MedCath is getting into disease management; PhyMatrix is landlord for several medical malls; and American Oncology Resources is getting paid for its clinical information systems.
These and other physician practice-management companies have decided their business is no longer just buying and managing practices.
PPMs have hooked onto ancillary services as a way to increase their revenues or, if their doctors are working under capitated agreements, to gain more control over expenditures. Either way, the object is to show physicians, especially those whose practices are available for acquisition, how a PPM can add patient volume and value to a practice.
As physicians grow more skeptical of PPMs' promises, PPMs have responded by offering more bells and whistles. This is happening as more companies are formed and the industry matures, says former Robinson-Humphrey & Co. healthcare analyst John Runningen.
Physicians also get extra dollars from ancillary services owned by their PPMs because, unlike hospitals, PPMs can pay doctors for referrals as long as services are provided by the same company.
"Physicians care primarily about maintaining their business, and (building up ancillary services) is a good way to demonstrate that (PPMs) can do that," says David Ward, president of the practice management division of MedCath, a Charlotte, N.C.-based cardiology PPM.
MedCath since its founding has made ancillary services a priority. It already operates two specialty heart hospitals and has plans to open four more.
What's more, MedCath expanded into disease management with its May acquisition of Los Angeles-based Ultimed, which provides cardiovascular disease management services to IPAs, HMOs and large cardiology groups (see story, p. 10). MedCath also is negotiating with managed-care organizations to set up joint ventures in cardiovascular disease management, according to Ward.
"You don't want to be a passive player waiting for patients and insurers to say please do this, and that's that," he says. "We want to get our hands around the entire process."
It is hoped that getting into the entire process of delivering healthcare will prove to be more lucrative than merely managing physician practices, although analysts say it is too early to tell if that will be true.
"The premise of all this (expansion into ancillary services) is centered around the fact that physicians, though they represent 20% of the healthcare dollar, influence or control 80%," says Salomon Brothers healthcare analyst Lawrence Marsh.
Leading the way is MedPartners, which has spent at least $3.5 billion for companies that handle pharmaceutical distribution, hospital contract management and billing services, among other businesses. In April, MedPartners lost a chance to expand its ancillary business further when Avon, Conn.-based benefits management company Value Health rejected the Birmingham, Ala., company's $1.2 billion cash-and-stock offer in favor of a $1.1 billion all-cash deal with Columbia/HCA Healthcare Corp.
Last year MedPartners spent $2.5 billion to acquire Caremark International, a PPM and pharmaceutical distributor. Now Caremark constitutes 45% of MedPartners' $1.3 billion in annual revenues, Marsh says. Even without Caremark, MedPartners gets 10% to 15% of its revenue from ancillary services.
Other PPMs are expanding beyond acquiring and managing physicians:
"We're not looking to grow outside of cancer treatment," says Leo Sands, American Oncology's vice president of planning and development. "But it's all part of the continuum of care."
Despite the possible advantages, not all PPMs are in a hurry to expand. Nashville PPM giant PhyCor, with more than 12,000 affiliated physicians, is a notable exception to the expansion trend.
PhyCor vice president of strategic development Paul Keckley says the company sees plenty of growth in acquiring physician practices, because only 2% to 6% (depending on who is counting) of physicians are in a PPM. Managing independent practice associations is the most PhyCor has done to stray from its roots. About 9,500 of PhyCor's physicians are in IPAs.
"You can characterize us as hard-headed and focused," Keckley says. "It's a decision a company has to make--what is its core business and what core competency does it have."
Some companies are haunted by the specter of Durham, N.C.-based Coastal Physician Group, which withered financially when it tried to be a PPM and a billing and contract management company.
However, those companies that are expanding into non-PPM businesses often are bringing in experienced management to handle the new units, says Ellie Kerns, a healthcare analyst with Alex. Brown in Boston.
Marsh of Salomon Brothers says, "It's a bit of a quandary--staying in managing physician practices could suggest focus. But at the same time, you're in a race, if you will, and that race is to demonstrate to physicians how you are improving their practices.
"Just managing a practice, which may have to do with billing better, has a finite life. It is going to be more important how you can bring other services and revenues."