A federal bankruptcy judge last week approved the reorganization plan of MedPartners' California operations, paving the way for the once-mighty physician practice management company to begin paying its creditors the $177.7 million it owes them.
"We expect MedPartners will fully fund 100% of the shortfall of assets," said James Barber, president of the Healthcare Association of Southern California, which represented hospitals in the three months of negotiations among MedPartners, its creditors and the state.
Other parties are more skeptical. The California Medical Association, which represents some 4,000 physicians, who claim they are owed $97 million, said MedPartners has been paying pennies on the dollar for current claims.
"The settlement calls for MedPartners to pay claims in full, but whether it will actually do that remains to be seen," said CMA spokesman Hobie Swan.
"It's as good a deal as we could have hoped for," said MedPartners spokesman Joel Weiden, who added that the firm should cease operating in California by year-end.
At its height, MedPartners, based in Birmingham, Ala., operated a network of physician practices in California that employed about 1,000 doctors, treated 1.3 million enrollees through contracts with more than 20 different health plans and generated annual revenues of more than $1 billion.
Because of concerns about MedPartners' financial viability, California regulators seized its operations in the state in March and forced it into bankruptcy protection. MedPartners and state regulators reached a preliminary agreement in April that took another two months to complete.
MedPartners owed creditors $177.7 million, according to court documents. At least $95 million was owed to more than 30 hospitals, according to Thomas Patterson, a lawyer with HASC.
Under the agreement approved by U.S. bankruptcy Judge Barry Russell in Los Angeles on July 18, MedPartners will fund payments by selling its California assets and through a $25 million line of credit.
As MedPartners pays providers in full, the providers will renegotiate their contracts directly with health plans, Barber said.
MedPartners, which took payments directly from health plans and bore the risk of paying for the care of plan enrollees, owed creditors including hospitals, physician specialists, dialysis firms and nursing homes.
Russell also approved MedPartners' sale of its Mullikin Medical Group and Friendly Hills Healthcare Network to a subsidiary of Riverside-based KPC Global Care for $12 million in cash and a $6 million note, the sale of Talbert Medical Group to a consortium of physician investors for $3.4 million, and the sale of its hospice and home health operations to Dallas-based Odyssey HealthCare for an undisclosed sum.
A $200 million lawsuit remains pending by MedManagement Acquisitions Corp., a group of physician investors in Los Angeles. The group claims MedPartners breached an agreement to sell it the Mullikin and Friendly Hills operations. The case is expected to go to trial next spring, MedManagement attorney Howard Fisher said.
Weiden said the only sale of an asset that the court must still approve is that of Riverside Medical Clinical to an undisclosed party. Russell is expected to hold a hearing Aug. 10 regarding that sale.