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The giant medical practice once owned by MedPartners Inc., whose financial crisis last year disrupted care for about 1 million patients in California, is once again near bankruptcy.

Nine months after a Riverside County doctor bought most of the assets of MedPartners, the operation is losing $ 2 million a month,
raising the possibility again that care could be disrupted across the state.

The physician, Dr. Kali Chauduri, says his company can stay afloat just two to four more months without an increase in the monthly fees paid by health plans. Chauduri’s company, KPC Global Care, has delayed payments to some doctors and medical suppliers.

State regulators, whose effectiveness in handling the first MedPartners crisis was criticized by doctors and hospitals, have not intervened or even opened a formal investigation of the problems at KPC.

State officials say they can do little about Chauduri’s problems, because under current state law they are not allowed to intervene in troubled medical practices such as KPC. MedPartners was both a medical practice and an insurer.

An effort to strengthen state oversight of the medical groups, which began in the aftermath of the MedPartners crisis, could require two more years to get up to speed.

The fate of KPC’s 42 clinics, along with the half-million patients and the doctors who care for them, seems to have fallen through the cracks as the administration of Gov. Gray Davis scrambles to set up its new Department of Managed Care.

If the company fails, it could mean gaps in treatment for some patients, along with tremendous confusion for most others. Doctors would have to sign up with new clinics or HMOs and patients might find themselves unceremoniously switched to physicians they do not know.

“If KPC goes under, there will be complete chaos,” said Elizabeth McNeil, vice president for policy and economics at the California Medical Assn. “I’m disappointed that the state does not react more strongly and do more to try to resolve this situation.”

The Davis administration moved quickly last year when it became clear that MedPartners’ physician-management business was failing.

Regulators took over, determined that patients and doctors would not be caught by surprise–as they had been when a similar company, FPA Medical Management, had gone under the year before. Under the personal direction of Davis, officials mediated a settlement between MedPartners and the hospitals, doctors and health plans to which it owed money.

The takeover highlighted the deep financial woes of physician groups and medical management firms, which under California’s managed-care system provide treatment for nearly 18 million people.

Last summer, Chauduri bought 72 of 100 clinics owned by Birmingham, Ala.-based MedPartners, which has since changed its name to Caremark Rx. He said he is losing about $ 2 million a month, and since December has delayed reimbursing his vendors and medical specialists.

Delaying the payments has enraged doctors and put Chauduri significantly behind state-mandated guidelines, which require managed-care companies to pay physicians’ bills within 45 working days of receipt. KPC is about four months behind that deadline.

For several reasons, no enforcement action has been taken against KPC, state officials say.

“KPC now has bought these entities, and whether it was a good deal or a bad deal, it wasn’t the state’s role to determine ,” said a high-ranking state source, who spoke on condition of anonymity. “It is a business, and businesses are allowed to fail. We can’t step in on behalf of one physician group when there are so many others that are also in financial trouble.”

But another reason is bureaucratic.

The Department of Corporations, which until July 1 will continue to regulate managed care in the state, lacks jurisdiction over clinics and medical groups unless they also buy and sell health insurance.

The new Department of Managed Care, on the other hand, will be allowed to ask some medical groups to prove that they are solvent. But the department, established under legislation signed by Davis last fall, does not become active until next month, and it could take two years to develop a mechanism to regulate medical groups.

For the bulk of the medical groups in the state, regulators will still be able to have only indirect influence because the new standards
also will apply just to those groups licensed to sell insurance. Nonetheless, regulators can pressure health plans to contract with financially solvent groups.

The new department’s chief, Daniel Zingale, said he won’t be able to take on the KPC case until the department is up and running.

“No one is watching,” said Jamie Court, who heads the Santa Monica-based advocacy group Consumers for Quality Care. “And that’s a blank check to every financially troubled physicians group that wants to cheat. The state is turning a blind eye to patients being robbed of their money.”

Chauduri blames health insurers for paying the clinics too little to cover the cost of caring for patients and said he is negotiating with the plans for more money. He also blames the former MedPartners, saying the company ran the clinics–among them some of Southern California’s most venerable medical practices–into the ground and made doctors so skeptical that they are unwilling to trust him.

“I can understand that the doctors and vendors are angry,” Chauduri said. “I would be angry, too. But what are we to do?”

Chauduri said that when he took over, the company was losing up to $ 10 million a month. To make matters worse, a $ 12-million loan from health plans that had been promised as part of the Davis administration’s settlement of the MedPartners mess bogged down in bickering and would not materialize for a year. But he said he has done much to stem the flow of losses, including consolidating the clinics’ computer systems, closing 30 clinics and firing 2,500 employees.

“We quickly recognized that the capital we had planned for this acquisition was not going to be adequate to do the job,” said Donald Smallwood, KPC president.

The strategy KPC adopted was to use the fees that health plans pay for coverage of their members to “pay employees and rents and not claims,” Smallwood said.

Salaried primary care doctors would receive their money because they were needed to keep the clinics open, Smallwood said. But specialists under contract to provide such services as surgery, orthopedics and cardiology would be paid as the money became available.

The decision has been devastating for some. Glendale-based Robert’s Wheelchairs, which counted on MedPartners for 60% of its income and KPC for 52%, was sold after months of dangling near bankruptcy as first MedPartners and then KPC delayed payments, owners Cecilia and Robert Castellon said as they closed this month.

Several doctors, frustrated by the late payments, said they have begun to bill patients directly–a violation of a state law and their contracts with the HMOs.

“We don’t really expect for them to pay it,” said the accounts manager for a surgeon. “But it makes the patients mad to get the bills, and then they complain to KPC.”

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