A federal judge in Nashville approved a settlement in a class-action lawsuit against PhyCor, the physician practice-management firm that will emerge from bankruptcy this week as Aveta Health. The settlement came a day after PhyCor announced that its creditors approved a bankruptcy reorganization plan.
Under the plan, which won preliminary endorsement in April by U.S. District Judge Todd Campbell in New York, PhyCor and its accounting firm will pay $10.1 million to shareholders to settle the suit, which alleged PhyCor officials and its accounting firm artificially inflated the stock value, and that executives sold shares while the company failed. Company managers and accountants denied the allegations.
Of the total settlement, PhyCor's insurers will pay $3.4 million and its accountant, KPMG, will pay $6.7 million. Distributions will be made to shareholders who bought stock from April 1997 to September 1998, and shareholders have until Aug. 5 to sign the agreement. They'll receive about 16 cents per share, but only 7 cents after legal expenses. In 1997, PhyCor stock hit a high of $35.50.
Under the reorganization, holders of about $370 million in general unsecured claims will receive shares of the reorganized company. Various secured claims will be paid in full, while holders of convenience claims will receive 12.2 cents on the dollar.
Once a market leader that owned 55 clinics with 3,800 physicians, PhyCor has operated under voluntary Chapter 11 bankruptcy protection since Jan. 31, claiming liabilities of nearly $339 million against assets of $29 million.
The company will start business this week under the new moniker of Aveta Health, said Tarpley Jones, president and chief executive officer. "We're going to put the bankruptcy behind us and focus on our business. I'm fairly encouraged."
Jones said the bankruptcy did not affect PiVotHealth, a subsidiary that provides management services to clinics and physician groups, nor its $250 million independent practice association business, operating under the names North American Medical Management and Primecare. He said the IPA business grew during the bankruptcy.
-with Mark Taylor