California regulators ordered FPA Medical Management to correct financial problems last week as the company failed to make a $2.6 million interest payment to bondholders.
Meanwhile, FPA founder Sol Lizerbram, D.O., resigned as chairman while remaining on the board of directors. President and Chief Executive Officer Stephen Dresnick, M.D., became chairman in addition to his other duties.
According to FPA, the bond payment was blocked by banks that hold $315 million in senior debt, with rights that supplant those of bondholders.
The San Diego-based physician practice management company had been given a 30-day grace period after missing the interest payment to holders of $80.7 million in convertible debt last month. The missed payment came despite a recent $25 million bridge loan from banks.
In June, Dresnick stated that the company might consider a Chapter 11 bankruptcy filing as part of its restructuring. The missed payment heightened speculation that such a filing could come sooner rather than later.
Following last week's announcement, FPA stock hit a record low of 75 cents. In January the company's stock was trading in the range of $16 per share.
The California Department of Corporations, which licenses globally capitated providers, ordered FPA's California affiliate to implement a program by the end of this week to pay physicians, maintain minimum net equity requirements, and resume transactions with its parent. The state gave the company until Sept. 15 to comply.
Meanwhile, FPA's onetime network of 7,900 physicians covering 1.4 million prepaid HMO patients continued to dwindle. The company said it is closing about 50 facilities including Thomas-Davis Medical Centers in Arizona, a closing that was previously announced. FPA said it would cease operations in Nevada as well as parts of Arizona, California, Georgia, North Carolina and Texas.
Being shuttered are two Dallas-based groups, the 11-physician University Medical Group and the two-physician Medstop Clinic. An FPA spokesman did not respond to a request for a complete list of facilities that would close.
FPA pledged to keep certain "core" businesses. They are Axminster Medical Group, a Los Angeles-area primary-care provider; Cornerstone Physicians Corp., an Irvine, Calif.-based physician practice manager; San Antonio-based Gonzaba Medical Group; Health Partners, a Norwalk, Conn.-based PPM; Meridian Medical Group, a Georgia primary-care group; Coral Gables, Fla.-based Sterling Healthcare, an emergency department contract manager; and unnamed clinics and networks in California, Florida, North Carolina and Texas.
