For the second time in less than a year, a primary-care venture financed by Baltimore-area hospitals has declared insolvency.
Maryland Personal Physicians, which manages the practice assets of about 100 physicians in the central part of the state, filed for Chapter 11 bankruptcy protection Sept. 2, citing losses of more than $7 million in the past year from Medicare and Medicaid risk contracts.
The physician practice management firm was launched in 1995 with seed money from 285-bed Mercy Medical Center in Baltimore. Later joining as equity partners were Upper Chesapeake Health System, a two-hospital system in Fallston, Md., and 460-bed St. Joseph Medical Center in Towson, Md. (See chart).
The setback follows a Chapter 11 filing in November 1998 by Doctors Health, a 120-physician primary-care network. Doctors Health was started with $3.5 million from St. Joseph in 1995 and received a $5 million infusion from the University of Maryland Medical System two years later.
Together, the bankruptcies underline the difficulty of profiting in primary care and the hazards of full-risk capitation, not only for physicians, but for their financial backers, which are often hospitals.
In a news release, Maryland Personal Physicians said it intends to reorganize and emerge "a stronger and more focused organization." It said unprofitable government risk contracts have been canceled or restructured, and measures are under way to cut corporate expenses and improve efficiency at physician offices.
"I think everybody involved still believes in the original intent of the company. . . and to keep it moving forward," said Gary Michael, Mercy's vice president of marketing and business development.
But not everyone was optimistic. Upper Chesapeake Chief Financial Officer Joe Hoffman said his system might reconsider its equity stake.
"I think that any large primary-care group practice is going to require ongoing support from some external source," Hoffman said. He said there is "limited capital available for those types of initiatives" among Maryland hospitals.
Maryland Personal Physicians was started at the request of Mercy's local primary-care physicians, who wanted a company that would help them band together to secure managed-care contracts and take administrative hassles off their hands by purchasing practice assets, Michael said. He said the name was chosen with the intent of creating a statewide network that would make enough money to repay hospital investors.
Now Maryland Personal Physicians has a long upward climb, after filing a preliminary list of creditors that exceeds 200 pages. The Baltimore-based company reported assets of $14.2 million and liabilities of $16 million.
The hospitals, which hoped to increase their referrals by helping local doctors, now face a double whammy. After swallowing their capital, the management company failed to pay its hospital owners millions of dollars for services rendered under global capitation contracts. Mercy is owed about $4 million, and Upper Chesapeake claims at least $1 million in unpaid charges, according to hospital officials.
A figure was not available last week for St. Joseph, said spokeswoman Sharon Sopp. She added, "I think it's something we'd rather not go into."
Maryland Personal Physicians is a second loser for St. Joseph. Following the downfall of Doctors Health last year, St. Joseph expressed confidence in Maryland Personal Physicians, noting that unlike Doctors Health, it had a hospital-dominated board and a slower growth curve with no plans for a public offering. (Dec. 14, 1998, p. 38).
Sopp said last week: "At the time that we made that investment (in Maryland Personal Physicians), full-risk contracting appeared to be an important part of surviving in the market. Unfortunately, the market has changed since then."
Still, Mercy's Michael said the hospital would do it over again. "Faced with the decision, 'Are we going to invest in our physicians or in the stock market?' we're probably going to lean toward physicians," he said.