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American Academy of Emergency Medicine

FPA Reports Serious Financial Problems

According to a report in The Wall Street Journal, FPA Medical Management Inc. has disclosed serious financial problems and has said it is seeking new investors, news that has already cut its share price by nearly half. FPA's list of troubles includes a first-quarter loss of $9.1 million, the need for additional reserves to cover medical claims, and projections for a second-quarter pretax charge of as much as $200 million. Its first-quarter loss, which amounted to 20 cents a share, includes charges of $7.6 million related to an acquisition and $7.9 million for executive severance. The first quarter also was hurt as the company increased reserves by $15 million to cover medical claims following a year-end audit.

The latest quarterly loss was narrower than in the year-earlier first quarter, when one-time charges of $36.8 million left the company with a loss of $24.5 million, or 60 cents a share. But the recent results were far worse than analysts expected. Excluding onetime charges, FPA had a profit of $449,000, or one cent a share. Analysts had forecast per-share profit of 31 cents.

After these announcements, analysts said FPA's financial problems are more serious than they had realized. FPA disclosed in a filing with the Securities and Exchange Commission that as of March 31, it had negative cash flow from operations and a working capital deficit. Analysts said the company has only enough funds to last through the end of the current quarter.

Dr. Stephen Dresnick is quoted in the report as ruling out the possibility of filing bankruptcy. 'I'm not going to let that happen," he said. FPA has a 'very aggressive plan on cost cutting, and we plan to be cash-flow positive by the beginning of the fourth quarter." Dr. Dresnick said the actions now under way will put the company back on track. But FPA needs new capital to strengthen its balance sheet and resume its growth. 'We're fairly far along in talks with potential investors. There are a number of different proposals covering a variety of different options," he said. These include the sale of equity or debt, but not a sale of the whole company.

FPA said the anticipated second-quarter charge of $200 million would include $125 million for goodwill impairment, $40 million in write-downs of shared risk and other receivables, and $35 million for severance payments, anticipated office consolidation, and other expenses. FPA said it doesn't expect any additional restructuring charges this year.