Talks to End MedPartners’ Takeover Continue

Negotiations to end the state’s takeover of MedPartners Provider Network continued at a furious pace Thursday, even as participants prepared for a court hearing on the matter scheduled for today.

Last month, the state seized control of the company, a corporate “middleman” between health-maintenance organizations and health-care providers, saying it was not financially solvent. The state appointed a conservator, Eugene Froelich, who immediately placed the firm in Chapter 11 bankruptcy reorganization.

MedPartners contested the takeover, and a hearing on the matter was set for today in Los Angeles County Superior Court. Attorneys for the state are expected to argue that if the conservatorship does not remain in place, health care will be threatened for the 1.3 million Californians who receive care through the MedPartners network.

The bankruptcy attorney hired to represent the conservator as well as other sources close to the state investigation have said the provider network and the 117 clinics the company owns in California are in dire financial straits.

And, these sources said, the firm’s parent company, based in Alabama, had deliberately structured the clinics and the provider network as separate entities in order to keep regulators at bay.

Regulators--including a representative of Gov. Gray Davis--have been negotiating for weeks with MedPartners to reach a settlement. As of late Thursday, an agreement was reportedly close but not complete.

Among the sticking points, sources said, were concerns that huge management fees paid to the parent company amounted to the improper siphoning of funds out of the California operations. The state is also reportedly seeking a guarantee from MedPartners that if it is released from bankruptcy here, the company will not turn around and file for bankruptcy protection in another state, where its assets would be out of reach of regulators.