Memo to top healthcare executives: If you are desperately in need of a sabbatical but too sheepish to ask for one, try expanding your company too far, too fast. Get entangled in an unwieldy or unworkable merger. Lose sight of your core business and day-to-day operations. Then watch your stock price plummet and the board suggest rather forcefully that you take a long time off.
A possible example of this increasingly familiar phenomenon has occurred in recent days with MedPartners, the Birmingham, Ala.-based physician practice management giant.
MedPartners founder Larry House resigned as chairman and chief executive officer after a proposed multibillion-dollar acquisition by rival PhyCor collapsed. Many industry observers had questioned the deal, noting key cultural and operational differences between low-key PhyCor, which had pursued a market-by-market growth strategy, and hard-charging MedPartners, which liked to swallow competing companies in stock acquisitions.
When the PhyCor deal unraveled, MedPartners also announced it would take a $145 million fourth-quarter charge, caused partly by losses on West Coast operations, and that 1998 earnings would fall below projections. Wall Street, not surprisingly, battered the stock, and shareholder suits followed.
Also not surprisingly, someone else took the helm. In this case it was Richard Scrushy, HealthSouth Corp.'s chairman and CEO, longtime business ally to House and a major MedPartners shareholder. Scrushy was named interim CEO until a permanent successor is chosen. In announcing his new role, Scrushy said in a written statement: "My goal is to help the organization focus internally on integrating its operations and focusing its resources on producing consistent, high-quality operating performance." House added that "after focusing on rapid growth since our inception in 1993, I believe that MedPartners should focus internally on operations."
Indeed. Mother had it right: Eat slowly and digest your food.
Unfortunately, too many executives become entranced by mergers and acquisitions. Rapid growth is pursued at all costs to satisfy investors and personal egos. More rooms are added to a corporate structure whose foundation is weakening from neglect.
Whether Larry House and MedPartners succumbed to this malady will be debated, but this story in combination with the Columbia/HCA Healthcare Corp. saga and other tales clearly offers a warning for anyone inclined toward acquiring a quick empire and ignoring the fundamentals of business.