The feud between Physicians Resource Group and its doctors could end with the physicians in control of the company.
Doctors at the eye-care physician practice management company have until Sept. 21 to approve a plan designed by David Meyer, M.D., a colleague and the company's largest shareholder, and some unnamed physicians to acquire one-third of PRG -- or 10 million shares -- for $5 per share. Meyer, who currently controls about 8.5% of PRG's stock, could expand his offer to cover all 30 million shares.
If Meyer succeeds, Dallas-based PRG would become the first publicly traded PPM in which doctors assert control as a way to bring the company back to financial health.
Meyer, in a report filed July 27 with the Securities and Exchange Commission, says he has commitments from providers to buy at least 5 million shares. The report does not say whether that includes his 2.5 million shares. Meyer won't comment, citing SEC regulations against talking about a pending stock offering.
However, his plan is laid out in a confidential draft sent to doctors Aug. 18 that was acquired by Modern Physician. It calls for physicians who pay outstanding management fees, buy back their practice assets and settle any loans made by the company to receive equal value in stock, at $5 per share.
Meyer's plan would get PRG out of the business of owning practice assets and make it solely a practice manager. Management fees would be cut to a range of 1.5% to 7.5% of gross revenues, down from the current 10% to 50%. Service agreements would be cut to 10 years from 40 years.
PRG also would take on a new name; in the proposal sent to physicians, Meyer refers to his new company as "Freshco." Under the plan, company executives would not be replaced.
PRG's executives agreed to Meyer's offer July 25, six days before they were going to present their own turnaround plan to the company's stockholders. The main difference in the company's since-aborted plan was that physicians would not have received stock for settling financial claims.
For months PRG and its physicians have been locked in legal battles over the company's alleged management inadequacies and doctors' failure to pay fees. As a result, PRG's stock recently has sunk as low as $3, and the company on Aug. 18 subtracted $42.6 million from its earnings to account for a loss in the value of its practices involved in legal disputes. PRG reported a loss of $34.5 million, or $1.17 per share, on $96.1 million in revenues for the quarter ended June 30.
Meyer, based in Memphis, Tenn., says the idea for taking control of PRG came from other physicians. "I didn't seek this leadership role," he says. "Providers sought me." In December, he resigned from the company's board.
Before filing with the SEC, Meyer presented his takeover and restructuring plan to the 50 largest PRG practices and received the go-ahead to pursue it, according to a source close to the practices. PRG lists 130 practices with 670 doctors, but the company is jettisoning 44 of those practices in a cost-cutting move.
But there's no guarantee Meyer's deal will be approved by the required number of doctors -- those representing 75% of gross revenues. The plan includes settling almost all lawsuits by the Sept. 21 deadline, which may cost "several million dollars," the proposal notes.
Also, the proposal states that the renamed PRG may need $125 million to pay off bonds, $14 million to pay off loans and $5 million to pay transaction costs. If all practices participate, the proposal states, Meyer will have commitments for $80 million. In his SEC document, Meyer gives no details of his financing commitments.
"I think this is a very interesting concept," says Bruce Howell, a Dallas attorney representing a Lewisville, Texas, group suing PRG. "My major concern is (whether it) can be done."