A little more than a year after the state of California seized control of the MedPartners Provider Network, the company that purchased the bankrupt network is struggling under the same challenges that toppled the previous owner.
Anaheim, Calif.-based KPC Medical Management acquired the bulk of MedPartners Provider Network from Birmingham, Ala.-based CaremarkRx last September for approximately $24 million in cash. When MedPartners collapsed, it owed California physicians $97 million. KPC says it expects to break even next month, but as recently as May it was losing $2 million a month on the MedPartners clinics. It took an unusual loan from the state's health insurers just to be able to pay past due claims to physicians and vendors.
Although KPC Chairman and CEO Kali Chaudhuri, M.D., boasts that the company is on the upswing, he must now convince the bankruptcy-weary physicians still active in the KPC network, many of whom have gone unpaid for months, to have faith in the company.
Since the acquisition, KPC has worked to reduce the inherited debt and has reduced the monthly losses from $9 million at the time of acquisition to the current $2 million.
KPC achieved savings by closing about 30 of the 85 MedPartners clinics and laying off about 500 employees. The company also consolidated eight computer systems and three payroll systems into one.
KPC also generated cash by selling several large clinics. KPC currently employs about 220 physicians and contracts with a network of 8,000 specialists.
In April, KPC announced it received a $12 million loan from a coalition of eight of California's major health plans, including PacifiCare, Cigna, Blue Cross and Aetna. The loan will be used to pay outstanding provider and vendor claims, Chaudhuri says. Several of the health plans contacted had no comment, but Chaudhuri says the loan was part of an agreement the health plans had with MedPartners long before KPC came into the picture.
KPC also recently concluded a debt restructuring agreement with CaremarkRx. Under the agreement, KPC paid off $7.2 million in purchase obligations and CaremarkRx agreed to defer the remaining $8 million in purchase debt for two years. CaremarkRx also agreed to accept $18 million in lease liability for 18 vacated clinics and freed KPC from those lease obligations.
Don Smallwood, president of KPC, says the company is now "on the brink of profitability" and says the sale of more groups will push the company over the edge. KPC is negotiating to sell several small clinics back to the physicians but maintain a 20% ownership in the group. Under the deal, the physicians also must enter into a 10-year management contract with KPC for computer and administrative services. KPC will retain a portion of capitated payments in exchange for the services.
"We don't necessarily need to own physicians, and we think physicians are far better off working for themselves than for somebody else," Smallwood says.
Lakewood, Calif., pulmonologist Arthur Gelb, M.D., recently severed ties with the KPC network. He estimates that at one point his two-physician group was owed as much as $45,500. "This is just a repeat of MedPartners," he says. "What's going on is a joke."
Los Alamitos internist Marcy Zwelling, M.D., has never been employed by or contracted with KPC, but she's made it a personal mission to crusade for physicians wronged by the practice management company. In a letter to the editor published last month in the Wall Street Journal, Zwelling wrote: "The real picture is that KPC Medical Management has not paid fee-for-service contracted physicians in six months. . . . Dr. Kali Chaudhuri is willing to sell the groups back to the physicians at a remarkably inflated price, removing his risk and overwhelming physicians with debt."
She recently got KPC to agree to sit down with her and discuss overdue payments.
For his part, Chaudhuri diverts much of the blame to the HMOs, saying the reimbursement rates he receives are too low to be profitable, and that is the main reason physicians are going unpaid.
Although the California Medical Association has lobbied MedPartners for months to settle accounts with California physicians, the association takes a kinder view of KPC. Jack Lewin, CMA executive director, agrees with Chaudhuri that KPC faces a tough road unless reimbursement rates increase. Unlike Gelb, Lewin believes it's unfair to compare KPC with MedPartners.
"Dr. Chaudhuri is a far better option than MedPartners ever was, but he needs to be adequately financed or he will have the same troubles they had."