COMPANY IN THE SPOTLIGHT: PROVIDING FISCAL MEDICINE, DISCIPLINE TO DOCTORS

MED3OOO Group, Inc.

Business: Managing back office operations of physician practices; connecting medical practices to shared information systems and data for proactice improvement; and helping physicians participate in nontraditional business lines that can boost revenues.

Employees: 360 nationwide, including 50 in the region.

History: Founded in 1995 by Patrick V. Hampson, former owner of a physician consulting company, with $25 million in equity backing from drug maker Ciba-Geigy, a pedecessor of Novartis.

Headquarters: Greentree (Pittsburgh), Pennsylvania

 

Now, it sees itself as poised to profit from others' mistakes.

Six years ago, doctors' practice were hot commodities-sparking bidding wars among insurers, hospitals and practice management companies.

Along with other objectives, the buyers imagined they could eventually reap profit by capping physicians' incomes, slashing overhead and seeking economics of scale.

Instead, most lost gobs of money. One of the big publicly traded practice managers,San Diego-based FPA Medical Management, went bankrupt. Two others, Phycor Inc. and MedPartners, saw their overheated stocks start to look like burned toast.

"The fall in this industry is something we view as a great opportunity," said Matt Roslin, executive vice president of corporate development for MED3OOO.

The trick, it seems, is to stick with managing and improving practices- rather then owning them.

Founded in 1995 with a $25 million equity investment from Ciba-Geigy, a predecessor of pharmaceutical giant Novartis, MED3OOO didn't actually buy any practices outright. But the company adopted a strategy that had pretty much the same effect: It set up a financing mechanism that helped doctors combine with newly created management services companies, obtain deferred loans and, in some cases, salary guarantees.

Like others, MED3OOO expected that by managing the doctors' office functions, it could help them reduce expenses and increase time to see patients and generate more revenue.

Instead, like other buyers, it discovered that doctors with salary guarantees didn't have any incentive to see more patients, so revenue didn't increase. More often, it fell.

What's more, while there were some overhead savings, they were less than many expected.

Because of the problems, MED3OOO changed its formula. It wrote off the physicians loans, reworked contracts and began signing clients for its practice management and improvement services. Instead of trying to build equity, it charges them a percentage of revenue for management services and gets a percentage of any improvements in net income.

MED3OOO now has practices generating $140 million in annual revenue under its management, Roslin said. The company is generating $25 million of annual revenue of its own, from practice management and related business lines. In addition, it's on track to be profitable the final four months of this year-end should post its first annual profit next year, Roslin said.

Provena Health System, a suburban Chicago-based hospital network has placed Norvartis as MED3OOO's equity backer and also is a key customer.

Roslin said hospitals that are losing money on physician practices they acquired are becoming important clients.

That's because hospitals, for the most part,have failed in managing physician practices. They were too bureaucratic for doctors and, because they weren't used to collecting small bills, collections went down Roslin said.

On top of that, physicians' expectations were too high. They looked at the hospitals as "deep pocket" owners, Roslin said.

Getting rid of the bureaucracy reduces cost and frustration, and with a practice manager, doctors' expectations become more realistic.

Once that's accomplished, there's room for real revenue improvement.

Roslin said MED3OOO has been building an infrastructure of resources and relationship to bring new revenue to the practices it manages.

Last week, for example, it acquired a Connecticut-based clinical research firm to help its physician clients earn fees associated with putting patients in trials of new medical treatments.

Another potential source of revenue could come from letting front-desk employees solicit patients as members for an online pharmacy.

Reducing office overhead for physicians was never the real road to improving practice income, Roslin said. "It's revenue generation."