FPA Medical Management is going Coastal. Thanks to a missed $2.6 million debt payment on June 16 and no imminent sign of a much-needed cash infusion, the multispecialty physician practice management company's stock sank below $1 per share in mid-month -- an all-time low.
Doctors who sold their practice assets to FPA for a share price that could buy a nice dinner as recently as March now find those shares worth barely enough to purchase a candy bar.
The only PPM stock worth less is Durham, N.C.-based Coastal Physician Group, which in 1995 became the first major PPM to collapse under the weight of its expenses. Since Coastal's plunge, the pattern has become familiar to doctors who joined MedPartners, Physicians Resource Group and, now, San Diego-based FPA.
"Are they destined to be a Coastal or will they come out of it is anybody's guess," says John Ederer, an analyst at San Francisco investment bank Volpe, Brown & Whelan Co.
FPA on Monday, June 22, offered some hope for a turnaround. In a prepared statement, FPA said it was negotiating "in earnest" with its lenders, led by BankBoston, to obtain additional financing and to waive and modify certain covenants that would put the company in default of its loan agreements. FPA has no plans to file for Chapter 11 bankruptcy, says Stephen Dresnick, M.D., FPA's chief executive officer and president.
The proposed bank deals would, among other things, allow the release of collateral to enable FPA to sell or otherwise separate from unprofitable practices in some markets. The company identified Sacramento, Calif., and Tucson, Ariz., alone as responsible for $5 million in losses in the first quarter of 1998.
Any deals also would allow FPA to reduce its backlog of payments to physicians, which according to the company is at least $15 million.
In its statement, FPA says it has outlined $25 million in unspecified costs to be cut. Details are being worked out by Dresnick and new Chief Financial Officer Thomas Allison, formerly of Arthur Andersen's Corporate Recovery Services Practice. Allison replaced interim CFO Douglas Kerner on June 22.
The negotiations come as the California Department of Corporations, which regulates health plans, is conducting what it calls a nonroutine financial examination of FPA's books to determine the company's financial viability. FPA holds a limited Knox-Keene license, necessary for any California organization that accepts pre-payment of services, or capitation. If FPA is found to be unable to pay all claims, the department can yank its license, says Julie Stewart, the department's assistant commissioner of public affairs.
About 434,000 of FPA's 1.4 million managed-care enrollees and 1,650 of its 7,900 primary-care physicians are in California; that business would be lost if FPA loses its license. Overall, 92.3% of FPA's $344.9 million in first-quarter managed-care revenue came from capitated contracts; the California portion is unknown.
The California investigation was only part of the bad news that helped sink FPA's stock price until news of efforts to obtain new financing put it back over $1 per share on June 22.
The big crusher to FPA's stock price came from failing on June 16 to make a $2.6 million interest payment on a $75 million bond issue. Under terms of its agreement with bond trustee First Union National Bank, FPA has until July 15 to make the payment or risk First Union asking for the full $75 million, plus interest, right away. Debt rating agency Standard & Poor's responded on June 17 by reducing its rating of all FPA debt to default.
The other major rating agency, Moody's Investors Service also lowered its ratings on FPA, although it didn't actually declare the company in default. Moody's noted that FPA is spending $8 million more each month than it receives.
The stock, which fell to an all-time low of 75 cents, wasn't helped by continued complaints that physicians weren't being paid in Sacramento, Calif., Tucson, Ariz., and Nevada -- three of FPA's most troubled markets.
William Sandberg, executive director of the Sacramento-El Dorado Medical Society, says that the week of June 15 he received complaints from eight physicians and groups; one 12-physician group says it's owed $300,000, while one specialist says he's down $30,000.
Physicians also complained about returned claims, which send them down a long paper trail in pursuit of payment.
"I know that in some cases health plans that FPA contracts with have gotten involved and delivered emergency checks so that the physician could avoid a loan," Sandberg says.
Despite its problems, FPA got some help from its bankers. BankBoston extended to July 8 from June 11 the default deadline on a $215 million credit facility. FPA has a separate $100 million loan with BankBoston that is not affected by the July 8 deadline.