PhyCor will take a $105 million earnings hit to correct problems with an innovative strategy to create multispecialty groups.
In addition, its terminated acquisition of MedPartners will subtract $15 million from first-quarter 1998 earnings, the company announced in late January.
PhyCor's proposed $6.5 billion acquisition of Birmingham, Ala.-based MedPartners was called off Jan. 7. Payments related to the merger went to investment banker Alex. Brown & Sons, lawyers and accountants.
Only once before has PhyCor announced a charge against earnings or reported an unprofitable quarter. The $18.6 million charge for an unprofitable clinic came a few months after PhyCor went public in January 1992.
The company anticipates losses of about $35 million, or 50 cents per share, for the fourth quarter of 1997, and $5.5 million, or 7 cents per share, in the first quarter of 1998.
Revenues for those quarters are expected to be at least $300 million and $320 million, respectively.
The Nashville-based physician practice management company began consolidating small single-specialty groups about two years ago.
The strategy is one way that PhyCor is diversifying its market base amid a dwindling supply of unaffiliated multispecialty groups.
In the first deals, decisions such as which information systems to use were not made beforehand, President and Chief Executive Officer Joseph Hutts said.
"When we first got started, we just assumed we would work those things out after the fact," he said.
Now the company is paying a hefty price to break office leases and amortize the cost of redundant information systems, he said.
PhyCor will restructure five multispecialty clinics with about 300 physicians. In addition, it might sell two clinics with about 70 physicians. Hutts declined to name the clinics involved.
Hutts said the company will continue the strategy despite the difficulty of condensing a cultural and operational evolution that normally takes many years. He said the company has identified critical issues that must be decided before papers are signed.
Exclusive of the charges, the restructuring plans are not expected to affect the company's earnings targets in 1997 or 1998. Fourth-quarter 1997 results are to be released Feb. 19.