A high-profile not-for-profit academic medical center is ponying up $30 million to buy a minority stake in a physician practice management company with a reputation for aggressive acquisitions.
The deal will wed Loma Linda (Calif.) University Medical Center, renowned worldwide for its transplant programs, with PrimeCare International, which intends to use the cash infusion to finance more acquisitions.
"It's kind of interesting for Loma Linda, with their academic standing, to tie it in with PrimeCare," said Emile Gauvreau, vice president of Healthcare Practice Enhancement Network, a Los Angeles-based consulting firm. "It's not so much the quality of care they deliver, but in terms of business ethics, (PrimeCare) has not been seen as the nicest fish in the aquarium."
The transaction will give 797-bed Loma Linda just under a 20% stake in privately held PrimeCare, based in Ontario, Calif. PrimeCare is the largest PPM company in the Inland Empire, a sprawling suburban area that starts 30 miles east of Los Angeles and includes the rapidly growing cities of Ontario, Riverside and San Bernardino. PrimeCare's three-member board of directors will also add one seat, likely to be held by J. David Moorhead, M.D., Loma Linda's chief executive officer and president.
Although the bulk of its business is in the Inland Empire, PrimeCare also has fledgling operations in Florida and Oklahoma. It had 1996 revenues of $280 million, and company officials project that figure will grow to $330 million this year. PrimeCare's networks comprise 500 primary-care physicians, 2,000 specialists and 280,000 patients. About 400 PrimeCare primary-care physicians, 1,800 specialists and 200,000 patients are in Southern California, most of them in Loma Linda's service area.
"This is going to help align our economic incentives. We don't want our partner on the other side of the table," said Edward R. Casas, M.D., PrimeCare's president and CEO. "If they're vested in us, we have to worry more about delivering the best value and having high patient satisfaction so the payers are happy."
Casas and Loma Linda's Moorhead say the transaction will allow both parties to strengthen their existing business arrangements, which have included referrals of PrimeCare patients to the hospital.
Industry experts say such deals are likely to occur more frequently because hospitals, pressed by managed care, need the stream of patient referrals large management service organizations or PPM companies can provide.
Gauvreau added that both parties in this instance had their own interests. Loma Linda's not-for-profit foundation arrangement with Friendly Hills Medical Group, established in the early 1990s, did not meet expectations, particularly after Friendly Hills converted to for-profit status. Moorhead confirmed the two parties have few ties these days. Meanwhile, PrimeCare had been seeking capital.
Still, Gauvreau thought the deal seemed odd in that it marries a prestigious not-for-profit academic medical center with a for-profit PPM company that has designs on going public later this year and has acquired a reputation for aggressive acquisitions. Indeed, Casas confirmed the threat of litigation involving a difficult deal last year delayed its initial public offering, and the infusion from Loma Linda will be used for even more dealmaking.
Moorhead dismissed any concerns about PrimeCare's reputation. "PrimeCare is a provider held in significant respect in this region by payers, and they're a very good provider of services," he said. "They also have an excellent management team."