gcrispin, thanks for your interest.
First, I did buy ADVH this past week. With borrowed money no less. My father also doubled his long position, and two physicians with whom I share an office also bought. One is a part-time assistant medical director for an HMO. It is reassuring to see interest from people who are professionals in the field.
In the jargon, IMM provides management for HSMSO physicians (hospital service medical service organization). Hospitals have bought a lot of primary care physician practices in recent years to ensure that their beds remain filled. Unfortunately for the hospitals, when they buy the practices, the docs tend to lose their work ethic. In one study, physician revenues declined an average of 20% in the first year after the buyout. I have listened to the conference call three times (I taped it). Mgmt was not willing to make a lot of bold statements or to make financial projections about the impact of IMM in the phone call. In fact, the revenue guidance for 1999 ($195 to $200M) assumes no change in the activity or contract terms of the IMM physicians--it just adds on their $10M in annual revenues to ADVH's. While IMM lost under $1M in 1997, the losses declined sequentially each quarter, and they were expected to neither lose nor earn money in 1998--before ADVH's arrival.
The following paragraph is JMHO.
ADVH has the potential to enable these physicians to change from straight salary with token bonuses over to global risk contracting. My own annual salary has doubled since my group switched to global risk contracting--I am also working much longer hours. But this is typical for global risk contracting, according to the article from AMA NEWS which I referenced in the opening post on this thread. Its a little trickier since the hospitals retain ownership of the physicians practices--they are going to want their cut of the incremental profits. But I see enormous potentials here....
a) ADVH may enable IMM docs to do global risk contracting & get a share of the incremental profits
b) The hospitals will likely want to get their docs onto the Med-e system software & hardware to enable measurement of physician activity and spending
c) Geographic expense synergies (i.e. cost reductions)
d) Better negotiating position (market dominance) with insurance companies
One analyst at the conference call actually seemed disappointed that ADVH could not quantitate the value of the synergies. ADVH just closed the acquisition that week. They will spend the next months meeting with these groups of docs and showing them how ADVH can create value for them.
I thought mgmt was cautious, appropriate, & conservative in their handling. There is a staggering amount of room for upside surprises here.
I have read numerous articles indicating that hospital ownership of physician practices is often not working out very well for the hospitals. If ADVH can remotivate the physicians of IMM, hospitals all over the country will get very interested in what ADVH has to offer. For the hospitals it would be a godsend--full beds without having to lose money to prop up their physician practices.
Best Regards,
Tom D |
