PhyCor, a beleaguered physician practice-management company, isn't having much luck with its managed-care and hospital businesses either.
On Nov. 8, the state of Kentucky won court permission to take control of Advantage Care, the struggling, Lexington-based HMO PhyCor purchased about two years ago. The HMO, with about 36,000 policyholders in 55 counties across the eastern part of the state, is expected to close at year-end.
A week later, PhyCor announced the sale of its stake in Straub Clinic and Hospital in Honolulu. The 139-bed hospital will pay $30 million to repurchase assets and shares PhyCor acquired in 1997.
In Kentucky, PhyCor was burdened with "having to write off a huge receivable" at Advantage involving the cost of patient care, company spokesman Howard Jewell said.
"If that had not been done," he said, "then, financially, we wouldn't have been in this situation."
Jewell declined to provide financial figures for any aspect of Advantage's business. But the state's insurance department said Advantage's third-quarter financial report, dated Sept. 30, showed a year-to-date net loss of $3.1 million and a net worth of about $843,000--well below the state's minimum capital surplus requirement of about $1.2 million.
Advantage has been on shaky financial ground since PhyCor purchased a 50% share of the plan in December 1998 from 130-physician Lexington Clinic, with which it had a management services agreement. PhyCor bought the rest of Advantage in October 1999. Jewell would not release the purchase price.
About two months later, PhyCor ended its service agreement with Lexington Clinic but continued to operate Advantage.
When Advantage could no longer meet Kentucky's minimum capital surplus obligations, the state's department of insurance went to court, winning permission to freeze the plan's assets and assume control.
Advantage has 600 primary-care physicians and 1,000 specialists under contract.
"The company had been closely monitored for about two years because of concerns about its financial stability," said Roger Snell, a spokesman for the state insurance department. "In recent weeks, it became obvious that they were not going to meet their obligations."
Jewell said PhyCor had been trying unsuccessfully to sell Advantage for months, and a potential deal collapsed the week before the state takeover.
State officials worked closely with PhyCor officials to achieve a "joint agreement" allowing Kentucky regulators to oversee Advantage until the HMO ceases to exist, probably around Dec. 31, Snell said.
About 80% of Advantage policyholders face renewals on Jan. 1, meaning most will move seamlessly to other plans--perhaps saving money in the process with cheaper plans, according to the state's insurance commissioner, George Nichols III. State officials aren't sure whether Advantage will wind up breaking even or losing money.
PhyCor, which led the way in the mid-1990s in the relentless acquisition of physician practices, was named by Fortune magazine in 1992 as America's fifth fastest-growing business. The company now owns 11 clinics, down from nearly 60 at the height of its acquisition fever in 1997. It also manages about 26,000 physicians in independent practice associations, Jewell said.
At about the same time as its split with the Hawaii clinic, PhyCor reported a loss of $64 million, or 87 cents per share, on revenue of $212 million for the quarter ended Sept. 30. In the year-ago quarter, PhyCor reported a loss of $435.7 million, or $5.75 per share, on revenue of $371.2 million.
Phycor merged with Straub about three years ago, handling administrative duties for the hospital's 200 physicians. But continuing financial troubles forced an end to the short-lived management arrangement.
"We just came to an agreement to part ways," Jewell said. "I don't really know how the discussions got started. In most cases like this, it's not which party suggested it--it just kind of evolved over time."