California medical group back from bankruptcy

More than 18 months after it filed for Chapter 11 bankruptcy protection, a California physician group is going to do what most groups aren't able to manage: re-emerge intact.

San Jose Medical Group, a 75-physician multispecialty group with a wrap-around IPA, filed its reorganization plan in U.S. Bankruptcy Court last month, pledging to pay its creditors more than $4 million over the next four years. If creditors approve the plan, the group could be out of Chapter 11 by August.

The group filed the plan after recording 18 consecutive months of profit, turning around its financial position through belt-tightening and site consolidation. Cost-cutting measures were needed to counteract the loss of members and revenue the group suffered over the last few years, which hit the Silicon Valley particularly hard.

The group credits much of the turnaround to the bankruptcy filing, which let the group break some long-term leases. The group went from eight sites to three, saving $300,000 per year in lease costs, said Dean Didech, MD, a pediatrician and chief medical officer for San Jose Medical Group. "We looked at different options at the time, including merging with another group, Chapter 7 (liquidation) and Chapter 11 (reorganization)," he said.

San Jose Medical Group also was able to reduce its risk, cutting its HMO patient load from 63,000 to 37,000, said Ernie Wallerstein, CEO of the group. It cut its managed care contracts from six to four, he said.

The plan calls for payments to creditors totaling $1 million once it is approved. The group would pay a guaranteed $750,000 per year from profits for four years. If the group earns more than $1.5 million in profit in a year, it will pay creditors an extra percentage, Wallerstein said.

Creditors with claims under $2,500 will be paid 20% of their claim right away, while those with higher claims can choose to be paid over time in hopes that the group will earn more profit and increase payments.

The group, which originally filed for bankruptcy in Sept. 2002, has cut 130 employees during restructuring.