A Southern California physician organization has sued MedPartners, alleging the physician practice management giant failed to abide by a management agreement.
Health Source Medical Group, a 300-physician independent practice association centered near Cedars Sinai Medical Center in Los Angeles, late last month filed suit for more than $100,000 against MedPartners and one of its subsidiaries, CHS Management. The amount of damages is a minimum figure and is common among such lawsuits.
The suit lists nine causes of action, including fraud, breach of fiduciary duty and unfair business practices. The IPA alleges that MedPartners failed to negotiate in good faith on its behalf with payers, withheld business records and delayed payments to doctors.
MedPartners declined to comment.
The suit is the latest difficulty for the Birmingham, Ala.-based PPM, which has been in the throes of restructuring its sprawling Southern California operations.
Late last week, the California Department of Corporations confirmed that it is auditing the financial records of MedPartners' operations there.
According to the complaint, Health Source entered a management agreement Aug. 1, 1995, on MedPartners' assurance that its size and economic clout would win higher capitation rates for the doctors and that its national scope made it "uniquely capable" of improving the IPA's financial performance.
MedPartners failed to perform many of its contracted management functions, left CHS with a "skeletal staff" and moved management operations to a distant location, in Calabasas, Calif., the suit charges.
Further, the suit alleges that MedPartners put the interests of its affiliated physician group, MedPartners Provider Network, ahead of the IPA when it came to managed-care contracting. For example, MedPartners is alleged to have refused support for Health Source doctors when Aetna reduced their PPO payments because doing so would have interfered with a larger deal MedPartners was negotiating with the plan.
Health Source alleges that an internal MedPartners report indicated its IPA management services were in "serious disarray," but the company failed to address the problems. The suit does not indicate a date for the report.
The IPA submitted a formal letter to CHS in April, which led to a termination agreement. However, according to the suit, MedPartners has blocked transfer of the operations unless the IPA waives liability claims regarding breach of contract and pays MedPartners a "large sum of unsubstantiated debt."
Meanwhile, before the suit was filed, Warburg Dillon Read reduced its rating for MedPartners to `'hold" from `'strong buy." Among the factors was doubt that MedPartners can sell its profitable Team Health unit for the $700 million originally projected. The unit, which manages hospital-based physicians, was put on the block in June.
In a news release, MedPartners President and Chief Executive Officer E. Mac Crawford said the company received a "large number of initial indications of interest" in Team Health, and expects to close a deal during the last quarter of the year.