. The company hopes to access New York-based Avanti's physicians and their patients for pharmaceutical company-sponsored research.
If these trends continue, the doctor who writes your father's chest pain prescription may one day belong to a medical group organized by a practice management company that's funded by a drug company. And the nearest academic medical center, regarded for its heart surgery program, could pull in profitable contracts to conduct research on a drugmaker's angioplasty treatment.
But Daniel J. Ratner, president of Tarrytown, N.Y.-based Physicians Capital Corp., doesn't think vendor investments are a financing strategy providers can bet on. Some pharmaceutical companies have "dabbled" in provider financing but haven't committed to it as a long-term strategy.
He would advise physicians to look elsewhere for capital. "I find it to be very weak (strategy) and probably a waste of energy" on providers' part, he said.