“Skittish investors spur PPM shutdown”

Nashville Business Journal, by Keith Russell, May 19, 1999

The complete withdrawal by investors from the physician practice management (PPM) industry has spelled the downfall of one of Nashville's few women-owned health care companies.

Echelon Health Inc., a Brentwood-based manager of plastic surgery practices founded by longtime health care executives Cherryl Carl-son and Patricia Glaser Shea, has ceased operations and ended its contract with Nashville Plastic Surgery, its lone practice.
The company also has moved out of its offices in Brentwood's Maryland Farms.

Echelon began operations in 1997 and had hoped to become a provider of plastic reconstruction and cosmetic surgery as well as aesthetic services such as nutritional and psychological counseling.

The plans quickly evaporated, however, when Echelon failed to secure sufficient financing to develop the concept.

"We have encountered, as so many PPMs did, the impact from investors changes in attitude about them," says Carlson, Echelon's president and CEO. She formerly was an executive with HCA Management Co. as well as a consultant for early-stage health care companies.
 
"Consequently, we were not able to raise money to go forward."

"I still believe the strategy we had was very sound, and still very viable," Carlson adds. "But you have to have investors."

After initially financing its start-up through private investors, Carlson says the company hit a roadblock with venture capitalists last fall while trying to secure a second round of funding. In turn, the company was unable to attract additional plastic surgery practices without additional funds.

"Unfortunately, the fall of 1998 was not a good time for the PPM marketplace," Carlson explains.

Once a darling among health care investors on Wall Street, the PPM industry took a nosedive beginning last summer after numerous publicly traded PPM companies, notably Nashville-based and market leader PhyCor (Nasdaq: PHYC), reported operational difficulties and poor earnings results.

Investors' dissatisfaction inevitably funneled down.

"Venture capital funding tends to mirror public investing," explains Laura Campbell, a health care consultant who often works with health care start-ups to secure venture funding.

As a result, Campbell says most private PPMs will find it hard to raise capital for the foreseeable future.