The Nalle Clinic, Charlotte, N.C.'s oldest medical group and the city's only multispecialty clinic, announced last month it was closing.
Since 1990, the clinic has been managed by the Nashville, Tenn.-based practice management company PhyCor, and for 10 years PhyCor held up Nalle as its golden child. But the clinic has struggled financially for the past two years, and the straw that broke the 79-year-old clinic's back was the mass resignation of one-fourth of the clinic's physicians March 31.
The closing of the venerable clinic, set for April 30, puts PhyCor in the spotlight once again and questions the viability of multispecialty clinics in general.
"The physicians are almost without fail sad to see this happen," says vascular surgeon and clinic President Jerry Holleman, M.D. "We've been under stress and duress for so long that the fact that we now know where we're going and what's happening, it's almost a relief."
In 1990, the 36 Nalle partners sold their practice assets and accounts receivables to PhyCor. The clinic paid PhyCor 12% of its profits in exchange for management services. Under PhyCor's leadership, the clinic grew rapidly, eventually adding six satellite clinics to its flagship in downtown Charlotte.
As recently as last summer, Nalle employed 140 physicians and had a patient base of about 175,000. But several prominent physicians left the group last summer, and the mass resignations in March reduced the physician staff to 82. The departing physicians' main gripe was declining income. Physician pay varied from month to month because it was based on a share of the clinic's monthly profits after PhyCor fees and overhead were paid. Some physicians saw their paychecks dwindle by as much as 80%, according to Holleman.
Several factors led to the drop in physician pay, Holleman says, but a major contributor was slow and late payment from insurers, a problem facing many medical groups across the country.
"We have had some very significant difficulties collecting money that's owed to us," he says. "In general, we have felt like our contracts have been competitive with other people in the area. The quality of contracts doesn't seem to be the problem; it's difficulty with collecting the money."
The rapid expansion and addition of the satellite clinics also strained Nalle's finances, Holleman says.
"What seemed like the thing to do in the mid-'90s didn't seem like the thing to do by the end of the '90s," he says.
Holleman says the clinic began feeling financially strained in late 1998 and spent most of 1999 and early 2000 fixing the situation. Two satellite clinics were closed, and last fall PhyCor amended its contract with the physicians to help ease the financial strain. PhyCor spokesman Howard Jewell would not disclose the details of the revised contract but did say: "We put together a package of things to help them get over the hump. It was an attempt on our part to help the group. The net effect was to help them with their financial situation."
Although a number of PhyCor clinics have severed their relationships with the PPM in recent months, and several even have filed lawsuits to terminate the relationship, Holleman says PhyCor is not to blame for the clinic's demise. In fact, he says, the problems are more closely related to the same productivity challenges that many multispecialty clinics face.
"I think the disconnect that a lot of the physicians felt between what they did and what happened to them is a powerful force," Holleman says. He notes that one satellite clinic that broke off from Nalle saw a 30% increase in productivity in its first month on its own because the doctors' were more motivated when their actions were directly linked to their pay.
"There's something to be said for seeing the impact of what you do, and knowing that what happens to you is a direct result of what you do," he says. "In today's marketplace, you don't get paid enough to overcome the cultural problems that can arise (in multispecialty settings)."
After it became clear that the clinic needed serious help, nearby Presbyterian Healthcare spent several months last year and early this year negotiating with PhyCor over a possible takeover. The majority of Nalle referrals are to Presbyterian, and Presbyterian owns the clinic's building and operates its radiology, laboratory and urgent care centers. But the health system and PhyCor could not agree on terms.
Although the takeover talks stalled, Presbyterian, with 550 doctors in its network, swooped in as the clinic was closing. Now, 38 of the remaining Nalle physicians will affiliate with Presbyterian, and the health system will take custody of all Nalle patient medical records, ensuring there will be no disruption in care for patients.
The physicians will be Presbyterian-affiliated practices but will have more financial control over their own practices than they did under Nalle, says Steven Burke, executive vice president of Presbyterian Regional Healthcare.
According to Burke, the physicians will practice in small groups in the hope they will avoid the productivity problems that Nalle experienced.
According to Paul Wiles, president and CEO of Presbyterian parent company Novant Health, the physicians also will have the freedom to refer to any hospital they choose. Giving that freedom of choice to the Nalle physicians was a priority for Presbyterian, Wiles says.
"Nalle physicians and their patients should have the freedom to choose. They should face no restrictions that forbid them from using any facility. We believe that this freedom of choice makes for a healthy competitive environment," he says.
Presbyterian is offering financial assistance and business counseling to those physicians who choose to strike out on their own.
Presbyterian and PhyCor are still in negotiations over the purchase price of the clinic's hard and intangible assets, but most important to the physicians is the fact that PhyCor has indicated it will waive the physicians' noncompete clause.
The clause prohibited Nalle physicians from practicing in the Charlotte area, unless they bought out the clause for $150,000.
The waiving of the noncompete clause means Nalle physicians will be able to remain in the Charlotte community and continue to see their existing patients, but the closing still leaves a large void in the Charlotte community, says Dale Shaw, M.D., a radiologist and president of the Mecklenburg County Medical Society.
"Everyone is sad. It's a great upheaval in the delivery of healthcare in this town. It gives everybody in the medical community pause when something like this happens. You wonder what are the factors (that led to this) and wonder could it happen again and could it happen to my practice."