After settling its lawsuit against two former executives on the West Coast, MedPartners is again being accused of playing hardball-this time in the Northeast.
In what's described as a David and Goliath battle, MedPartners, which calls itself the nation's largest manager of physician practices, lost a bid to acquire nine healthcare centers operated by Blue Cross and Blue Shield of Massachusetts.
The winner was Physicians Quality Care, a local startup launched by Jerilyn Asher, who also founded Protocare, a home infusion business purchased by Abbey Healthcare Group in 1994 (Dec. 19, 1994, p. 6).
Earlier this month, the Blues signed an agreement in principle to sell PQC the nine outpatient centers. That began a due diligence process. The Blues has not said when it expects to close the deal.
PQC, which has 176 affiliated physicians in Maryland and Massachusetts, has been portrayed by local media as the underdog, but it does wield some financial and political weapons. It received $100 million from three capital partners: Bain Capital in Boston; ABS Capital Partners, an affiliate of Alex. Brown and Sons in Baltimore; and Goldman Sachs in New York.
And according to local media reports, Sen. Edward Kennedy (D-Mass.) placed a brief call to Blues President and Chief Executive Officer William Van Faasen on PQC's behalf. The Blues would neither confirm nor deny the reported contact.
PQC also won the confidence of the Blues' 130 physicians, who are employed in suburban Boston and the Springfield area and who practice at the centers to be sold. A contingent of physicians paid site visits and met with officials of the two companies, which were chosen as finalists from among 35 firms.
Blues spokeswoman Susan Leahy said the company organized a task force of physicians and other staff to give advice early in the selection process, but internist Robert Lounsbury, M.D., said the Springfield-area physicians organized a union in order to pressure the health plan to let them participate.
"We wanted to make sure whoever was going to buy us would allow us to be in charge of what hospitals we go to and, if we have contracts with outside specialists, who those outside specialists might be," Lounsbury said.
He said the Springfield physicians voted unanimously in favor of PQC over Birmingham, Ala.-based MedPartners, and similar sentiment prevailed among Boston-area doctors.
The clinchers, according to the physicians, were PQC's small size and physician-oriented leadership. A majority of PQC's board and its president are practicing physicians, and most of its stock is physician-owned.
"It just seems like we would be a bigger part of the company and therefore have more input," Lounsbury said.
In July, after the Blues had agreed to negotiate exclusively with PQC, MedParters struck back by sending letters directly to the physicians, promising a
$10 million signing bonus pool that would be shared among them.
But that apparently didn't sway anyone. In fact, Lounsbury said, MedPartners' financial sweetener might have turned off some physicians. "We have a structure that we put together to interact (with the bidders). They didn't recognize that," he said.
MedPartners would not comment on any aspect of the negotiations.
But the Blues, while not disclosing terms of the proposals, insisted it didn't bow to pressure from politicians or physicians in picking PQC.
The Blues is in the midst of a restructuring plan under the supervision of the Massachusetts insurance department and also is being investigated by the U.S. Justice Department (See story, p. 20).
"The ultimate decision was based on Blue Cross and Blue Shield's fiduciary responsibility, and that was to get the best deal," Leahy said.
Last month MedPartners settled its litigation with former Friendly Hills Healthcare Network CEO Albert Barnett, M.D.; former Chief Operating Officer Gloria Mayer; and former consultant Thomas Mayer, M.D. MedPartners fired Barnett and Gloria Mayer and served all three with lawsuits last November, charging that they blocked efforts to integrate Friendly Hills into its other Southern California operations.
Barnett and the Mayers filed counterclaims. They also spoke publicly and forcefully about the pitfalls of selling practices to large public companies-namely the loss of control and pressures to make money for shareholders.
The physicians in Massachusetts voiced some of the same concerns. It would not, however, be a surprise if PQC itself were to go public or be sold to a larger company.
"I think we would still be in charge of our local operations regardless of who the shareholders are," Lounsbury said.