The damage wrought by FPA Medical Management's bankruptcy filing includes at least 4,400 physicians being dropped, $170 million in health plan losses and potentially hundreds of millions of dollars in unpaid claims owed to physicians. So far.
The maelstrom is sucking health plans and physicians -- in some cases with the support of state insurance departments -- into battles over claims the plans paid but the doctors didn't receive. In Sacramento, Calif., one three-doctor medical group is suing to recover $138,000 Foundation Health Systems paid to FPA that FPA never paid to physicians. More lawsuits against health plans are expected.
The best many doctors can hope for is splitting with vendors and other unsecured creditors the 3% of 40 million new FPA shares scheduled to be issued by year's end. That's when FPA expects to emerge from U.S. Bankruptcy Court in Wilmington, Del. The company's secured creditors -- which get priority for any payments -- have forgiven more than $300 million in debt in exchange for the new shares.
Being last in line doesn't make doctors happy. "I want to almost physically pummel the people that are responsible for this," says Paul Handel, M.D., president of the Harris County (Texas) Medical Society. Handel, a Houston urologist, has a "small amount" of outstanding claims for work FPA doctors referred to him, part of an estimated $16 million to $20 million in claims he says are owed to Houston doctors.
"(FPA has) hurt the patients, they've hurt the economy, and they've hurt the providers," Handel says. "Those are three strikes, and they need to be out of the game."
It hasn't helped that FPA and its major creditors on Aug. 20 agreed to a plan that would grant FPA executives hefty pay raises and bonuses worth a total of $2.8 million. Creditors apparently agreed with the company's view that executives wouldn't stick around without pay incentives, but U.S. Bankruptcy Court will have the last word Sept. 23, when it's expected to rule on the so-called "employee retention plan."
"I can tell you that every one of our senior management team has had offers for other positions, including myself," says FPA Chairman and Chief Executive Officer Stephen Dresnick, M.D., who has watched his own $75 million worth of FPA stock reduced to nothing.
Dresnick, who joined FPA when it purchased his Sterling Healthcare Group in 1996, says he wants to stay on because the multispecialty physician practice management company's problems are "fixable." The company must disclose its reorganization plan Sept. 30 in U.S. Bankruptcy Court.
But many more will suffer before FPA's problems are fixed, including perhaps the company itself. The Securities and Exchange Commission has brought no charges against FPA but is conducting an "informal investigation" of the company, Dresnick says.
FPA filed for bankruptcy July 19. On Aug. 12, the Nasdaq National Market stopped trading FPA's stock because, at 12 cents per share, it didn't meet the market's minimum price requirement of $1. The delisting was a mere formality, since FPA will replace its shares, now trading on the over-the-counter, penny-stock circuit, after emerging from bankruptcy.
Losses caused by FPA's bankruptcy are still being totaled. Here are some preliminary data:
Dresnick says any physicians being cut must either repurchase their practice assets or lock their doors. The number of doctors buying back their practice assets was not available.
One caveat on the employment and physician numbers: FPA spokeswoman Ann Julsen says they are a "best guess" because so many employees have resigned or been fired that it's difficult to count heads.
The California Medical Association says its physicians are owed as much as $60 million. Making the number difficult to compute are all the claims from specialists who took referrals from FPA-affiliated doctors (see related story below).
Also, the total has yet to include any past claims that insurers will be forced to pay doctors, even if the health plans already paid FPA its capitation payments. Insurers say they shouldn't have to "double pay" such claims, but health plan regulators in California and Nevada say paying an intermediary doesn't take away insurers' responsibility to cover unpaid claims, plus interest.
In states where HMOs are not legally responsible for paying claims, doctors may get nothing. By U.S. Bankruptcy Court rules, those claims go into the pile of creditors' claims that will be divvied up by the court.
Dresnick, surveying a PPM landscape pockmarked with financially troubled companies, expects problems for other practice managers.
"I would suspect we're not going to be the last company that files for Chapter 11 in the PPM industry," Dresnick says, declining to name names.