While some of the nation's teaching hospitals are looking to get rid of doctors-in-training, others are aggressively seeking established physicians who can bring in the big bucks.
For example, earlier this month the Allegheny Health and Research Foundation, the parent corporation of Allegheny General Hospital in Pittsburgh, reached a definitive agreement to buy Coventry Corp.'s Pittsburgh-area physician practices for an undisclosed sum.
After the sale, Coventry's Health-America Pennsylvania HMO units, based in Pittsburgh and Harrisburg, would have completely divested their physician practices in the state.
Allen Wise, president and chief executive of Nashville-based Coventry, said the move reflects the nationwide trend among HMOs to shed proprietary medical groups in favor of a focus on administration, marketing and quality assurance.
Financial terms of the transaction were not disclosed. But Coventry, which has faced widening losses recently, said the deal would result in a $3 million after-tax gain.
For AHERF's part, the deal will dramatically boost the feeder network of doctors for AHERF's hospitals.
"Strategically, this acquisition enhances our community system," said Barry Roth, chief executive officer of Allegheny University Medical Centers, AHERF's three-hospital community health division. "It links well-established primary-care physicians with a broad geographic spread" to our hospitals.
Three physician groups with about 115 doctors are involved, Coventry said. About 85 of those doctors specialize in primary care.
The acquisition would enlarge AHERF's physician group practices to approximately 175 doctors in greater Pittsburgh. When combined with 227 doctors in Philadelphia group practices that AHERF already owns, the integrated health network would have more than 400 community-based physicians statewide.
"You've got to have an awful lot of primary-care docs to keep referrals going at the mother academic medical centers," said James Reynolds, president of Reynolds & Co., a New York healthcare consulting firm. But integrating those doctors into a hospital-based system is a delicate balancing act, he warned.
Under the deal, AHERF would also enter a 10-year risk-sharing agreement with Coventry to provide care for HealthAmerica's enrollees for a fixed percentage of premiums that has not been released.
Although the sale has been approved by both organizations' boards, it's subject to review by Pennsylvania's departments of insurance and health and the Federal Trade Commission. Necessary regulatory filings have already been made, an AHERF spokesman said, and the deal is likely to be completed by the end of March.
In addition to regulators' assent, Coventry's lenders must agree to the deal. Coventry's losses ballooned to $52 million during the last quarter and put the HMO company in default on a $90 million syndicated bank loan last month. Under the loan's conditions, lenders now have more say-so about Coventry's business dealings.
Previously serving only Coventry's HealthAmerica HMO enrollees, the physician groups, which include Penn Group Medical Associates with the lion's share of doctors, would take on all comers, regardless of insurance coverage.
"We've got a contract with every payer I know of in our markets," Roth said.
"By letting these doctors take Blue Cross and Blue Shield, Allegheny will be a lot better off," consultant Reynolds said. "And the doctors get more productive, generating more revenue."
HealthAmerica's HMOs have approximately 500,000 enrollees in western and central Pennsylvania.
Highmark, the recent combination of Blue Cross of Western Pennsylvania and Pennsylvania Blue Shield, is the dominant payer in the region with total enrollment of 2.5 million, about half that in various managed-care products.
Allegheny University Medical's Roth was emphatic in saying this expansion is not a harbinger of a move beyond providing care.
"This is not our foray to become an insurance company or to become an insurance carrier. And this is not a foreshadowing of an acquisition of Coventry or HealthAmerica," Roth said. "When you're completely at risk for the premium dollar, this is the most straightforward arrangement and methodology to administer."
The practice groups will likely be branded with the Allegheny name and linked with nearby AHERF hospitals, although Roth declined to provide specifics.
AHERF formed Allegheny University Medical Centers last year, shortly before it acquired two-hospital Forbes Health System in a full-asset merger. Last month 247-bed Allegheny Valley Hospital, Natrona Heights, Pa., was merged into the AUMC system.