CHICAGO -- Physician practice groups are beginning to find that tax-exempt bonds are a miracle cure for their expansion woes, according to credit analysts and investment bankers.

Practice groups, which can range in size from 25 doctors to 500 or more, are gaining clout in an era of managed care. Health care experts say the country's 3,500 physician groups are profitable because they can hold down perpatient costs and control coveted hospital referrals under many health maintenance organization plans.

As the groups grow, they are purchasing new computer systems, acquiring competing practices, structing office space, and building cash reserves as a hedge against increased risk. And they're paying for all of these costly operations by issuing bonds.

"We're definitely seeing more requests for ratings," from physician practice groups, said Cynthia Keller, a director in the health care group at Standard & Poor's Corp. "They've become more sophisticated, and they understand the bond market is a less expensive way to get capital than sitting down with their local banker."

"I rated one physician group in 1993, and three in 1994 ... and I think in 1995, it will be one of the most active areas," said Pauline Clark, a director at Fitch Investors Service.

Not-for-profit practice groups generally issue tax-exempt bonds through conduit issuers like state health finance authorities, say credit experts. For-profit practice groups generally issue corporate debt, and observers say they, too, are becoming more active participants in the bond market.

The trend has forced doctors to run their practices more like businesses. And it has forced credit analysts and investment bankers to fashion standards to evaluate group practices that differ from those used for hospitals and academic clinics.

"The real credit strength is less in historical financial ratios and more in looking at the marketplace," said Vinton Rollins, an investment banker with Shattuck Hammond Partners. "You'd look at the balance sheet of a 500-bed hospital and say that's far and away the best credit. But really the hospital is most at risk in terms of the long-term trends, whereas group practices are positioned to benefit from the switch to managed care."

The rating agencies are recognizing that shift. In the past year, Standard & Poor's, Moody's Investors Service, and Fitch have all published guidelines for evaluating physician group debt. And in 1993, for instance, Standard & Poor's rated the debt of five stand-alone nonprofit group practices for bond issues valued between $20 million and $72 million.

Fitch is publishing a more detailed guide next year, but in the meantime, Clark said, several key questions have emerged.

"You look for basic trends -- the ability to generate cash and retain it," said Clark. Until recently, she said, most practices doled out profits to doctors at the end of the year. But those thinking about issuing bonds have started holding on to that cash. They put doctors under contract and make it clear that debt service must be paid before bonuses will be awarded.

Clark said Midwest Physician Group Ltd., which priced $17 million of revenue bonds this month, is typical of the clinically focused practices she expects to rate in the coming years. Fitch rated the Chicago-based group BBB-minus.

Analysts liked the group's "strong market position, management team, 24-clinic primary care network, and proven track record." They also commended the group for keeping 89 days worth of cash on hand and maintaining a 75% cash-to-debt ratio.

But they were concerned about the group's "elevated governmental payor mix, ability to continue recruiting and retaining primary care physicians, and the increasingly volatile nature of Chicago's managed-care environment."

It's likely that other rating agencies would have focused on the same details. In general, analysts favor physician groups that are integrated with hospitals and other community health care providers. They like groups with a strong market position, and they want to make sure group practices concentrate on primary care instead of specialties.

Many physician practice groups don't yet meet those criteria. Keller of Standard & Poor's said that some groups have asked for informal evaluations and have been told they are not yet investment grade. She estimated it will take such groups between three and five years to change their operations enough to earn a better rating.

Lenders and investors are indeed getting more comfortable. "It's a question of: Are you looking in the mirror at the past, or ahead at which players are best positioned to take advantage of the trends?" said Rollins. "I think it's clear physician groups are riding with the trends."

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