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Family Health Care's Debt Could Be $20 Million

Bankruptcy: New estimates are given to creditors in a meeting with the firm liquidating the medical group's assets.


SIMI VALLEY — The now-defunct Family Health Care Medical Group could owe creditors as much as $20 million, far more than earlier estimated, a lawyer involved with the group's liquidation said Wednesday.

Last month, when the medical group suddenly announced it would cease operations, debt had been estimated at $6 million. The latest figure ranges from $10 million to $20 million.

"That's the estimate we were given by the company," said Peter Gilhuly, who represents Development Specialists Inc., an independent firm assigned to oversee Family Health Care's liquidation.

Better estimates may not be possible until next spring, the deadline for claims to be filed.

This latest debt information was disclosed as roughly 200 creditors, including doctors from throughout Ventura County and the San Fernando Valley, gathered to speak with liquidation officials.

The shutdown of the Simi Valley-based company, the largest medical group in the county, put care for 135,000 patients in question and jeopardized the businesses of many of the roughly 900 doctors affiliated with the group.

Gilhuly said many physicians who saw patients through agreements with Family Health Care--a local middleman between doctors and major health insurance providers--want company executives investigated for wrongdoing. He said DSI's job is to scrutinize the records to ensure assets are accounted for.

"We're going to pursue all allegations of fraud, and hire forensic accountants to scrub all the financials. They will look at every check that has been cashed," he said. Family Health Care executives have denied any wrongdoing.

When a company files for bankruptcy or--as is the case with Family Health Care--folds under a similar state-sanctioned procedure known as a general assignment for the benefit of creditors, those owed money by the company may only be able to recoup pennies on the dollar. As Family Health Care's overall debt increases, the rate at which individual creditors will be repaid would likely decrease.

Family Health Care officials now estimate the company could go after about $4 million from insurance companies, Gilhuly said. He said a smaller source of money for creditors will come from the sale of company medical and office equipment. After completing about half of those sales, DSI has raised about $150,000.

At Wednesday's meeting, doctors were told that company executives believe a catalyst for Family Health Care's demise was a Y2K glitch in computer software used to manage company finances. The glitch allegedly caused double and in some cases triple payments to some doctors between January and March, throwing the company's finances out of whack.

David Tilem, a bankruptcy lawyer advising some doctors owed money by the medical group, said there is suspicion about any information that would arouse sympathy for the company.

"We don't have any independent verification of that information," he said of the alleged computer problem. Even if there had been a glitch, Tilem said, it doesn't change the fact that hundreds of doctors are owed money.

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