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HCA building its business on turmoil in marketplace Physician groups, large providers seek its management skills; Health care


"Turmoil in the marketplace," says Perry Snyder, chief executive officer of HealthCare Automation Inc., "is good for our business."

In the past few years, the marketplace has had a lavish supply of turmoil.

Managed care seized control of the insurance market. HMOs tried different forms of contracting to "incentivize" doctors, turning some physician practices into little insurance companies. Hospitals and investor-owned companies rushed to buy doctor practices, hoping to form delivery systems big enough to stand up to the HMOs. And some of those new colossi of the physician world quickly flamed out.

Amid all that turmoil, HealthCare Automation, has, in fact, grown. The Owings Mills company provides billing, claims, risk management, information systems, care management and consulting for doctor groups and other health providers.

Revenue for the company over the last four years has gone from $2 million to $12 million. From about 75 employees two years ago -- when Snyder and Dr. Edward L. Perl reacquired the company they founded in 1985 and sold in 1994 -- HCA has about 200 today. In October, HCA was listed by Deloitte & Touche as 14th among the "Fast 50" growing technology companies in Maryland and Virginia.

And HCA this year has moved to position itself for further rapid growth, bringing on new executives to work with the founders.

Jerome H. Gotthainer, former chief operating officer of Johns Hopkins HealthCare, joined HCA in August as chief operating officer. R. Donald McDaniel Jr., who was vice president for business strategy for Bon Secours Baltimore Health System, came on board as executive vice president for strategy and development.

Snyder projects $20 million in revenue next year.

HCA grew almost accidentally out of Perl's Carroll County pediatrics practice. In the early to mid-1980s, he began to lose patients to HMOs, and he decided he needed to figure out the intricacies of managed-care contracting. He joined with an internist and a gynecologist and began accepting a "risk contract" from CareFirst, a large HMO.

Under risk contracts, the HMO pays the doctors a flat fee per member per month, up front. The doctor is then responsible for any care the patient gets. If the patient is sent to a specialist or admitted to a hospital, the doctor pays the claim. In effect, the doctor is the insurer, profiting if care costs are less than the monthly fee, losing money if costs exceed revenue.

"People said I was a risk-taker for doing it," Perl said of the new type of contracting. "I thought I was a risk-taker by not doing it," since HMOs were increasing their market share and were shifting patients to participating physicians.

To handle the risk contracts, Perl continued, "we began developing management techniques and tracking techniques" to make sure reserves were set aside against expected future claims and to review claims carefully before they were paid.

Perl began chatting with a neighbor -- Perry Snyder, an accountant -- about the financial challenges of managing a doctor's practice in the new marketplace. A business partnership began, with Perl as chairman and Snyder as chief exeuctive.

Meanwhile, some other doctor groups weren't as skilled at figuring out how to manage the new contracts.

"CareFirst came to us and asked us to straighten out a couple of other groups that were having trouble," Perl recounted. "We took over a couple of failing organizations," acquiring the practices and managing the contracts.

Within a few years, Perl continued, "other groups came to us and asked us to be their back office" [with services such as billing] and helping them form practice groupings and negotiate contracts.

"It was a no-brainer," Snyder said of the decision to begin providing services to others. "We thought we would be foolish as organization not to take advantage of our experience. We saw we should diversify."

HCA began adding other services, such as case management, to its basic services of billing and claims.

Ernest Viscuso, vice president for network contracting, development and services for Blue Cross and Blue Shield of Maryland and the National Capital Area, said he believes HCA is the only local company providing such a range of management services.

In general, Snyder said, the "competition" for HCA is not other companies but provider groups deciding to handle chores like billing internally rather than outsourcing. However, Viscuso said, "Nowadays, doctors are very wary" of managing risk contracts and look for professional support.

Dr. Richard Katon, who heads Primary Care Mid-Atlantic, a contracting group of 150 doctors in Montgomery County, said his group formed about four years ago and began looking for management services. "Some companies offered a lot, but they wanted to own us," he said. The group went with HCA.

Now, about 90 percent of HCA's clients are physician groups, although the company has contracts with other large health providers including Helix Health, Genesis Health Ventures, Integrated Health Services and Bon Secours Health System.

As HCA was growing in Maryland, physician practice management companies were attracting attention, and capital, from Wall Street. Coastal Physician Group of Durham, N.C., bought both the physician group and HCA from Perl and Snyder in 1994.

Perl and Snyder continued to manage HCA. When Coastal ran into financial problems in 1996, they bought it back, and remain its sole owners. At the same time, Coastal sold the physician group to HelixCare, a physician group associated with the Helix Health system, which owns five hospitals in the Baltimore area.

This leaves Perl and Snyder with a business collecting fees from doctors, but not taking insurance risk. "We want to be a service business," Snyder said. "We don't get in trouble that way." Also, he noted, in investing for growth, "We're building a more sophisticated infrastructure. We don't spend our capital buying physicians, who are expensive."

The Coastal experience left them with some national clients, who are current or former Coastal subsidiaries. Now, 30 percent of their business comes from outside Maryland, and they are looking to expand beyond the state.

McDaniel said HCA is beginning to "develop a broader presence" through participating in national associations, advertising and networking.

"In five years," Snyder said, "if we do the right thing, we should be a major company nationally."

Pub Date: 12/28/98

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