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Physician practice management (PPM) companies are a growing sector of the healthcare industry and have caught the attention of Wall Street, as evidenced by the number of initial public offerings of PPMs in the past three years. The cost of operating efficiencies, declining premiums, integration, oversupply of specialists, shift from a gatekeeper to a directaccess model, and cultural challenges are the emerging market forces that may affect PPM viability. The challenge for PPMs is to maintain earnings growth in the face of these market forces.
During the past couple of years, Wall Street clearly has been infatuated with initial public offerings (IPOs). Nowhere has this infatuation been more evident than in the healthcare industry where managed care growth, state and national reform measures, and technological advances have created opportunities for more than 400 healthcare-related companies to access equity capital through public markets in the past two years.
Within the healthcare industry, Wall Street investors have demonstrated a particular affection for physician practice management companies (PPMs). There are currently more than 30 publicly traded PPMs, and in 1996, PPMs raised a record $1.7 billion in capital through public equity and debt offerings. a The growth of the PPM sector has been fueled by the need to bring capital resources, economies of scale, management expertise, advanced information systems, and managed care contracting capabilities to a tremendously fragmented market of more than 600,000 physicians in the United States.
In recent years, hospital, ambulatory surgery center, infusion therapy, and urgent care center sectors included a large number of investor-owned companies; only a few large companies, however, have survived. Many healthcare insiders are questioning whether PPMs will endure, or whether only a few such companies will survive, a few entrepreneurs will get rich, and many investors will be left disappointed.
In most markets, numerous privately owned and not-for-profit entities compete with investor-owned healthcare companies for patient and physician loyalties. Most physicians can choose from a variety of strategic partners, including PPMs, hospitals and health systems, integrated delivery systems, large physician organizations, and health plans. While all are capable of financing the consolidation, integration, and management of physician organizations, each potential partner has different motivations and, therefore, unique expectations regarding willingness to invest capital, required return on investment (ROI), and...