PROMEDCO MANAGEMENT COMPANY

PROMEDCO MANAGEMENT COMPANY

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Company Overview
ProMedCo Management Company, with registered head office located in Forth Worth, Texas, is a medical services company that manages and coordinates the delivery of a wide variety of healthcare services in non-urban markets. The company provides health care platforms through primary-care-driven and multi-specialty physicians groups located principally outside of or adjacent to large metropolitan areas. Through affiliations, the company provides operating and expansion capital and a broad range of strategic and management expertise services. It operates in 25 communities, where it is affiliated with medical groups that comprise physicians, mid-level providers, and physician assistants and nurse practitioners. ProMedCo Management Company’s focus is to facilitate the consolidation of physician groups into primary care- driven, multi-specialty networks.
Business Summary
ProMedCo Management Co. is a medical services company that manages and coordinates the delivery of a wide variety of healthcare services in non-urban markets. To enter these markets, the Company typically affiliates with a medical group in a community. The Company then expands its market share through affiliations with additional primary care physicians and specialists and selective additions of ancillary services. In addition to providing capital, the Company provides a broad range of strategic and management expertise and services. As of December 1999, the Company operates in 25 communities, where it is affiliated with medical groups comprised of approximately 830 physicians and 155 mid-level providers. In addition, the Company is associated with approximately 1,850 physicians in associated independent practice association (IPA) networks. In April 2001, the Company filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code.
Description and history
ProMedCo Management Company is a medical services company that manages and coordinates the delivery of a wide variety of healthcare services in non-urban markets. To enter these markets, the Company typically affiliates with a leading medical group in a community, thus providing the opportunity for increasing control of medical expenditures in these communities. The Company then expands its market share through affiliations with additional primary care physicians and specialists and selective additions of ancillary services. In addition to providing operating and expansion capital, the Company provides a broad range of strategic and management expertise and services. As of December 1999, the Company operates in 25 communities throughout the United States, where it is affiliated with medical groups comprised of approximately 830 physicians and 155 mid-level providers. In addition, the Company is associated with approximately 1, 850 physicians in associated independent practice association (IPA) networks. In April 2001, the Company filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code.

Approximately 545 of the physicians in the Company’s groups are primary care providers. Primary care physicians consist of family practitioners, general internists, pediatricians, obstetrician/gynecologists, and urgent-care physicians. Increasingly, these physicians are augmented by mid-level providers, primarily consisting of physician assistants and nurse practitioners. Each of the medical groups also provides, to varying degrees, medical specialty services and ancillary services. Medical specialties offered include anesthesiology, endocrinology, gastroenterology, general surgery, infectious diseases, nephrology, neurology, occupational medicine, orthopedic surgery, otolaryngology, pulmonology, rheumatology, and urology. The Company also offers, to varying degrees, a range of ancillary services such as audiology, clinical laboratory services, diagnostic imaging, and stress testing.

The Company’s associated IPAs are organizations of independent primary care providers and specialists that contract to provide physician and other healthcare services to HMOs and other managed care organizations. The members maintain their individual practices and, through the IPA organization, share information and managed care systems, actuarial and financial analysis, medical management and managed care contract services provided by the Company. The IPAs, which accounted for approximately 5.2% of the Company’s net revenue in 1999, are located in New York, Maine, New Hampshire and three of the communities in which the Company has affiliated medical groups.

Upon affiliation with a medical group, the Company manages all aspects of the group’s operations other than the provision of medical services. All personnel other than physicians and mid-level providers become the Company’s employees, and the Company generally owns all of the operating assets other than real estate. It provides the full range of administrative services required for the group’s operations. These include facilities management, the purchase of medical malpractice insurance, supplies and equipment, and a broad spectrum of financial and accounting services.

The Company’s service agreements generally have a term of 40 years and cannot be terminated by either party without cause, consisting primarily of bankruptcy or material default. Under the service agreement, the Company provides the group with the facilities and equipment used in its medical practice. If a service agreement expires or is terminated, the medical group is required to purchase its tangible and intangible assets related to the practice, typically at their current net book value.

When the Company enters into a service agreement with a medical group, the group enters into an employment contract with each of its physicians, typically for an initial term of five years. In affiliations involving the purchase of the group’s operating assets, the employment contract requires that the physician repay all or a portion of the physician’s share of the Company’s payment for the assets and service agreement if the physician breaches the contract. Each group also enters into an agreement not to compete with the Company. In addition, each physician’s employment contract includes an agreement not to compete with the group during the period of his or her employment and for a period of time thereafter, typically two years. The employment contract also provides that the Company is a third-party beneficiary entitled to enforce the repayment provision and the agreement not to compete. The employment agreements typically include a liquidated damages provision equal to the physician’s salary for the most recent 12 months in the event the physician breaches the non-competition provision.

The Company’s income and the income of the physicians within each group is dependent upon operating income. Under the service agreement, the Company typically receives 15% to 20% of operating income. In its more recent affiliations, the Company’s share of income from new ancillary services has been increased to 50%. The Company’s distribution from the group is typically increased or decreased by 25% to 50% of the group’s surplus or deficit under risk-sharing arrangements under capitated managed care contracts.

The Company has also developed alternative affiliation structures which require minimal initial investment and have recently closed on one such affiliation. The related 25-year service agreement gives the Company a lower percentage of the group’s operating income than its typical agreement, but entitles the Company to 50% of the income from ancillary services added following the initial affiliation date. The service agreement also allows the group to terminate the agreement for any reason at five-year intervals, but only if the group purchases all of the practice assets then owned by the Company and pays it a multiple of additional cash flows created since the initial affiliation date.

Business Line
Medical services company that manages and coordinates the delivery of a wide variety of healthcare services in non-urban markets
Subsidiary

Advisor
ARTHUR ANDERSEN LLP
IPO date

US SIC Code
8011
Company Address
Suite 1450
801, Cherry Street
City province or state postal code
76102, FORT WORTH, TX
Phone: +1 817 335 5035
Fax: +1 817 335 8321
Country address: UNITED STATES OF AMERICA
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