A bankruptcy filing by one of the nation's largest physician practice management firms poses a sticky question: Who, if anyone, will pay its doctors?
FPA Medical Management, which acts as an intermediary between HMOs and doctors, failed to pay physicians for services rendered before it filed for Chapter 11 bankruptcy protection July 19.
"I'd say there are thousands" of physicians who are owed, company spokeswoman Ann Julsen said last week. FPA is expected to file a disclosure statement by Oct. 28 that includes a complete list of creditors (See timeline).
According to its most recent Securities and Exchange Commission filing, FPA managed 7,900 physicians serving 1.4 million HMO enrollees in 29 states as of March 31. Those numbers likely have dropped substantially, but the company was unable to provide an up-to-date count last week.
Also last week, FPA failed to meet a deadline to file its second-quarter financial results. It said it expected a "significant" loss but could not file because many of the employees responsible for preparation of the quarterly report had left the company.
Physicians may file in bankruptcy court as general unsecured creditors, but full recovery appears unlikely. Under a proposed reorganization plan, which has yet to be officially submitted to the court, the post-bankruptcy company would set aside 3% of its value for unsecured creditors including vendors, bondholders and providers.
In some states, physicians are seeking recovery claims from HMOs, but HMOs maintain they already paid FPA for those services under prepaid contracts and shouldn't have to pay again.
Some HMOs claim their hands are tied by the bankruptcy proceeding, which has essentially frozen any payment of claims to creditors.
"Unfortunately, the bankruptcy court's principal charge is to protect the bankrupt company-not patients, physicians or HMOs," the Harris County (Texas) Medical Society told its members in a recent newsletter.
It's the first time a major physician practice management company has declared bankruptcy, and some state regulators were caught off guard.
"In different states we've gotten somewhat different indications from the regulators as to where they feel the liability lies. None of them has come down with a definitive ruling," said Susan Whyte Simon, a spokeswoman for Santa Ana, Calif.-based PacifiCare Health Systems. PacifiCare contracted with FPA physicians in Arizona, California, Nevada and Texas.
In Texas, PPM companies and independent practice associations are unregulated organizations, according to the Harris County Medical Society, which talked to insurance regulators about recovering claims owed to Houston-area physicians. "We basically have no position (on who should pay)," Texas insurance department spokesman Mark Hanna said last week.
The issue is also brewing in Arizona and California, where regulators have met with representatives of physicians and HMOs.
"It's something we're looking into, but we don't believe our statutes address the issue," said Erin Klug, a spokesman for the Arizona Department of Insurance.
The American Medical Association said last week that it has pledged to provide legal assistance to medical societies that are working to recover unpaid claims.
One state that appeared to have foresight is Nevada, which does not allow HMOs to assign responsibility for paying claims without state approval.
"As a general rule we would say that the HMO has to make good," said Guy Perkins, supervisor of the life and health section of the Nevada Division of Insurance. "Our statute operates under the assumption that the HMO is taking the risk and therefore must make the benefit payments."
The division will determine whether PacifiCare should pay claims owed to FPA doctors who served 50,000 of its enrollees in Nevada. The state has fielded a "pattern of complaints" from physicians who weren't paid as long ago as 1997, Perkins said.
The division will hold off on a final determination until it completes routine exams of PacifiCare's market conduct and finances, including a look at its contracts with FPA, which could take several weeks. "We can't do anything about it until the facts are in place," Perkins said.
Earlier this year, PacifiCare applied for approval to assign to FPA the claims responsibility, but the application was withdrawn when FPA filed for bankruptcy, Perkins said.
Meanwhile, other providers have assumed some FPA operations. In Orange, Calif., St. Joseph Hospital accelerated the formation of a physician network to facilitate contracting between 460 local physicians and three HMOs that canceled contracts with FPA. Some 73,000 enrollees were transferred from FPA's local network to St. Joseph. In Houston, rival PPM MedPartners has assumed management of FPA's University Medical Group clinics.