A little-known, physician-run company is poised to take over most of MedPartners' physician assets in California as the company tries to get approval from a bankruptcy judge to leave the state.
However, the deal may be derailed by a group of physicians who on June 21 filed suit against MedPartners in Los Angeles. The doctors allege the company reneged on a letter of intent to sell practices it is now transferring to KPC Global Care.
KPC, a Riverside, Calif.-based practice management company run by orthopedic surgeon Kali Chaudhuri, M.D., currently manages about 500 physicians in California. However, a company spokesman says it has the means to acquire about 700 MedPartners doctors, including 600 in the company's Mullikin, Friendly Hills and Southern California Medical Corp. operations in the Los Angeles area and 100 in other practices around Riverside.
"Dr. Chaudhuri is a man of considerable resources," KPC spokesman Bill Thomas says. "All of his finances have been verified by Merrill Lynch (MedPartners' banker). He's paying cash."
The purchase price for the groups, whose sale was announced June 15, was not disclosed. However, the 120 physicians of another Southern California group, Talbert Medical Group of Fountain Valley, bought back their assets on June 10 for $3.7 million, or $31,000 per physician (see story on page 8).
MedPartners is selling assets representing all its 13,000 physician practices to focus on its profitable pharmacy-benefit management subsidiary, Caremark International.
According to documents filed with the Securities and Exchange Commission, MedPartners has buyers for about 90% of its 1,000 physicians in Southern California. Spokesman Robert Mead says the company hopes to exit the state by year's end.
The disposal got more complicated when the California Department of Corporations in March took over MedPartners Provider Network, the company's contracting subsidiary in the state, and placed it into Chapter 11 bankruptcy reorganization.
Any deal must be approved by the U.S. Bankruptcy Court in Los Angeles, which atModern Physician's deadline was looking over a settlement agreement between MedPartners and the state. The agreement would allow the company to sell its assets and take back possession of MedPartners Provider Network while guaranteeing care for 1 million patients.
The state and MedPartners announced the deal June 9, but the next day Los Angeles Superior Court Judge Alan Buckner refused to sign it. He says it doesn't address the $100 million in back claims MedPartners owes to doctors and hospitals in the state.
The two sides solved that problem on June 17 by withdrawing their litigation from Superior Court, where MedPartners had sought relief after the state takeover.
Skepticism remains among many doctors at Mullikin, says Michael Cushing, M.D., a family physician at its Norwalk clinic.
About 230 physicians in June sent a letter to the Department of Corporations supporting a bid handled by Los Angeles-based Paladin Investment Banking.
Paladin represents MedManagement Acquisition Corp., identified in the June 21 lawsuit only as "several Southern California-based African-American physicians."
In the lawsuit, filed in Superior Court, MAC claimed MedPartners breached an April 7 letter of intent to sell it the Mullikin, Friendly Hills and Southern California Medical practices.
The suit accuses MedPartners of continuing negotiations with KPC even after the letter of intent was signed and of various other actions of bad-faith negotiations that killed the deal.
MedPartners has not yet responded to the lawsuit in court.
MAC is asking for an unspecified cash judgment and noted it filed a motion to have a judge arbitrate the dispute.
Cushing claims that when the Paladin deal hit trouble, KPC "was jammed down our throats." He says KPC planned to keep the same low reimbursement rates that got MedPartners in trouble, while Paladin hoped to negotiate raises. Cushing says Mullikin physicians are still deciding how to react to the KPC deal, which is scheduled to close July 31.
Thomas confirmed that KPC does indeed plan to keep the same payment schedule, although it expects to receive more money following premium increases by insurers. If the insurers don't pass along those increases, he says, "we'll just have to manage better."
KPC likely will not end up keeping all those physician assets anyway. Thomas says physicians will have the opportunity to buy their assets back from the company, as long as they stay in a management services organization KPC runs.