US Oncology is unlike most other PPMs.
For one thing, it's still around, years after so many others have gone out of business or were forced to sell off their assets. And it has remained profitable.
But, like many others, US Oncology has decided that the PPM business model is flawed.
The Houston-based single-specialty firm has said it is exiting the practice management business. Instead, it will focus on oncology pharmaceuticals management, cancer center operation and clinical research, services it will market to nonaffiliated practices.
"The PPM business model relies on significant and recurring capital investments in intangible assets, resulting in a high cost of capital and limiting our return on assets," said Dale Ross, US Oncology chairman and CEO, on Sept. 30.
Investors were skeptical, too. The next day, Wall Street bid the firm's stock price down nearly 45%, to $4.14 from the previous Friday's $7.45. One of three equity analysts covering US Oncology downgraded the stock.
Then, between Oct. 2 and Oct. 10, a private investment group that includes US Oncology board member Russell Carson purchased nearly 6.5 million shares--6.9% of the company--at an average price of $4.12 per share, according to regulatory filings.
By Oct. 22, the group owned a 9.2% stake in US Oncology, though by then the stock price had moved back above $5, prompting individual shareholders to flood Internet message boards with threats of lawsuits and calls for an SEC investigation.
The SEC would not comment on the Internet postings or the stock trading activity, but US Oncology spokesperson Alvis Swinney says there has been no illegal trading activity and that the investment group has a long-term interest in owning the company's stock.
"The more informed people are about the company and the more they understood the plan, the more they saw (the depressed stock price) as a unique buying opportunity," he says.
Swinney says US Oncology is moving ahead with its plans to offer its 40 affiliated practices--involving about 850 physicians in 27 states--the option of selling their nonmedical assets and contracting for certain business services with the company.
"We want to unlock the value of our core competencies by offering our core services to a national market," Ross says.
Nicholas DiBello, M.D., president of US Oncology-affiliated Rocky Mountain Cancer Centers in Denver, says: "To me, it was a smart move. I believe the company is going to redirect its assets to where its strengths are."
By going to this "service line structure," Ross says the company will be able to provide its services "at or below comparable market rates" and have more capital available to build and manage lucrative cancer diagnostic and treatment centers.
Physicians are not obligated to buy their practices, but those who do will be required to contract with US Oncology for pharmacy, facilities management and research services.
At minimum, Ross says, all current US Oncology practices will have to convert to the net earnings model of physician compensation the company had been advocating earlier this year. A small number of practices continues to pay their doctors based on net revenue rather than operating profits.
John Hennessy, executive director of Kansas City (Mo.) Oncology and Hematology Group, says the practice's affiliation with US Oncology gives the 23-physician group some clout when it comes to negotiating managed care and supply contracts.