Mullikin Medical Taps Smith Barney to Look Into Possible Sale

In another sign of intensive competition in the health care industry, one of the nation’s largest physician groups, Mullikin Medical Centers, has hired the Smith Barney investment bank to advise it on ways to raise capital, including the possible sale of all or part of the company.

Mullikin is a powerhouse in Southern California health care and has gained national recognition as a pioneer in managed-care medicine. The privately held, Long Beach-based company employs more than 400 doctors at 54 clinics in California and owns Pioneer Hospital in Artesia. Through contracts with health maintenance organizations, Mullikin provides medical care for 320,000 Californians.

The possible sale of Mullikin demonstrates how even the most powerful physician groups are struggling to maintain marketplace clout as HMOs and other insurers increasingly call the shots in health care. Many doctors, particularly specialists, have seen their practices shrink as employers push more patients into HMOs, the most stringent type of managed-care plan in which members must select only doctors in the HMO network.

Moreover, these managed-care plans are demanding ever-deeper discounts in doctors’ fees, placing enormous financial pressures on smaller, less-efficient medical groups. Mullikin, because of its size and cost-efficient operations, is one of the few medical groups that can negotiate with insurers from a position of strength.

“Mullikin exercises a lot of influence,” said Tom Zirkle, a health care consultant in Boulder, Colo. “The HMOs and insurance companies have to deal with them from a position of at least parity. They’ve managed to level the playing field.”

Mullikin has been an aggressive acquirer of medical practices in California and elsewhere. Earlier this year, the firm announced plans to acquire a 280-physician group based in Portland, Ore., that would extend Mullikin’s reach into Oregon, Washington and several other western states. But the company’s expansion has been hampered by a lack of capital, forcing it to consider exchanging some of its independence for an infusion of cash, industry executives said.

There have been reports that Mullikin suffered financial losses earlier this year.

But Mullikin Chief Executive John S. McDonald said in a statement Wednesday that reports about Mullikin’s financial problems are off the mark. The company has “a healthy balance sheet, high cash reserves and profitable operations,” he said.

McDonald said Mullikin retained Smith Barney “to advise (it) on the best methods of acquiring capital--including the possibility of an initial public (stock) offering to expand outside of California, where the transition to managed care is not nearly as advanced.”

In Southern California, Mullikin faces growing competition from several other regional medical “super groups” that are expanding rapidly. One of these is the Friendly Hills Healthcare Network, a 200-physician group based in La Habra that is being acquired by Caremark International, a physician-management firm based near Chicago. Friendly Hills officials have said the Caremark deal will give the group the necessary cash for future expansion.

If Mullikin decides to sell a large piece of itself, industry officials say, likely buyers will include an HMO or other insurer, a pharmaceutical company, a hospital chain or a physician-management firm such as Caremark.

McDonald said Mullikin is not on the block and has not made an offer to sell itself to any other company at this time.