PhyCor Plans to Acquire MedPartners
Two of the nation’s biggest companies that manage physician practices announced a $6.8-billion merger Wednesday that would join together nearly 35,000 doctors across the nation, including 10,000 in California.
PhyCor Inc., of Birmingham, Ala., said it agreed to acquire its much-bigger rival, Nashville-based MedPartners Inc., in a stock-swap deal that would include the assumption of $1.2 billion in debt. It would create by far the nation’s largest physician practice management company, with $8.4 billion in combined revenue. The company would provide care for more than 3 million HMO patients in 50 states.
The merger would also form a powerful force for U.S. doctors, who have been seeking ways to blunt the influence of large managed-care insurers and hospital systems, which also have been consolidating.
“This is the doctors getting big like the HMOs in order to keep insurers accountable and honest,” said Dr. Jack Lewin, chief executive of the California Medical Assn.
A physicians group of this size would have seemed unthinkable five years ago, when the largest U.S. medical groups--most of them in Southern California--numbered just a few hundred doctors. But companies like PhyCor, MedPartners and San Diego-based FPA Medical Management have been swallowing up smaller competitors over the last few years.
MedPartners, itself the product of several mergers, is the industry’s largest practice-management firm, with revenue of about $6 billion.
Physician-management companies appeal to doctors because they promise to take over some of the administrative chores that doctors dread, such as managing an office staff, billing and negotiating insurance contracts. The idea is that this gives doctors more time to practice medicine.
“This creates the most compelling physician organization in our nation’s history,” said Mark Wagar, a MedPartners executive who will head PhyCor’s Western division if the merger is completed.
Under the deal, PhyCor said it would represent about 5% of all physicians in the United States. The company would have its largest concentrations of doctors in Southern California, Florida and parts of Texas. But PhyCor officials said they do not expect any antitrust issues because the share of each market is still relatively small.
The new company, to be called PhyCor, would represent about 10,000 California doctors, including those affiliated with the Mullikin, Friendly Hills and Talbert medical groups, among others.
Although the percentage of U.S. doctors belonging to large, investor-owned practice management firms is relatively small, some experts estimate that figure will rise to 50% within five years.
Lewin of the California Medical Assn. said many doctors express concerns about the rapid proliferation of mega-group practices.
“Doctors fear that this trend of ever-larger corporate management companies will lose sight of the goals of medicine” because they are accountable to investors, Lewin said. “Both of these companies claim they will not let that happen. It will take time to see.”
Joseph C. Hutts, PhyCor’s chairman and chief executive, said the firm is “very sensitive” to such concerns. “We’ve set up the company so that physicians do not become employees, so they stay in their local physician groups and have control over the practice of medicine.”
Under the deal, Phycor will swap 1.18 shares for each MedPartner share.
MedPartners shares shot up $5.63 to close at $31 on the New York Stock Exchange, while PhyCor shares rose 63 cents to $29.56 on Nasdaq. PhyCor’s Hutts will remain as chairman and chief executive of the firm after the acquisition. MedPartners’ chief executive, Larry House, will join PhyCor’s board.
PhyCor operates 53 clinics with 3,780 physicians and manages practices with 17,800. MedPartners has links with 13,342 doctors in affiliated groups, hospitals and practices.
