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Biotech / Medical : AHTC Corp (AHTC)-formerly Advanced Health (ADVH) -- Ignore unavailable to you. Want to Upgrade?

To: Tom D who wrote (197)	6/10/1998 12:21:00 AM
From: Tom D	Read Replies (1) \| Respond to of 371

turning over every rock.... Sekarlrac, thanks again for your thoughtful post #2130 on Yahoo. The major concern is about ADVH's future earnings growth. I don't lose ANY sleep over this one. Physicians are under siege from managed care, steadily conceding control and income away to HMO's who have been dominating by the brute force of market share. Global risk contracting is the doctor's answer to both issues. An August 15, 1995 cover story from the AMA News was about global risk contracting. It indicated that the average physician who has an average experience with global risk contracting should expect to double his or her annual income. Imagine internists (with much less training) being paid the same salaries as cardiovascular surgeons-its happening for some of the docs in my group with particularly large Medicare HMO global risk populations. (Please pardon the rudeness of the previous sentence--investments are about money and some financial candor is necessary, if gross). If medical groups are enough and financially strong enough to do this in-house, more power to them. They usually have to get licensed as insurance companies by their states-I know we did. If they are not, ADVH makes it possible , without requiring physicians to give up control of their livelihood. Here are 9 drivers for ADVH's future earnings, IMHO.. 1) The groups who use ADVH technology will become more proficient at doing cost-effective care as they gain experience. In addition, in typical global risk contracts between physician groups and insurance companies, profits (i.e. surplus funds left over after medical costs are paid) are divided between the physician group and the insurance company (who markets their product to patients and employers and does limited administration and collections). These contracts usually give an increasing percentage of the surplus (loss) to the physician group as the number of patients grows. This turns out to be a huge factor for my own physician group. 2) The groups who are with ADVH will naturally recruit new individual physicians fresh out of training to join their groups 3) An increasing fraction of health care contracting will involve global risk contracting. In particular, HCFA wants to see a huge fraction of seniors join HMO's, since these, by definition, cost HCFA 5% less than nonHMO Medicare. HCFA is using the carrot of global risk contracting to be financially appealing to doctors, and the stick of deliberately turning nonHMO Medicare into an bureaucratic nightmare. 4) The PPM sector will grow. Congressional Budget Office estimates that national health care expenditures will increase from $1 trillion (15% of the GDP) to $2 trillion (20% of the GDP) by the year 2003. The physician services segment of the industry will double from $204 billion to $400 billion in 2003. In 1995, publicly-traded companies in the PPM industry had revenues of less than 2% of the $204 billion. 5) Independent physician groups and individuals with established practices will continue to consolidate. Data from the AMA Council on Medical Services indicate that the proportion of physicians in groups of 10 or more rose from 8% to 16% between 1983 and 1995. 6) ADVH will be attractive to physician groups in markets in which it has an established record of credible success. In particular, the freedom to leave ADVH with ones patient practice intact, is a huge selling point. 7) The percentage of contracts between ADVH physicians and insurance companies which involve global risk contracting (as contrasted with traditional limited-risk HMO contracting) is increasing rapidly. 8) As you imply in your posting, it would be nice to see numbers from a model ADVH practice to confirm what we suspect. I have all the numbers from my own 65 doctor group to validate the model for me. 9) Why conventional PPM's don't appeal to physicians.. a) Physicians value their independence. They don't like to give away what control they do still have over the care which their patients receive. b) Physicians perceive CEO's, CFO's, and other company officers as overpaid. They don't want to be part of a group owned by the Leonard Abramsons of the world. (He's the CEO of U.S. Healthcare who got $950 million when Aetna bought him out during the merger). c) Reputations of some PPM's are horrific. MDM in an earlier form got into talks to merge with my medical group. It fell apart on two grounds: The valuation which they wanted to offer our group, and their reputation. Many individual physicians in the Los Angeles area which people in my group contacted agreed that MDM was perceived as a bunch of doctors who got rich by not spending much money on their patients. We like to think that there is more to our lives and professional reputations than that. d) Personal nature of relationship between physician and his or her practice. PPM buyouts of practices usually require the physicians to agree not to take their patients with them if they leave the PPM for a number of years. In my group, any physician can leave, with his or her patients, after giving 6 months notice. We are in the group because we each believe that there is no better financial situation in which we could be making our livelihood in this region of the country. Likewise for ADVH. Best Regards, Tom