Advanced Health Corp., a physician practice management company that doesn't concentrate on acquiring practice assets, now is suffering the same financial and legal problems as some that do.
Tarrytown, N.Y.-based Advanced Health announced June 30 that it likely would have a $3 million to $4 million operating loss on revenues of $17.5 million for the second quarter. It also reported an $8 million pre-tax charge against earnings related to acquisitions, including the addition of 300 doctors through the May purchase of Malvern, Pa.-based Integrated Medical Management. The company is scheduled to file its second-quarter earnings statement Aug. 6.
The response was swift and sure -- and familiar to other financially troubled PPMs.
Shares in Advanced Health, priced at $11.31 on June 26, dove $7.31 the week of June 29, reaching an all-time low of $3 on July 8. The week of June 29, trading volume was 13.9 million shares -- an incredibly high amount, given that Advanced Health only has 10 million shares outstanding.
In the wake of the stock price's decline, eight shareholder class-action lawsuits were filed in U.S. District Court in New York. The lawsuits accused Advanced Health executives of selling up to $6.6 million in company stock before the announcement of an earnings decline. Advanced Health has not responded to the charges, which are as yet unproven.
Chairman Jonathan Edelson, M.D., while not addressing the lawsuits, says the stock market overreacted to the company's earnings announcement. First-quarter income in 1998 had grown fourfold to $2.4 million, or 21 cents per share, on revenues of $24.2 million, a 242% increase.
On July 9, Edelson released a statement saying he was confident in the company's fundamental structure, which sent the stock price back up $1.31 to $4.31. It's been trading around $4 ever since.
"We believe that the successful companies in this business are those focused on service," says Edelson, whose company has contracts with 700 doctors, mostly in the Northeast. "We believe that is the part of the equation where value is created."
Instead of buying practice assets, Advanced Health contracts with physicians to manage their practices in exchange for a negotiated fee.
Edelson blames the second-quarter loss on a slowdown in new practice management agreements and lower-than-expected sales of clinical computer software the company creates for doctors.
Advanced Health's problems don't worry other practice managers that say they don't buy practice assets. Such non-asset-model companies tout themselves as a "new kind of PPM" that manages practices while letting physicians maintain more control. Most are privately held.
Douglas Badertscher, president of Sarasota, Fla.-based Pendulum Practice Management, which has more than 300 doctors under management, says Advanced Health's problems "don't bode well for the PPM sector. But they caused (the problems) themselves."
Badertscher says Advanced Health employees who have interviewed for jobs with Pendulum doctors contend Advanced Health does pay for some practice assets, namely physicians'.
"How do you get that much debt if you weren't paying cash for physicians' (practice assets)?" says Badertscher, whose company competes with Advanced Health in New Jersey. "I don't wish my brethren any ill will, but the stress fractures are showing in the asset model."