Physician-entrepreneur Steven M. Scott lost his PhyAmerica Physician Group Inc. after a Baltimore bankruptcy judge gave preliminary approval to the sale of virtually all the company’s assets to a firm headed by the doctor who sold Sterling Healthcare Group of Miami to Scott more than four years ago.
Judge E. Stephen Derby of U.S. Bankruptcy Court for the District of Maryland on Tuesday supported sale of the contract emergency physician firm to Dr. Stephen Dresnick for $90 million, said Joel Sher, the lawyer for PhyAmerica’s unsecured creditors.
Dresnick is a principal in RD Associates, which beat Scott’s best bid following a 17-hour marathon auction in mid-November at the Hyatt Regency hotel in Baltimore. Derby then gave tentative approval from the bench with final approval expected next week.
RD Associates’ bid comprises $35 million in cash and $27.5 million in notes, as well as the assumption of debt and medical malpractice obligations, Sher said. Along with Dresnick, Resurgence Asset Management of White Plains, N.Y., is a principal in the acquiring company.
Neither Scott nor Dresnick could be reached for comment on Thursday. Sher said he did not expect any interruption in service by emergency physicians during the transition.
“The contracts remain in force and they will be reviewed when they come up for renewal,” he said.
Scott, who founded the company as Coastal Healthcare Group in 1977 while a resident at Duke University Medical Center, offered $21 million in cash and $12 million in notes, as well as assumption of liabilities, for PhyAmerica, Sher said.
“We supported RDA’s bid because it was higher and better,” Sher said in a telephone interview. He said Scott, who owns the Vista Healthplan HMO in South Florida, offered substantially less and there was some doubt whether he would be able to close the deal, Sher said.
Durham, N.C.-based PhyAmerica, which provides contract physicians to hospital emergency departments in 28 states — including the North Broward Hospital District — filed for bankruptcy in November 2002 after it lost financing from National Century Financial Enterprises Inc. The Dublin, Ohio-based firm filed for bankruptcy protection after FBI agents raided its headquarters and seized records in an investigation of financial mismanagement.
Scott met with key employees at the company on Tuesday and told them of the court’s preliminary ruling. The company had about 870 employees around the country when it filed for bankruptcy.
PhyAmerica grew rapidly in the early 1990s by acquiring companies and broadening its business to include primary care physicians’ offices. But in 1996, Scott entered into a proxy battle to control the company, and the board of directors fired him for alleged mismanagement.
Scott won the proxy fight, and he promised to establish a committee to consider selling the firm’s assets. Soon after, the company said it was running out of money. Scott, who was chairman, regained control as president and chief executive officer.
But the company, which last made money in 1994 — when its stock was selling as high as $40.25 — continued to go downhill.
Scott made an attempt to bolster PhyAmerica in 1998 by buying Sterling Healthcare Group for $167 million after its parent went bankrupt. But the buyout didn’t accomplish desired results.
Scott’s firm was delisted from the New York Stock Exchange in 1998 and went private in 2001. He paid $2.8 million to buy back all the outstanding shares at 15 cents each.
Scott still controls Hollywood-based Vista Healthplan Inc., which was formed from buyouts of Beacon Health Plans Inc., HIP Health Plan of Florida Inc., Preferred Choice and Foundation Health.
