The physician practice-management model, which was supposed to help redefine the way doctors and hospitals did business, went from boom to bust in less than a decade, leaving the principals on both sides largely unhappy and disillusioned.
By the mid- to late 1990s, the height of the acquisition craze, as many as 90,000 or more physicians had sold their practices to hospitals or practice-management companies such as PhyCor and MedPartners, two of the industry's most aggressive players, sources said.
By the turn of the century, though, MedPartners was out of business, PhyCor was near bankruptcy and only a relative handful of hospitals were still in the practice-management game. The problem: In many cases, the so-called value-added nature of the new business model never really added value for either partner.
Nashville-based PhyCor, which led the way in the mid-1990s in the purchasing mania, posted a net operating loss of about $575 million in 2000.
"Companies like PhyCor and MedPartners jumped in with both feet, and so did a lot of smaller companies," says Jeff Heinemann, a consultant who has helped restructure deals between hospitals and doctors. "Then, there were so many hospitals-systems, especially-getting into the physician acquisition and employment business."
Only about a dozen major firms are still in business. For many hospitals, too, the physician-practice management binge is a bad memory. Last year, only about 3% of all the physician practices that were sold were purchased by hospitals-a dramatic shift from just three years ago, when hospitals bought 46% of the practices on the market.