PacifiCare Cancels Most of Its Contracts With FPA


Dealing a blow to FPA Medical Management’s efforts to stay financially afloat, PacifiCare Health Systems said Thursday that it has canceled “all but a handful” of its HMO contracts with the physician management firm.

PacifiCare’s disclosure followed FPA’s announcement earlier in the day that it had obtained $25 million in funding from some of its bank creditors. FPA also said the banks agreed to defer any payments under an existing $315-million loan agreement until Dec. 1.

Although an FPA spokesman characterized the contract termination as a move on which both companies agreed, a PacifiCare spokeswoman said the big HMO took the action on its own.

FPA owes millions of dollars in payments to doctors who treat PacifiCare members.


“Our first responsibility is to ensure uninterrupted and unhindered access to physicians, and that has become difficult because of FPA’s lack of payments to their contracted physicians,” said Susan Whyte-Simon, a PacifiCare spokeswoman.

Simon had no figure for the revenue FPA will lose from the contract cancellations, but one source estimated it at more than $100 million annually.

It couldn’t be determined how far the $25 million would go in helping FPA meet overdue payments to doctors and other creditors. But a knowledgeable source said FPA owes more than $25 million to one HMO alone, among the many health plans with which it contracts.

PacifiCare said the canceled contracts will affect nearly 200,000 members--about half of them in California--in 22 FPA medical groups in four states. FPA delivers medical services to about 1.4 million people in 29 states.


Simon said many PacifiCare members who receive medical care through FPA will be able to continue seeing their same doctors if those physicians contract with other PacifiCare medical groups. But other members will have to choose new doctors.

A spokesman for Health Net, another big HMO, said he was unaware of any discussions with FPA about contract terminations. But Health Net has said it’s had to pay some medical groups directly due to FPA’s financial woes.

FPA said it is continuing to talk with banks and investors about a financial restructuring that it hopes to complete this summer. The San Diego-based firm has said that a Chapter 11 bankruptcy restructuring is one option it is considering.

With the PacifiCare cancellation, “FPA is going to be in very deep financial trouble,” said John Edelston, a managed-care consultant in Woodland Hills.


FPA shares rose 25 cents to close at $1.38 on the New York Stock Exchange, but that was apparently based on FPA’s initial statement.