MedPartners, which wants to get out of physician practice management, is creating a PPM-only spinoff that top executive Mac Crawford says could emerge as a new publicly traded company.
MedPartners is seeking buyers for the assets of its 13,000 physicians and hopes to reap $550 million from the sale, the company said during a Feb. 4 investors conference. It said it expects 45% of that total to come from the sale of seven unidentified practices during the next few months.
Last November MedPartners announced it would sell its PPM division to concentrate on Caremark International, its pharmacy-benefit management business.
Those practices that can't find buyers may be spun off into MedPartners Physician Practice Management Co. Crawford, MedPartners' chairman and chief executive officer, outlined the formation of MPPM in a memo dated Jan. 25. Crawford's memo wasn't clear as to whether MPPM would include all practices or only those that couldn't find buyers.
He wrote that in preparation for the spinoff, MedPartners would be revising local advisory boards in "virtually all practices and working with certain practices to ensure that budgets are accurate and expectations are understood." Local boards typically consist of MedPartners and practice representatives. Crawford did not outline what changes would be made.
The practices that end up in MPPM would be spun off to MedPartners shareholders, although how that would happen was not disclosed. Brad Karro, president of MedPartners' California operations, would be president and CEO of MPPM.
MedPartners representatives did not answer requests for an interview with Crawford and would not comment on his memo.
Brooks O'Neil, a Piper Jaffray director and PPM analyst, says the purpose of the memo may have been to tell physicians MedPartners is willing to hold onto them until someone buys their practice assets. "There may have been some doctors thinking, 'I'll wait nine months while they get out; then I will reclaim my practice and go about my life as if this never happened,' " O'Neil says. "That won't happen."
However MedPartners divests its practices, it'll end up losing a lot of money. The Birmingham, Ala.-based company on Feb. 10 announced it would take a $1.2 billion charge against fourth-quarter 1998 earnings to account for the dissolution of its PPM division. Previously its largest charge was $647 million for a fourth-quarter 1997 restructuring, announced after the breakup of its proposed merger with PhyCor, a Nashville, Tenn.-based PPM.
The writedown comes from a loss of future revenues along with the elimination of intangible assets, such as a doctor's reputation. Factoring in intangible assets is what led MedPartners, other PPMs and hospitals to pay high sums for physician practice assets.
As of Sept. 30, the latest figures available, intangible assets accounted for $818.9 million, or 28.5%, of MedPartners' $2.9 billion of assets. By comparison, PhyCor, which has few nonphysician-related assets, has intangible assets of $1 billion, or 52.9%, of its $1.9 billion asset base.
O'Neil says MedPartners' intangible-asset writedown doesn't send "any basic messages regarding the value of physician practices."