With the health-care industry's star fading on Wall Street, physician groups are more likely to turn to local banks for financing and lines of credit, according to a Tennessee health-care consultant.
For much of this decade, small group practices have been targets of publicly traded physician practice management firms, such as Nashville- based PhyCor Inc. and MedPartners Inc. of Birmingham, Ala. Doctors themselves have been eager to join these larger companies to cash in on the boom in health-related stocks, said Brad Speight, senior consultant at Delta Health Care in Brentwood, Tenn.
But with stock prices and earnings of those companies faltering in recent quarters, physician groups "are doing what it takes to get out from the Wall Street spotlight," Mr. Speight told bankers at a health-care lending conference sponsored by Robert Morris Associates here last week.
"For bankers, there is tremendous opportunity right now in helping physicians fund group practices," he said. "More and more are choosing to go it alone, and they need money to do it."
Mr. Speight added that some doctor groups have tired of paying management fees-which can range from 16% to 20% of billings-to physician practice management firms.
"That's money out of the doctors' pockets," he said.
Publicly traded management firms have taken their lumps of late. Just last week, PhyCor reported that first-quarter earnings fell to 14 cents per share from 24 cents per share for the same period in 1998. The company's stock price has plunged nearly 80% in the last year.
Bruce E. Bernstein, a tax partner at Arthur Andersen LLP in Dallas, blamed their troubles on too-rapid growth. Under pressure from Wall Street to add revenues, management firms focused so much on acquiring practices that they were unable to manage doctors, he said.
Still, Mr. Bernstein said doctor groups-and banks-should not be scared off by the problems of publicly held management firms. He maintains that physician practice management can still thrive without Wall Street's backing and, like small doctor groups, "they are all looking for bank financing."
"This model is still a viable model," Mr. Bernstein said. "There is good cash flow, so they are good lending prospects."
Before lending to management firms, however, bankers should first make sure someone on the management team has a health-care background.
"If you don't understand the industry and you haven't been in the trenches of it, you cannot run it," Mr. Bernstein said.
Lenders might also want to take into account a management firm's "ancillary strategy." Both Mr. Speight and Mr. Bernstein said the most successful practices will be those that can siphon business from hospitals and run their own outpatient surgery centers or other revenue-producing operations.
Bankers agree that small banks are well positioned to finance group practices-though not solely because of Wall Street's diminished interest in health-care companies.
Since 1990, health-care spending in the United States has nearly doubled, to about $1.2 trillion a year, said Dr. Thomas R. Reardon, president-elect of the American Medical Association and a speaker at the conference. With Americans living longer, demand for health-care services is only going to increase.
"Just like death and taxes, it's always going to be there," said Anthony Costanza, vice president at First National Bank of Rochester (N.Y.).
