PhyCor is proposing collaborations that would give some hospital systems an equity stake in physician practice assets the company controls.
The move is a switch from a plan PhyCor announced in September that called for the Nashville, Tenn.-based company to manage hospital-owned practices and assume the right to buy into them. However, PhyCor hasn't officially abandoned this effort.
Chief Financial Officer John Crawford says the company has begun discussions with "a couple of" hospitals. He wouldn't name the hospitals, nor would he say how many of them PhyCor might target. Hospitals contacted by Modern Physicianeither did not return calls or said PhyCor hadn't contacted them.
Crawford describes the negotiations not as a sale of practices but as a way for PhyCor and hospitals to weather a trend of declining reimbursements for providers. PhyCor would continue to manage the practices.
"Whatever's going on, the marketplace might suggest that a more significant joining together of a health system and its physician network makes sense," Crawford says. "Often it's a way for the combined organization to reduce costs."
It's unclear how PhyCor came up with the idea of having hospitals buy into its assets. But, Crawford says, "for the health systems we've talked to, it makes sense to have an equity stake in the physician delivery system."
The hospital plan comes as the company struggles with financial and personnel losses.
PhyCor, with $1.5 billion in 1998 revenues, wrote off $200 million in assets and other charges in 1998, ending the year with a loss of $111.4 million, or $1.55 per share. Part of the asset loss was a reflection of PhyCor closing unprofitable clinics, selling the assets of others and watching still other clinics lose doctors.
Already in 1999, PhyCor is down to 54 clinics and 3,520 doctors from 57 clinics and 3,700 physicians at the end of 1998. Two of the departing clinics are Holt-Krock in Fort Smith, Ark., and Burns in Petoskey, Mich., which were sold to their local hospital systems.
In each case, physician rebellion over PhyCor's management spurred the sales. But both systems agreed to have the company continue to provide management resources.
The deals now being discussed "would be more of a collaboration, much more partnering in strategy as opposed to subordinating," Crawford says.
PhyCor usually has competed with hospitals, bidding against them for practices, then building ancillary services already provided by a local hospital. The company announced its intention to bring management services to hospital practices last September as a way to help hospitals get a return on their money-losing practices.
Bill Flattery, executive director of 143-physician Nalle Clinic in Charlotte, N.C., says his facility already has some joint ventures with hospitals, such as a magnetic resonance imaging clinic. He says more discussions are under way.
"The only reason we're talking is to find opportunities to do a little bit better," says Flattery, who came to Nalle seven months ago after the PhyCor clinic he led in Columbia, S.C., broke up.
Talks come as more clinics rebel against PhyCor. This year, 42-physician Clark-Holder Clinic in La Grange, Ga., and 58-physician White-Wilson Medical Group in Fort Walton Beach, Fla., filed lawsuits against PhyCor, seeking termination of their management agreements.