FPA MEDICAL MANAGEMENT: Stock Crashes 33% As Financial Troubles Deepen
San Diego-based FPA Medical Management Inc. saw its shares fall 33% yesterday as investors learned that creditors had given the physician management firm until June 11 to restructure its debts. The San Diego Union-Tribune reports that a recent filing with the Securities and Exchange Commission reveals that FPA is in "technical default on some of its loans." Since FPA's poor first-quarter earnings announcement last week, the company's shares have lost 75% of their value. The Union-Tribune reports that some analysts are calling the company's "survival into question." In addition to "secur[ing] short-term credit to satisfy its creditors," the company "will have to change dramatically to keep going," analysts said.
FPA's new CEO, Dr. Stephen Dresnick, said of the June deadline to resolve its credit issues, "We were out of compliance with certain ratios." But, he added, "I can't stress enough that we have not missed any payments and we have not been late with any payments. We have a plan of action to address the operational issues that we discussed in our conference call last week." But Volpe Brown Whelan & Co. analyst John Ederer said, "The concern has shifted to something much more severe, and that's whether the company can stay afloat." He added that the "biggest issue is probably the lack of working capital." The Union-Tribune notes that the SEC filing shows FPA reported having $12.4 million in cash at the end of March, a little over half of the $23.9 million it had at the end of 1997 (5/21). Further, the filing showed that FPA had about $285 million in debt as of May 15.
El Nino And Now This
The Los Angeles Times reports that the descent of "onetime Wall Street darling" FPA "could cause headaches for hundreds of thousands of Californians." A breakdown at FPA, "which manages the business operations of nearly 8,000 physicians whose patients include 434,000 Southern Californians," the Times reports, "could trigger confusion and bureaucratic nightmares for many as HMOs cancel contracts and seek to shuffle patients to other doctors." The company "said it will lay off an unspecified number of workers and close facilities in Long Beach." It is also warning that it may have to pull out of its Sacramento market (see CHL 5/20) (Olmos, 5/21).
The Wall Street Journal reports that "as part of its efforts to alleviate" the financial predicament, FPA is "renegotiating its contracts with two of its largest HMO customers" -- Woodland Hills-based Foundation Health Systems Inc. and Santa Ana-based PacifiCare Health Systems Inc. But, the Journal notes, it's not "clear how far contract revisions with the HMOs might ease those pressures." The two HMOs said they were willing to work with FPA in the interests of their patients and physicians. Foundation spokesperson David Olson said, "The tone of the talks is positive. We're confident they will reach a successful conclusion." PacifiCare spokesperson Ben Singer said, "We're committed to working with (FPA)" (Rundle, 5/21).
Insult To Injury
The Union-Tribune reports that shareholders have filed a class-action lawsuit against FPA in federal district court in California. The lawsuit charges FPA and its officers with "issuing false information" in order to inflate its stock value (5/21).