FPA Seeks to Reorganize Under Bankruptcy Protection

FPA Medical Management Inc., a money-losing operator of physician practices, filed for U.S. Bankruptcy Court protection after a cash crunch left it unable to pay doctors and suppliers.

San Diego-based FPA and its 90 units listed total assets of $46.3 million and liabilities of $345.5 million in Chapter 11 petitions filed Sunday in Wilmington, Del. The company said it has arranged for $50 million in financing to keep the business running while it attempts to reorganize.

The debtor-in-possession loan comes from a group of 21 banks led by BankBoston, one of the company’s 20 largest unsecured creditors, according to court papers. BankBoston’s total claims weren’t listed in the papers. The loan still requires a judge’s approval.

FPA shares fell 53 cents to close at 19 cents on Nasdaq.

“With the protection of Chapter 11 and $50 million in financing, we are confident that the company’s relationship with [insurers], health-care providers and creditors will not only continue, but improve,” FPA Chairman and Chief Executive Stephen Dresnick said.

Last year, FPA had a loss of $11.8 million on revenue of $1.17 billion.

The prospect of FPA’s bankruptcy filing had loomed for months after the company announced in March that an expansion spurt had left it short on cash. Last week, it missed a deadline for making a $2.6-million interest payment to bondholders and Chairman Sol Lizerbram resigned. FPA shares have lost 99.5% of their value since October, when they traded at $39.88.

After going public in 1994, FPA grew rapidly, expanding into the East, Southeast and Southwest through acquisitions. Physician practice managers buy up doctor practices and clinics, handling the administrative duties and negotiating with health plans in return for a percentage of the practices’ income.

FPA racked up losses because some of the companies it bought had arrangements with insurers in which they had agreed to care for patients in exchange for fixed payments that didn’t cover costs. That led to a cash shortage and loan defaults, the company said.

To cut its stay in Bankruptcy Court, FPA has filed a version of a so-called prepackaged bankruptcy plan, which already has major creditors’ support, officials said. The plan calls for 40 million new shares of common stock to be issued.