PhyCor, a pioneer of the physician practice management industry, is heading down a trail blazed by other PPMs: poor earnings and a collapse in stock price, followed by shareholder lawsuits.
On Sept. 8, shareholders filed separate lawsuits against PhyCor in New York and the company's hometown of Nashville, Tenn. A third suit was filed in Nashville the next day.
The lawsuits are a reaction to PhyCor's second-quarter earnings report, filed July 23. The company posted net income of $15.3 million on revenues of $376.3 million. But it also announced that it will take a $65 million restructuring charge against its third-quarter earnings. That projected charge came as an unpleasant surprise to industry analysts, who thought PhyCor had settled its integration problems with a charge it took in January.
The next day, PhyCor's stock value fell 38% to about $9 per share. By the time the first shareholder lawsuits were filed in September, PhyCor's stock price had sunk further, to between $5 and $6.
The lawsuits charge PhyCor with making "false and misleading statements" to beef up its stock value, thereby allowing company insiders to sell up to $17 million worth of shares at artificially inflated prices.
As in most shareholder lawsuits, law firms are representing shareholders individually in hopes of signing on enough of them to become the lead firm in the class-action suit.
PhyCor executives would not comment on the specific allegations in the lawsuits, which must be proved in court.
However, Joseph Hutts, PhyCor's president and chief executive officer, says his company is "confident we have not violated any securities laws."
1998 has been a difficult year financially for PhyCor, as it has been for other large, multispecialty PPMs such as MedPartners and FPA Medical Management, which also were hit with shareholder lawsuits after their stock prices plummeted. (For more on PPM earnings and market reactions, see page 86.)
On Jan. 7 PhyCor called off an $8 billion merger with MedPartners after discovering practice integration problems that led MedPartners that same day to announce a $145 million charge against earnings. At month's end, PhyCor announced a $105 million charge to settle its own integration problems and a $15 million charge to account for costs of the scuttled merger.