MedPartners filed emergency motions in federal court last week seeking the return of its risk-contracting operations in California.
Meanwhile, the Healthcare Association of Southern California, which represents hospitals, retained law firm Sidley & Austin to represent hospital creditors of MedPartners Provider Network, which was put into Chapter 11 bankruptcy protection earlier this month after being seized by the California Department of Corporations.
Providers are owed more than $20 million, said association Executive Vice President Jim Lott.
Long Beach, Calif.-based MedPartners Provider Network is licensed to accept risk under California's Knox-Keene Act. It controls the stream of capitation payments to hospitals and physicians for more than 1 million HMO enrollees.
State regulators expressed concern that the company would not be able to continue to pay providers. Last year physicians criticized the Department of Corporations, then under different leadership, for failing to intervene soon enough when another risk-bearing physician practice management company, FPA Medical Management, encountered financial problems. FPA declared Chapter 11 bankruptcy last summer after falling months behind in provider payments.
MedPartners last week called the seizure "unjustified" and blamed the state's action for disrupting the flow of provider funds. The Birmingham, Ala.-based company said the state forced its contracting arm into a Chapter 11 filing even though that unit was not insolvent and "never failed to make capitation payments to providers."
MedPartners said that before the seizure, it offered the state a written guarantee that it would continue to support the operation financially.
In a written statement, MedPartners said it "remained committed to meeting its legal obligations." However, it's unclear what the state will do with outstanding claims, company spokesman Robert Mead said.
Mead said a portion of more than $250 million that the company invested in the MedPartners Provider Network in 1998 paid for systems to accelerate claims payments. He said the number of outstanding claims fell from about 400,000 to about 100,000.
California's other big hospital lobby, the California Healthcare Association, said it will ask the state's largest health plans to work directly with the affected physicians. Details were unavailable.
MedPartners said it is continuing discussions with possible buyers of its physician services in California. The seized assets do not include the company's physician practices.
Santa Barbara, Calif.-based Tenet Healthcare Corp., whose large Southern California hospital network partners with MedPartners physician groups, said it's not sure whether it is owed money.
Meanwhile, a nine-physician group has filed suit against MedPartners in U.S. District Court in Orlando, Fla., claiming the company owes it a $500,000 production bonus. MedPartners filed a counterclaim for unspecified damages, saying the physicians diverted clinic revenues for their own use.
The group, Brevard Orthopaedic Clinic in Melbourne, Fla., also filed a complaint in Brevard County (Fla.) Court asking the court to decide whether its affiliation agreement with MedPartners is valid under a Florida law that prohibits fee-splitting with physicians.
Also last week, MedPartners closed the sale of its Knoxville, Tenn.-based Team Health subsidiary, completing the divestment of its hospital contract division, to a group of private investors (Feb. 1, p. 8).
MedPartners, which is leaving the PPM business to focus on it pharmacy benefits management business, said it will receive $335 million before transaction costs and other expenses and retain 7.3% equity in Team Health.