Two physician practice management companies have retaliated against physicians who have tried to terminate management contracts by filing breach-of-contract lawsuits against the insurgent doctors.
In both cases, the companies claim physicians refused to pay their management fees.
Dallas-based Physicians Resource Group sued 14 eye doctors who practice at the Cincinnati Eye Institute, which affiliated with the company in 1996. The suit, filed in Dallas County (Texas) District Court, seeks a preliminary injunction to force the physicians to comply with affiliation agreements.
Meanwhile, West Palm Beach, Fla.-based PhyMatrix has sued 15 Tampa, Fla., physicians who affiliated with the company in January 1997. Its suit, filed in Palm Beach County (Fla.) Circuit Court, demands $3.6 million in damages, the amount it paid for the assets of their practice, Access Medical Care.
PhyMatrix manages practices and physician networks with about 12,000 physicians. PRG manages 400 affiliated eye doctors.
The action came several months after a controversial ruling by the Florida Board of Medicine that agreements between Access Medical doctors and PhyMatrix violated a state law against splitting physician fees.
That ruling is under appeal, but already it is being used in yet another action against a PPM. A New Port Richey, Fla., ophthalmologist recently filed a suit in state court in Pasco County, Fla., asking a judge to void his agreement with PRG.
PRG has countersued, seeking to enjoin the physician from violating management agreements and move the case to Texas.
The developments reflect growing rifts between some PPMs and their affiliated doctors-a situation that has been exacerbated by deflated stock prices in the industry. Many physicians, including those litigating against PRG, took 100% company stock in exchange for their practice assets.
"There's more to come," said Clearwater, Fla., attorney Alan Gassman, who is representing some of the Access Care physicians and the New Port Richey ophthalmologist, Frederick Hauber. "A day doesn't go by that I don't get a call from a doctor who is very unhappy with a practice management company."
Physicians at the Cincinnati Eye Institute filed a motion to join as plaintiffs in a pending suit two Dallas doctors filed against PRG last November. The doctors are seeking to have their management agreements declared void. Their suit is pending in federal court in Dallas.
PRG, which specializes in eye practices, has filed an objection to the motion and is seeking a summary judgment to have its contract declared valid. Lawyers for PRG said last week that it is company policy not to comment on ongoing litigation.
All the physicians involved took PRG stock for their practice assets in 1996, only to see the value plummet from more than $20 per share, said their attorney, Bruce Howell. PRG stock has been in the doldrums this year, trading at about $4.50 last week.
The physicians claim PRG, which went public in 1995 with no operational track record, had insufficient accounting systems to manage the practices and was "completely unequipped" to perform promised services in exchange for a fee of 25% to 35% of net practice income.
"The company went out to the industry prematurely and could not perform the services they said they were going to perform," Howell said.
The physicians' suit is independent of at least six class-action suits that stockholders have filed against PRG. The class-action suits, which are pending, claim the company misled potential investors in order to boost its stock prices.
The physicians also claim the management agreements violate federal statutes against payment for patient referrals and illegal fee-splitting. The agreements also run afoul of state laws against illegal kickbacks and the corporate practice of medicine.
Lawyers for the doctors are leveraging a recent HHS advisory opinion that said the practice of paying a percentage of practice income for marketing services "may involve prohibited remuneration" under federal law (April 27, p. 13).
In the PhyMatrix case, Access Medical doctors have not made any statements in court documents accusing the company of poor management. In fact, PhyMatrix contended in court papers that Access Medical was in "acute financial distress" and "looking for a white knight" to save it from financial ruin when it signed on with PhyMatrix.
PhyMatrix said it ended its agreement with the Access Medical physicians on March 25, after they resigned and resumed practicing under several new entities.
Last week, the company said it plans to hire an investment banker to explore strategies to enhance shareholder value, including a management buyback of some or all company stock and selling some operations.
The company said it also is negotiating to end management and employment agreements with six physician practices in Connecticut and Florida that did not meet expectations. The practices have a total of 30 physicians. The terminations are expected to be completed by July 31 and to result in a $6 million one-time charge.