Larry House had planned to leave MedPartners in a blaze of glory after he closed an $8 billion deal to sell MedPartners to PhyCor, its biggest rival in the physician practice-management business.
Instead, on Jan. 7 the PhyCor deal fell through, and MedPartners announced it would take a $145 million charge against fourth-quarter 1997 earnings to reconcile such problems as integrating its West Coast practices and boosting cash reserves. The company's stock dived from $18.50 to $10 on Jan. 8, then seemed stuck between $8 and $9.
As a result, House resigned as MedPartners' chairman and chief executive officer after the close of trading on Jan. 16.
"I think right now, because these charges were such a surprise, it left Larry House vulnerable," says Clifford Hewitt, a healthcare analyst at Sanford Bernstein & Co. in New York.
Investors looking at a troubled company like MedPartners generally want a major sign that things are changing, Hewitt says. Usually that sign is the CEO's departure.
House's mentor, HealthSouth Chairman Richard Scrushy, is stepping in as MedPartners' interim chairman and CEO while a five-member board of directors committee begins the search for House's replacement. House worked for Scrushy as HealthSouth's chief operating officer until Scrushy helped finance the start-up of MedPartners in 1993.
House reportedly is becoming a principal in a venture-capital firm; neither he nor Scrushy returned phone calls seeking comment.
With the failure of the PhyCor deal -- which PhyCor Chairman Joseph Hutts blamed on an inability to reconcile the companies' vastly different corporate structures and cultures -- House seemed to go instantly from visionary to dinosaur regarding his future with MedPartners.
John Runningen, a principal at Atlanta-based venture-capital company Cordova Capital, says that almost immediately after the deal's failure, PPM companies began talking more about building up the practices they already had than following MedPartners' strategy of frequent acquisitions.
That strategy, which had served MedPartners so well for four years, was becoming an albatross as the company struggled to integrate its acquisitions. Instead of meeting analysts' projected earnings of 32 cents per share, the company expects a fourth-quarter loss of 25 cents per share.
House, who had taken MedPartners' annual revenue from nothing to $6.2 billion in four years, seemed to acknowledge the sea change in his prepared resignation statement.
"The time is right for me to step aside," House said. "After focusing on rapid growth since our inception in 1993, I believe that MedPartners should focus internally on operations."
In the same prepared statement, Scrushy said MedPartners would concentrate on internal growth. He also said, "I will be looking to MedPartners' physician leaders to assist me in improving the company."
MedPartners' precipitous drop spawned at least four shareholder lawsuits against the company on behalf of anyone purchasing the company's stock between Oct. 29, when PhyCor announced the MedPartners purchase, and Jan. 8.
But despite MedPartners' troubles, some analysts point to two short-term negatives that they think will eventually serve the company well in the long term: