Dr. Keith Wilson isn’t one to gloat. But a business decision he made nearly 18 months ago looks pretty savvy today.
Wilson, president and chief executive of Costa Mesa-based Talbert Medical Group, led a fight against MedPartners Inc., now Caremark Rx Inc. and Talbert’s former parent company, to include the medical group in a sale to Riverside physician Kali Chaudhuri.
Chaudhuri eventually acquired 72 MedPartners clinics after state regulators forced a MedPartners subsidiary into bankruptcy. The new business was named KPC Medical Management Inc., and it filed for bankruptcy protection last month.
But Wilson and around 120 other doctors bought Talbert themselves. Today, Wilson, an obstetrician and gynecologist, heads a multi-specialty medical practice with eight clinics in Orange and Los Angeles counties, 82,000 patients and projected revenue of around $80 million this year.
“Group practices can work,” Wilson said. “But they do have to incorporate the physicians’ involvement.”
Anaheim-based KPC, meanwhile, imploded amid management problems and protracted squabbling with health plans over payments. KPC’s saga reached its denouement in late November, when it closed its 38 clinics, pink-slipped its 2,000-plus employees and filed for Chapter 11.
KPC Global Care Inc., a separate Riverside company, is not part of KPC Medical Management’s bankruptcy filing.
KPC Medical’s troubles aren’t unique. One hundred twenty-five California doctors’ groups and independent physician associations have either closed or filed for bankruptcy in the last three years, according to Elizabeth McNeil, a California Medical Association vice president.
Talbert, meanwhile, is weathering the storm. And one reason, according to Wilson, is that doctors own Talberts. As owners, he said, they have more at stake in the business function and the healthcare they provide.
One of the things that was missing from MedPartners was “service and a lack of focus on that,” Wilson said.
“Our priority is still patient care, which is different than a corporate entity providing insurance services,” he said. “That translates into better patient satisfaction, better ability to retain patients.”
Talbert has succeeded and KPC Medical did not because the two operations have different models, said Dr. Bryn Henderson, an Orange County physician and healthcare analyst. “Talbert is a medical group. KPC manages IPAs,” he said.
IPAs, or independent practitioner associations, are “independent physicians in a little club,” Henderson said, where doctors don’t have the same vested interest as in staff-model medical groups such as Talbert. Other reasons for the differing fates of Talbert and KPC were Chaudhuri and Wilson’s “dramatically different management styles” and that KPC Medical took on a heavy debt burden in acquiring the MedPartners business.
Wilson said he didn’t care much for KPC Medical’s business model, which sought growth through acquisitions rather than development of a core practice. At the time KPC was closing in on MedPartners’ Southern California business, including the Mulliken and Friendly Hills healthcare clinics, Wilson decided to lead a doctor buyout of Talbert.
Wilson said earlier this year that the physicians opted against pursuing venture capital financing because that required an exit strategy, which wasn’t part of Talbert’s plan. Instead, 120 out of 140 eligible physicians agreed to pay $5,000 per unit for up to five units of the practice.
The doctors’ buy-in raised $1.2 million. Talbert obtained the rest of its startup financing from First Professional Bank of Santa Monica.
Another advantage Talbert has is lower management costs than other group medical practices, Wilson said. Those costs could range as high as 18% of revenue for doctors’ groups involved with management service organizations, physician practice management entities or corporations that manage medical practices.
“They take a much larger piece of the revenue stream than it costs us,” Wilson said. “They charge 12%, 15%, 18% to provide managed care services. The cost for us, internally, is less than half that,we’re at 6% to 7%. And in a business with the margins as slim as they are, 6% or 7% is night and day, life and death.”
Many Talbert managers, vice presidents and administrators have health maintenance organization backgrounds and understand that side of the business. Talbert originated as a part of FHP International Corp., which was later bought by Santa Ana-based PacifiCare Health Systems Inc.
And Wilson said Talbert’s doctors are more entrepreneurial than most: “Physicians have sort of been reticent to engage in the business side of medicine, other than beyond a cottage industry. That reticence and unwillingness to engage has left them vulnerable to people who have deep pockets.”
As for KPC Medical, Wilson said it is a “bad model to extrapolate from in the first place” because it inherited MedPartners’ flaws, such as pressure to generate cash flow.
“If you remember the MedPartners days, MedPartners grew by acquisition,” Wilson said. “It never did anything to rebuild the infrastructure of the practices it acquired.”
McNeil of the California Medical Association said KPC Medical was receiving per-patient-per-month payments of $32 or less from the health plans it contracted with, not enough to cover its cost of care.
As for Talbert, McNeil said, “I would assume that it is a well-managed group and it’s been able to negotiate rates to cover the cost of care.”
While KPC Medical goes through bankruptcy proceedings, other group practices are stepping in, particularly when it comes to patient care. For example, Orange-based St. Joseph Health System has said it could take up to 30,000 former KPC Medical enrollees.
Talbert recently absorbed about 8,000 of KPC Medical’s former patients in Orange and southern Los Angeles counties. Some published reports indicated that Talbert will accept per-capita monthly rates ranging from $38 to $42 for providing healthcare to that group of patients. KPC had pressed for rates in the $42- to- 45-a-month range.
Talbert’s interviewed KPC physicians for positions, Wilson said. “I think I must have interviewed 20, 25 doctors by now,” he said last week.
Wilson said Talbert has retained some of those doctors and expects to retain a few more. He said he’s focused on physicians who are competent, board-certified and “demonstrate, at least from my perspective, some knowledge of the art of medicine. Meaning they have good bedside manner, good patient-care skills.” n
