Gov. Davis’ Office Considering Deal on MedPartners

The Davis administration is deeply involved in negotiations that could free MedPartners Provider Network from state control, sources said Friday.

The proposed deal would allow the network’s parent company, MedPartners Inc., to pay off an estimated $100 million in debts to doctors and hospitals. It also would require providers to continue caring for MedPartners patients and managed-care companies to continue sending their members to MedPartners clinics, sources said.

“We’re hoping to avoid the continuation of any bankruptcy proceedings and to develop a business solution to this,” said Jim Lott, executive vice president of the Southern California Health Care Assn., a trade organization of hospitals and doctor groups that is attempting to broker the deal.

MedPartners Provider Network, a middleman between health-maintenance organizations and providers such as hospitals and physician groups, was taken over and placed into bankruptcy last month by state regulators, who said it was not fiscally sound.

Parent company MedPartners’ other divisions own 117 clinics and employ 1,000 doctors in California. Alabama-based MedPartners, the nation’s largest physician practice management company, lost $1.29 billion in 1998 on its clinics and health plan, and last fall decided to exit the business altogether.

Ross Stromberg, an attorney for MedPartners, would not say whether the company was negotiating with the state.

Other sources at the company have said for weeks that the company was working with the state to resolve the takeover and bankruptcy.

The takeover stirred anxiety among the 1.3 million people covered by the provider network, as well as deep concern among physicians, hospitals and suppliers that they would not be paid.

The action has raised concerns that the State Department of Corporations, the agency that regulates managed-care companies, has not been aggressive enough. Last week, the Davis administration said that questions about MedPartners were to be routed to the governor’s office and not to the corporations department.

Gov. Gray Davis has appointed a trusted lieutenant to participate in the negotiations with MedPartners and the other health-care companies, sources said.

Any deal would have to involve the 15 managed-care companies that contract with MedPartners. Each would have to promise to continue to send patients to MedPartners’ Friendly Hills, Mullikin and other clinics. Because the provider network would be shut down, there would be no middleman, and the managed-care companies would have to contract directly with the clinics. Currently, the state’s conservator, Eugene Froelich, is running the company and handling its reorganization under Chapter 11 of the U.S. Bankruptcy Code.

Backers of the proposal have apparently won support from several of the managed-care companies but have yet to win favor from Froelich, who sources said opposes it.

The conservator would not comment on the deal except to say that he was not involved in the negotiations.