Gloria Mayer, Thomas Mayer, M.D., and Curtis Eshelman, M.D., have all learned firsthand that selling to a physician practice management company is not always an experience that ends happily ever after.
Accordingly, the Mayers and Eshelman have gotten into the business of giving advice to physicians who are considering selling their practices to PPMs.
"I think physicians, when they're evaluating selling their practices, tend to get help from lawyers and accountants, but they do not get it from other physicians," Eshelman says.
PPMs own only 2% of all physicians, says Clifford Hewitt, a healthcare analyst at Sanford C. Bernstein Co. in New York. However, Hewitt expects that number to grow to about 25% over the next few years.
With more physicians being approached by PPMs, the Mayers and Eshelman want to show them how to negotiate for financial control of their practices. Although the three have different reasons for why doing so is important, they agree that physicians should at least know what they're getting into before they decide to sell.
The Mayers' message, which they convey at conferences with titles like "Thinking Through Your Partnering Options," addresses in particular the so-called second sale of a practice, the instance when a PPM sells off a practice or when the PPM itself is sold.
Gloria Mayer, formerly chief operating officer of the Friendly Hills Healthcare Network in La Habra, Calif., and Thomas Mayer, her husband and a former Friendly Hills consultant, ended up in court as a result of Birmingham, Ala.-based MedPartners' September 1996 purchase of Friendly Hills from Northbrook, Ill.-based Caremark International.
MedPartners on Nov. 22, 1996, sued the Mayers, along with former Friendly Hills Chief Executive Officer Albert Barnett, M.D., claiming they were not willing to cooperate with MedPartners. Gloria Mayer had been fired the day before. The lawsuit is still active in Orange County, Calif. Meanwhile, the Mayers have countersued.
Because of their experience, the Mayers have spread the message that "physicians (should) not think PPMs can save them," says Thomas Mayer, who with his wife now operates Huntington Beach, Calif.-based Managed Care Consulting Services.
"This isn't a bashing of PPMs," he says. "It's really a question of being smart."
Gloria Mayer said her experience has taught her that it's important for physicians and physician groups to negotiate the right to buy back their practices as a condition of sale to a PPM. Friendly Hills didn't have that right, she says, "so in the second deal we lost control." Gloria Mayer also says that physicians can fall into traps if they sell their practices just for the sake of selling.
"They get caught up in the frenzy of selling and fear they'll be left out," Mayer says. "But you have to be rational about it. When you're looking for a partner, you have to identify why you need one."
The Mayers' conferences are offered through the Friendly Hills HealthCare Foundation, an educational offshoot of the Friendly Hills Healthcare Network. In addition to addressing the right to buy back a practice, the conferences focus on such questions as which financial functions of a practice a PPM should control, what sort of clauses affecting physician autonomy are present in most deals and how to judge the stock value of a PPM using equity to purchase a practice.
Curtis Eshelman also wants to help physicians answer these questions as part of his nascent consulting business. However, his experience in PPM deals is colored more by the ailing financial health of his PPM.
Eshelman in 1993 sold his Lakewood Family Practice in Durham, N.C., to Coastal Physician Group. The hometown PPM previously had concentrated on contract and billing services for hospitals, but in 1993 it was beginning to move more aggressively into buying primary-care practices. Eshelman became medical director of Coastal subsidiary Integrated Provider Networks, which oversees the primary-care physicians.
As Coastal's financial fortunes spiraled downward, Eshelman went along for the ride. Now, he's awaiting Coastal's sale of his practice, which has been in the works for 11 months. No terms have been disclosed, but Eshelman expects to continue his clinical work after the sale.
Like the Mayers, Eshelman says physicians should realize that the PPM they're signing on with may not be the PPM they'll be working for in the future.
"I would have them assume absolutely that the entity they're talking to now will not be the entity they belong to five or 10 years (later), even if it's a hospital," Eshelman says.
Again, the way for physicians to protect themselves is to negotiate some control of their practices at the beginning of the deal, Eshelman says. For example, physicians can insist that they represent 50% of the board of directors for their practice. Also, if smaller physician groups link in an independent practice association they will have more leverage to get more control, Eshelman says.
Although Eshelman's practice has such a set-up, Coastal has what Eshelman calls "the nuclear option,"the option to overrule the physician board, which means the board does not have complete power to select its future partner.
"These are key, rock-bottom, structural kinds of things, and the physicians don't push hard for them," Eshelman says. "These are the things that matter only in a disaster scenario."
Many physicians don't have to worry yet about being put in the Mayers' or Eshelman's position, because the PPM industry is not in a wave of consolidation or a shakeout, says Sanford C. Bernstein's Hewitt.
However, Hewitt agrees that physicians ought to think of long-term considerations rather than purchase price when a PPM comes knocking.