In a decision potentially worth millions to the physician practice management industry, a Delaware bankruptcy judge ruled that the physician contracts of a Boca Raton, Fla.-based PPM company are enforceable because they are not merely "personal service contracts."
In other words, doctors can't simply leave a PPM firm at the first sign of trouble. They must fulfill contract terms.
Ruling from the bench, Judge Mary Walrath in Wilmington rejected an argument by doctors that the contracts were a type that couldn't be assumed in bankruptcy, assigned to a third party or included in a reorganization plan. The distinction could prove lucrative to the troubled PPM industry, according to attorneys for BMJ Medical Management, the bankrupt PPM company.
"The value of the straight-model PPM is the contract," said Jeff Marwil, a bankruptcy lawyer with Katten Muchin Zavis in Chicago, the firm representing BMJ. "It confirms for the industry that the major asset for the industry has value from an enforcement perspective."
For BMJ, the decision protects a projected 40-year stream of revenues earned through management fees and accounts receivable. It also bolsters the company's valuation.
The ruling establishes a roadmap for the U.S. Bankruptcy Court in Delaware, which handles the lion's share of PPM bankruptcies.
BMJ, which filed for Chapter 11 reorganization Dec. 17, 1998, represented 34 physician practices. The company said it sought protection from creditors because some of the physician groups failed to turn over their accounts receivable, as required under contract.
Attorneys for the doctor groups, which said receivables were withheld because of BMJ's default under the contracts, questioned the significance of the ruling.
"She's only ruled that they're not personal service contracts," said James Beasley Jr., a West Palm Beach, Fla.-based lawyer who represents some of the doctors. "Now we'll get to the merits of the issue."
Beasley's clients claim BMJ breached its duties under the contracts. Marwil, the BMJ attorney, conceded, "If there are breaches, the breaches have to be cured." But that does not diminish the importance of Walrath's ruling, he said.
"Had the physicians won on this point, the company would have been prohibited from emerging from Chapter 11 as a restructured PPM," he said. BMJ would have had to liquidate.