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State | HEARD ON THE BEAT

FPA Woes Raise Concern About Medical Groups

June 02, 1998|DAVID R. OLMOS | TIMES STAFF WRITER

Wall Street was stunned when news broke May 15 that FPA Medical Management was in deep financial trouble. Over the next few days, the San Diego manager of physician practices saw its stock plummet 75% on reports of heavy debt, skimpy cash reserves and shareholder lawsuits.

Under the circumstances, FPA officials must have been pleasantly surprised by the letter dated two days later from the California Department of Corporations.

Written by senior examiner Mark Wright, the letter stated that the agency had reviewed FPA's financial reports for the quarter ended Sept. 30, 1997, and found no problems of "a material nature."

"The May 20 letter is a very clean bill of health," said James Lebovitz, FPA's corporate secretary.

But the agency's position had changed dramatically by May 22, when regulators--who presumably had been reading news reports of FPA's woes all week--fired off a second letter to FPA.

That letter, from agency attorney Andrew George, told FPA that the state was concerned about the firm's financial losses, heavy debt, paltry cash reserve and the possibility it might default on loans.

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George warned the company that it must put its financial house in order immediately or risk jeopardizing its state HMO license.

Why the sudden change of heart? Did regulators, whose job it is to monitor the financial health of the state's HMOs, miss something here?

State officials and FPA executives say no. They point out that the state's financial review of FPA only looked at records up to Sept. 30.

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Although rumors of financial woes at FPA had been circulating for months, the company didn't disclose the nature of its problems until mid-May. The report obviously caught Wall Street off guard too.

State examiners "were just looking at the information up until September," said Julie Stewart, a Corporations spokeswoman. But George's May 22 letter refers to financial records through March 31, 1998--information that would have been available to regulators at the time they wrote the May 20 letter.

The problems at FPA and another large medical management company, MedPartners, are raising broad concerns about the financial viability of medical groups in an era of health-care cost cutting.

Experts say many Southland medical groups are operating in the red as employers demand lower health-care costs and managed-care insurers respond by squeezing doctors' and hospitals' profits.

The state has a keen interest in FPA and MedPartners because the Corporations agency, which regulates HMOs, granted both companies a "modified" HMO license that lets them accept a greater share of the financial risk traditionally borne by insurers.

In his letter, George said the state is worried that FPA may not be able to pay some of its doctors, a situation that would "deprive enrollees of timely access to medically necessary care and continuity of care."

FPA was asked to file a detailed response to regulators by Monday. James Lebovitz, FPA's corporate secretary, said Monday that the company was completing its response. "We believe it will be a satisfactory response to the department," Lebovitz said.

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Staff writer David Olmos can be reached by fax at (213) 237-7837 or by e-mail at david.olmos@latimes.com.

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* RATES QUESTIONED: Some doctors and hospitals say WellPoint's reimbursement rates aren't covering costs. D20

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