A California bank plans to use its financial brawn and medical brains to foster doctor alliances on the West Coast.
First Professional Bank, Santa Monica, last month announced a plan to lend to physicians who are forming medical service organizations. And, at the organizations' request, the bank will provide financial consultation in exchange for an equity interest of as much as 10%.
The $325 million-asset bank, which caters to medical businesses, is betting that medical service organizations, known as MSOs, will be an important part of the nation's health-care scene, and bank president and chief executive Joel A. Kovner wants a piece of the action.
"The medical marketplace is literally changing overnight," he said. "In many states that are HMO 'captives,' MSOs are being formed."
"We give them a credit facility, and we take an interest in the company," said Mr. Kovner, who was trained as a mathematical and medical economist and whose resume includes an executive-level stint with Kaiser Permanente Medical Care. "We bring to the table a knowledge of MSOs."
Medical service organizations are doctor alliances that arrange to provide health services with employers and hospitals.
In order to be successful, an organization must reach a "critical mass" of physicians - usually around 40 - who can provide the full range of primary care services, Mr. Kovner said.
The MSO loans, which would represent term credit as well as lines of credit, would be used for equipment, working capital, and to pay off old loans, Mr. Kovner said.
The initiative is the bank's response to requests from customers, Mr. Kovner said.
"If it were just the loan that people wanted, we would make the loan," he said. "But in conversations with clients they said, 'We want more from you than your money.'"
The bank developed the program during the past four months, Mr. Kovner said.
The amount of the equity interest would depend on how extensively the service organization wanted to use the bank's resources, Mr. Kovner said.
"It doesn't have to be 10%," he said. "It could be they don't need any of our services, in which case we would just make the loan. But usually they ask for our help."
The form of the equity stake could range from preferred stock to options, Mr. Kovner said.
"It depends on what's easiest for them and what creates the lowest legal costs," he said.