PHYCOR: TO ACQUIRE LARGER MEDPARTNERS
Birmingham, AL-based MedPartners will be acquired by PhyCorThis is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.
Inc. in "a marriage that will join the two largest physician
practice management companies in the United States," Birmingham
News reports (Hansen/Underwood, 10/30). Nashville, TN-based
PhyCor announced late yesterday that it has agreed to acquire
MedPartners, the nation's largest physician-management company,
for approximately $6.98 billion in stocks and $1.2 billion in
assumed debt, the Wall Street Journal reports. Under the deal,
PhyCor will "swap 1.18 shares of is common stock for each of the
200 million fully diluted shares outstanding of MedPartners."
HealthSouth Chair and CEO Richard Scrushy, who sits on
MedPartners' board, said, "The merger of these two companies is
going to clearly create the leader in the industry. This is the
model that works." The boards of both companies have approved
the deal; the acquisition is expected to be completed in the
first-quarter of 1998 (Brannigan, 10/30). The New York Times
reports that federal regulatory officials may have a problem with
the merger since the new company will control as much as 25% to
30% of doctors in small markets (Freudenheim, 10/30).
THE NEW COMPANY
Joseph Hutts, president and CEO of PhyCor, said, "This
creates the most compelling physicians' organization in the
country. It will give doctors the tools and resources to
differentiate care and the strength to stand as an equal with
large hospitals and HMOs." The new company, according to the
Journal, "would have affiliations with about 35,000 doctors, or
about 5% of the nations physicians, spanning all 50 states."
Hutts said that the "combined company expects economies of scale
that will enable it to squeeze costs" (10/30). The New York
Times reports that the merged company, to be headed by Hutts,
will have concentrations in California, Florida and Texas
(10/30). PhyCor and MedPartners, according to Wall Street
analysts, have complementary business strengths; MedPartners "is
stronger in urban markets" while PhyCor is stronger "in
secondary, rural markets."
IT JUST MAKES SENSE
According to the Journal, Wall Street analysts were
initially "surprised" by the deal since MedPartners is much
larger than PhyCor. However, "industry analysts said such a
merger makes sense, given the difficulties that physician-
practice management companies have had in building enough market
share to negotiate more effectively with big health care buyers,
such as [HMOs] and hospitals" (10/30). Other analysts "said that
the agreement is indicative of the growth in the power of doctors
as many HMOs report serious troubles." Thomas Hoddap, an analyst
with BancAmerica Robertson Stephens, said, "The real game here is
acquiring managed-care lives. The objective is to establish a
position of regional dominance as quickly as possible so the
payers have to negotiate with you." New York Times notes that
MedPartners has already entered into an arrangement with Aetna
under which its physicians provide care to Aetna's "managed care
customers in certain markets, and PhyCor is discussing a similar
deal with the United Healthcare Corporation" (10/30).
STRONG THIRD-QUARTER
MedPartners announced yesterday strong financial results for
the third-quarter. Income from continuing operations, excluding
merger costs, increased 46% over the third-quarter of 1996,
totalling $54.4 million. Revenues for the third-quarter were up
23% from last year, totalling $1.61 billion (MedPartners release,
10/29).