MedPartners to Exit Physician Practice Business
MedPartners Inc., a pioneer and the largest company in the once-booming U.S. physician practice management market, said it will divest its core business as it reported an 84% drop in profit for the latest quarter.
Dealing a heavy blow to an already bruised industry, the Birmingham, Ala.-based company said it will exit the physician practice management, or PPM, business over the next 12 months and refocus on its Caremark pharmaceutical services unit.
MedPartners, which runs hundreds of physician practices nationwide, said third-quarter profit fell to $7.7 million, or 4 cents a share, excluding a one-time charge, from $94.2 million, or 26 cents, a year ago, a penny shy of Wall Street’s consensus forecast.
Gains at the Caremark pharmaceuticals unit drove the 8% rise in revenue to $1.74 billion, the company said.
“This solid performance is a clear illustration of why we have made the decision to concentrate on our pharmaceutical services division,” said Chief Executive Mac Crawford, who took over MedPartners in mid-March in a management shake-up.
The company’s PPM units will be sold or spun off, Crawford said, leading industry analysts to question the prices the company is likely to get in a market soured on the PPM story.
Despite this, analysts said, the decision to jettison the PPM units, which provide half of MedPartners’ revenue, was not wholly unexpected and marked a turning point for the industry.
“I’m not chiseling the tombstone for the multi-specialty PPM business, but there’s certainly going to be a big breather here before we get one of these working again,” said John Rex, health-care analyst at BancBoston Robertson Stephens.
MedPartners’ shares fell 25 cents to close at $4.13 on the New York Stock Exchange as markets digested the company’s strategic repositioning.
“Everything that’s gone wrong in this industry . . . is leading to a reevaluation by a lot of companies. So from that perspective, this move . . . is not a huge surprise,” said Gary Frazier, health-care analyst at BT Alex. Brown.
Since January, when the $8-billion proposed merger of MedPartners and No. 2 PPM rival PhyCor Inc. collapsed, the stocks of PPM companies have sunk steadily.
In August, PhyMatrix Corp. and Integra Inc. said they were getting out of the business. Weeks before, FPA Medical Management Inc., the third-largest PPM firm, filed for Chapter 11 bankruptcy protection.
What little interest remains in the industry on Wall Street centers on a handful of single-specialty PPMs, such as child-care-focused Pediatrix Inc. and cancer-care firms American Oncology Resources Inc. and Physician Reliance Network Inc., analysts said.
