PPMs: Going . . . going . . .

Companies that bought practices in the mid-'90s are mostly out of gas or running on empty. But what about the new, "compact" models hitting the market?

By Robert Lowes
Midwest Editor

An 80-doctor group practice in Pittsfield, MA, disbanded last fall—one more gravestone in the physician practice management cemetery.

Though dead, Berkshire Physicians & Surgeons isn't resting in peace. ProMedCo Management, the PPM that bought the practice in 1998, has sued five doctors, claiming that they owe $1.9 million in penalties for leaving prematurely. Another departing doctor, FP Steven Myers, couldn't cough up the $120,000 demanded of him if he wanted to continue practicing in Pittsfield. So he's moving to North Carolina. Meanwhile, ProMedCo stock was trading about 10 cents a share in February, down from $16 in 1998.

Not much has changed with the PPM industry since it imploded in 1998, wreaking financial havoc on thousands of doctors. The disasters just keep coming. Elsewhere in 2000, KPC Global Care, which took over the California physician network of MedPartners, went bankrupt. The 79-year-old Nalle Clinic in Charlotte, NC, folded under PhyCor, which hopes to unload its remaining clinics in 2001. Other venerable groups that died after a PPM buyout include Thomas-Davis Medical Centers in Tucson, founded in 1920 and acquired by now-defunct FPA Medical Management, and the Burns Clinic in Petoskey, MI, a PhyCor pickup founded in 1931. If nothing else, PPMs will be remembered years from now for their sheer destructiveness.

Nowadays, PPMs are sometimes called Ponzi schemes, but early on they made sense—at least on paper. "The reasons for the emergence of this industry haven't disappeared," says Tim Schier, a vice president with health care investment banker Cain Brothers in Houston. "Doctors need capital and business discipline." Trouble was, most PPMs supplied only capital. When it came to actually running physician practices, they floundered.

"Month after month, ProMedCo said things were bad today but would be great tomorrow," says Steven Myers, who, by his reckoning, earned only $15,000 last year. "You kept waiting for the sun to start shining, and it never did."

Among the surviving PPMs, a few actually do shine. Most of these, though, operate in specialty niches. For the average doctor, viable PPMs are few and far between.