MedPartners, State Reach Clinic Operation Deal

MedPartners Inc., whose California health plan was seized and placed into bankruptcy last month by state regulators, has agreed to pay all of its debts in the state and continue funding its 117 clinics here until they are sold.

The deal, which state officials say resolves the issues that triggered the takeover last month, takes steps to ensure that MedPartners’ 1.3 million patients in California keep their regular doctors and that physicians and hospitals will be paid.

In exchange, the state will step back from its aggressive oversight, replacing its tough-minded conservator and changing the conservator’s role to supervising, rather than running, the operation. The reduced oversight puts the company back in charge and severely lessens the possibility that regulators will question its past accounting practices.

As part of the deal, which was reached in principle late Friday, the state would gain oversight of the company’s clinics, which provide care for about 900,000 Californians.

The health plan itself, a “middleman” that contracts with health-maintenance organizations and distributes funds for health care to doctors and clinics, will be gradually liquidated over the next year.

But to ensure that the patients covered by the plan, MedPartners Provider Network, continue to receive care from their regular doctors, the state’s major HMOs have agreed to allow patients to remain at the company’s clinics.

The company would not be released from the bankruptcy, but would be allowed to resume control over day-to-day operations and represent itself in bankruptcy court.

The agreement eases concerns among HMOs contracted with MedPartners that if the clinics went under or became unstable, they would be forced to switch patients to new providers.

“The one thing I worried about in all of this was that our members would find themselves without their regular doctors,” said Cora Tellez, president and chief executive of Health Net, a managed-care company with 2.2 million members in California.

Still, Tellez was not prepared to say fully that the problem had been solved, echoing concerns by others in the industry and by the powerful California Medical Assn., which represents doctors.

There might be problems in selling the clinics, Tellez said. Or MedPartners might renege on its promise to pay all the bills, said Jack Lewin, chief executive of CMA.

Still, most sources were hopeful that the deal would put to rest concerns raised by MedPartners’ shaky financial situation and the subsequent state takeover.

“We are counting on them to keep their word,” said Tellez. “And I think they will.”

The deal is an unusual one, and marks the first major test of the negotiating skills of the new Gray Davis administration.

Rather than push forward in a prosecutorial way, Davis aide Donna Campbell assembled a broad coalition of hospitals, doctors and HMOs, all of whom promised to support the deal.

Here’s how it would work, according to Campbell:

* The state would monitor the books and oversee not only the health plan but also the clinics. This is significant because state regulators have said for weeks that the company had deliberately structured itself so that California regulators could reach only the health plan--which they called a shell that has no employees--and not the clinics.

* The parent company, MedPartners Inc. of Birmingham, Ala., would be liable for all debts, payroll and incoming bills owed by the plan and the clinics.

* The clinics would be sold--a process expected to take about three months--with all proceeds going into a California bank account. Fees paid by HMOs to the health plan would also go into this account. Preference in the sale would be shown to purchasers based in California.

* MedPartners Inc. would no longer take management fees out of the California operations.

* The state’s major HMOs will contract directly with the clinics once the provider network is liquidated, thereby ensuring that patients do not have to change doctors.

“What started out to be a very difficult situation got resolved because both the private and the public sector have sat down here and . . . figured out how to come up with a solution,” said MedPartners Chief Executive Mac Crawford.

Assemblyman Martin Gallegos (D-Baldwin Park), who chairs the Assembly Health Committee, welcomed the plan.

But he cautioned that even if the state can solve the crisis at MedPartners, broad reforms are needed in the state’s shaky regulatory structure for health care.