Wayne State tab for physician group bankruptcy may top $16 million

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Wayne State University is fronting what could potentially total more than $16 million in payments for the School of Medicine’s faculty practice, University Physician Group, to rebuild after bankruptcy.

U.S. Bankruptcy Court in Detroit last Monday approved UPG’s reorganization plan and exit from bankruptcy after the nonprofit medical practice suddenly filed for Chapter 11 bankruptcy protection in November.

After “extensive negotiations” with UPG, Wayne State agreed to provide financial assistance under a restructuring support agreement, according to a version of the reorganization plan submitted April 9.

Wayne State is, in essence, acting as a bank, providing exit financing to UPG for general unsecured creditor claims (it’s excluding claims by Wayne State and an affiliated nonprofit Fund for Medical Research and Education).

A 15-year term loan from Wayne State will be used to pay 80 percent of unsecured claims that are currently projected at approximately $10.7 million, but could rise as court proceedings are finalized, according to a document in U.S. Bankruptcy Court in Detroit.

The Detroit university is also providing a revolving loan of at least $2.5 million that could range up to $7.5 million for UPG’s working capital needs.

A Wayne State representative declined to provide additional comment on the restructuring plan.

The November bankruptcy filing was driven by discovery earlier in that year that financial losses of the 20-year-old faculty practice plan were double the $5.5 million expected and a new, more drastic turnaround plan was required, Crain’s reported at the time. Over the past decade, UPG’s number of physicians declined by 50 percent, which hurt clinical revenue and made its leased network of suburban offices untenable, the filing said.

The court-approved reorganization strategy created with consulting firm AlixPartners will help determine the future of UPG. It is expected to carry UPG from its 2018 loss of $8.1 million to $3 million in profit by 2022, according to the release and reorganization documents.

To carry out the reorganization, the practice plan’s leadership formed six interdisciplinary teams to “transform and modernize” financial operations, its footprint, patient access, doctor compensation, business relationships and organization culture, among other things, last week’s news release said.

Closing clinics

As part of restructuring, UPG is shrinking the amount of clinical space it operates from 260,000 square feet to 115,000 by the end of the year, Charles Shanley, M.D., University Physician Group’s president and CEO, told Crain’s on Tuesday. The practice plan downsized sites in Southfield, Dearborn and Livonia and closed its clinical practice locations in Lake Orion and Port Huron, as well as a surgical center in Troy.

“We desperately needed to consolidate and modernize the clinical footprint,” he said.

UPG is shrinking to seven sites, Shanley added. The large majority are in Midtown Detroit, with UPG opting to focus its presence less on the suburbs and more in Detroit and at WSU’s School of Medicine.

“We are on a path to be a leading urban academic practice, in a thriving city, recognized for innovative delivery of high-value care to the most complex and vulnerable members of the community,” Shanley said in the release. “Our future lies in streamlining access for the Detroit community … to high-quality and cost-effective care in collaboration with Detroit’s primary care physicians, federally qualified health centers, the Detroit Medical Center, Barbara Ann Karmanos Cancer Institute and Henry Ford Health System.”

The practice plan employs 244 physicians, with 23 more who have been hired and are in the credentialing process. A net total of five physicians have left since the bankruptcy filing.

UPG has been looking since last summer at sites around Midtown where it could create a multidisciplinary ambulatory site, allowing patients to walk a short distance to another specialist doctor instead of needing to travel to another facility.

It’s also looking at locations in Midtown where it could shift its administrative offices from Troy. That move-out is expected to finish by the end of October, marking the end of the site consolidation process.

Henry Ford, DMC ties

The November filing came several weeks after UPG and the Detroit Medical Center reached a five-year contract in September for clinical and medical administrative services. The deal renewed a longtime affiliation between the for-profit hospital chain owned by Tenet Healthcare Corp. of Dallas and the Wayne State group, appearing to calm what had been a disintegrating relationship.

UPG’s financial crisis — alongside mismanagement, lack of teamwork and other issues — have shown it will likely never become the large, profitable group envisioned by former Wayne State Medical School Dean John Crissman in 1999, Crain’s previously reported.

Wayne State University’s medical school also needs to look at revenue options to replace what it would have taken in through an affiliation deal with Henry Ford Health System, according to previous Crain’s reporting. Henry Ford Health System CEO Wright Lassiter III pulled the plug in March after months of negotiations.

The bankruptcy is unrelated to WSU’s negotiations with Henry Ford Health System, Shanley told Crain’s on Tuesday.

“I think there’s general enthusiasm among the leadership of the school of medicine and the university to maintain and enhance our relationship with Henry Ford and resume conversations toward a synergistic partnership,” he said. “We’re all enthusiastic and supportive of that. It’s critical to the mission of the school of medicine and it’s good for the city of Detroit. I think it’s just a matter of reinitiating those discussions.”