Key Facts and Critical Issues in PhyCor, Inc.
PhyCor, Inc. was founded as a corporation for physicians that had prominent roles as players in the Physician Practice Management group of companies. PhyCor, Inc., had several programs that promoted efficiency and growth such as budgeting and strategic planning on issues such as expense reduction, cost containment, and revenue enhancement. It negotiated the different contracts, procedure coding, conducted productivity, and assisted in recruitment efforts for physicians in different clinics. The quality improvement initiatives it designed aimed at enhancing the systems of service delivery to patients. Initially, PhyCor had a revenue of $1.2 million, which later soared to $240 million by 1994 (Havighurst, 2000). In 1994, the company had employed 1,200 doctors across 15 states in America and owned 22 practicing groups (Walston & Chou, 2011).
Following the decline in valuation of the industry by Wall Street, PhyCor, Inc. decided to take advantage of the falling firms under PPM and gain its competitive advantage over those whose commercial value were on the decline. PhyCor offered $8 billion in stock to buy MedPartners Inc. that was a larger competitor. However, the purchase led to over 10 percent fall in its shares. The shares of MedPartners further fell by 45 percent (Havighurst, 2000). As a result, PhyCor scuttled its purchase plans due to the differences that arose in the running of the business. At the end of 1997, PhyCor bought CareWise, Inc. and later in 1998, it bought PrimeCare International Inc. As such, the physicians under the purchased firms became part of PhyCor’s labor force across 29 states and in 61 clinics (Walston & Chou, 2011).
PhyCor’s Strategy and Business Model
The initial strategy of PhyCor, Inc. was to grow and have control over all the clinics in the U.S. With such a long-term goal, they were to ensure that their business model was self-sustaining in order to realize their strategies. The business model that PhyCor, Inc. adopted aimed at acquiring all other firms offering similar services. Their business model was also founded on capitation as a payment model where the physicians were paid fixed amounts for every patient. However, the industry was plagued by plummeting stock values, earnings shortfalls, and complaints of dissatisfied workers (Walston & Chou, 2011). Having bought several firms, PhyCor, Inc. was unable to generate and grow their earnings through further acquisitions. Their reliance on capitation was also one of the problems that the company faced as the method paid too little. The company began selling its clinics and shutting down others resulting in losses and minimized cash flow.
Steps to Develop a New Strategy and Business Model
Challenges from the Changes in Healthcare and Pressures to Provide Quality Services
As a CEO of PhyCor, the changes in the healthcare sector and the continued demand for improved healthcare provision in the U.S. would pose challenges for the healthcare providers. The medical groups are always in need of financial resources but most of them have no retained earnings nor reserves. The firms require finances to facilitate for the investments in managed care software. Other challenges result from the risks of getting assimilated in larger companies when they form organizations to utilize the economies of scope and scale (Havighurst, 2000). Finally, other firms opt to offer a full spectrum of their services professionally while others opt to have a specialty. The market changes at one point affect each choice to offer services and the only way is to join larger organizations despite the risk of getting assimilated and losing control of the initial company.
References
Havighurst, C. P. (2000, September 2). Management Crisis. Nashville Post. Retrieved from http://www.nashvillepost.com/business/health-care/article/20446456/management-crisis
Walston, S. L., & Chou, A. F. (2011). Strategic Thinking and Achieving Competitive Advantage. In L. Burns, E. Bradley, & B. Weiner, Shortell and Kaluzny's Healthcare Management: Organization Design and Behavior (6th ed.) (pp. 282-320). Clifton Park, NY: Cengage Learning.
