Large Management Firm to Sell Doctor Groups

In the latest evidence of a shakeout in the managed-care industry in California, the state’s largest remaining overseer of doctor groups is getting out of the business.

Burbank-based UniHealth has hired San Francisco investment banking firm Cain Bros. to sell six physician organizations, including the giant Huntington Provider Management Services in Pasadena. Together the six groups provide health care for 650,000 Southern Californians.

News of the sale comes at a time when the health-care industry is struggling to find a way to salvage the state’s 300 medical groups, which provide care for 23 million Californians and are racked with financial turmoil.

The groups serve as quasi-insurance companies by accepting monthly fees from health plans and using the money to pay for patient care. If monthly care costs more than the amount of the fees, the groups go into the red. In the last three years, 115 of the medical groups in California have declared bankruptcy or gone out of business.

The six UniHealth groups are privately held and unlicensed by the state, and their financial records were unavailable for review. However, they have been widely rumored to be struggling financially, and several large health plans have expressed strong concerns about “significant ongoing losses,” sources said Monday.

UniHealth said it was selling its medical management groups as part of its previously announced mission to become a charitable foundation focusing on health-care education and indigent care, spokeswoman Susan Dunn said. The company, formerly an integrated health-care services provider, last year sold off its hospital unit, which included Northridge Hospital Medical Center in Northridge.

Investment banker Jay Harris of Cain Bros. said there were interested buyers for most of them.

“It’s been a difficult business for everybody who’s gotten into it,” Harris said.

He said four suitors were bidding for Huntington Provider Medical Management, the administrative arm of Pasadena-based Huntington Provider Group, whose doctors contract with health plans. As in all cases, the medical management company doles out the health plan fees to the doctors’ group after first taking an administrative cut.

These companies coexist with doctors’ medical practices in a rather baroque arrangement meant to keep the deal legal under California law, which strictly forbids corporations to practice medicine.

Harris said the six UniHealth divisions would probably be sold to different buyers. The companies for sale are Miramar Medical Management Services in Oxnard, Buena Ventura Medical Management Co. in Ventura, Huntington Provider Management Services in Pasadena, Facey Medical Foundation in Mission Hills, Harriman Jones Management Services Inc. in Long Beach and Beaver Medical Management in Redlands.

For patients, money problems among doctors groups can cause a variety of headaches: People might need to find a new doctor if their physician quits the group or the group goes under and their doctor doesn’t join a new one right away. Or, in the worst case, care might deteriorate if a group with a tight budget denies or delays care as a way to avoid incurring new bills.

In the case of the six UniHealth groups, the state’s large health plans that contract with UniHealth have promised to make the change to new ownership as convenient as possible for patients.

“We have been in touch with [the parent company and the purchasers], and we feel that we will be able to ensure a smooth transition for our members,” said Jim Harris, spokesman for Cigna Healthcare of California. “Few if any of our members will experience any change in primary-care physicians or admissions to hospitals.”

Aetna U.S. Healthcare officials said they are also committed to work with UniHealth and the new owners of the groups to provide a smooth transition for patients.

The sale of the UniHealth groups is particularly troubling, said Steve McDermott, whose company, Hill Physicians in Northern California, is widely believed to be one of just two or three in the state to be financially sound.

“The failure of [UniHealth] to work underscores the complexities and difficulties of organizing providers to manage costs,” McDermott said.

Within the last year, two of the largest of these medical group managers, MedPartners Provider Network and FPA Medical Management, went bankrupt, and on Monday the parent company of MedPartners changed its name to avoid any identification with the troubled sector.