In an effort to keep its state license and a coveted multimillion-dollar state contract, lawyers for PrimeHealth Corp. announced yesterday that its principal owner had resigned from the board of directors and placed his stock in a blind trust.
In a letter to state Insurance Commissioner Steven B. Larsen, PrimeHealth attorney Warren N. Weaver said that Dr. Christian E. Chinwuba, who owns 81 percent of the Prince George's County company, "no longer exercises any degree of control" over the operation of the health maintenance organization.
PrimeHealth, the firm that has become enmeshed in state and federal grand jury investigations of former state Sen. Larry Young, also announced it reached agreement with state health officials under which payments of a little more than $2.5 million a month will be placed in a closely supervised bank account.
The changes in its corporate and financial structure are seen as a way to allay concerns of state regulators about the fiscal condition of the company and the suitability of its management.
State Health Secretary Martin P. Wasserman said that as a result of the agreement, the state will release a little more than $5 million in payments to PrimeHealth to cover the 12,000 Medicaid recipients enrolled in the HMO. Payments to the company were halted a little more than a month ago after questions were raised about the management and solvency of the company.
The two announcements were made as PrimeHealth remains at the center of two investigations of Young, the West Baltimore Democrat who was ousted from his state Senate seat on ethics charges Jan. 16. Investigators for the state prosecutor's office have charged in a court affidavit that PrimeHealth might have paid Young more than $90,000 in return for his help in getting the company a state contract.
While Wasserman's announcement means PrimeHealth will get an immediate infusion of cash and be able to continue its operations, it does not end reviews by state regulators and state and federal prosecutors.
Larsen said his agency would continue its detailed review of PrimeHealth's financial records, an effort that has been under way for several weeks.
The commissioner would not comment on the blind trust announcement. He said the department had not been provided with a copy of the agreement. Its details, including who would control the blind trust, were not made public by the company.
"The examination will continue. We need to look at the big picture," Larsen said.
According to the letter from Weaver, Chinwuba placed his stock in Goldmark Friendship LLC, PrimeHealth's parent company, in a blind trust.
The firm previously disclosed that Chinwuba and his wife own 81 percent of the holding company.
"We would like to take this opportunity to advise you that PrimeHealth has made one significant change in its management structure, which will hopefully allay some of the concerns raised by you in recent correspondence," Weaver wrote, adding that Chinwuba had resigned his post as a director and member of the company's executive committee.
In letters made public previously, Larsen had raised questions about whether Chinwuba had failed to disclose numerous debts of an affiliated firm, Diagnostic Health Imaging Services, to insurance regulators. Chinwuba, the sole owner of DHIS, turned over key assets of DHIS to PrimeHealth so that the HMO could meet minimum state requirements.
Larsen, in a series of letters to PrimeHealth President Edward A. Thomas, has openly questioned whether that asset transfer might have violated state fraudulent conveyance laws.
Court records in Maryland and Washington show that DHIS owed thousands of dollars to creditors at the time, including taxes due to the state and federal government.
Wasserman said his department's agreement with PrimeHealth would enable the state to ensure that payments are proper and (( appropriate.
Under the five-page agreement, James Gordon of Maryland First Financial Services Corp. will review all payments and will have the authority to block any questionable expenditures.
Gordon's fees will be paid by PrimeHealth.
"All expenditures made by or on behalf of PrimeHealth shall be made in consultation with and under the supervision of the financial reviewer," the agreement states. "The financial reviewer shall have full discretion to authorize or deny any proposed payment."
The pact also gives state health officials the authority to review detailed financial data on the Lanham-based company, including all of its bank accounts and previous payment records. Wasserman said that he was not aware of any similar agreements with any other health care companies on contract with his agency.
Wasserman said the agreement will ensure that hospitals, physicians and other health care providers will be paid for serving patients under the state's Health Choice program. The agreement will be in place for 90 days, but could be extended if necessary, Wasserman said.
"We'll be taking our lead from the insurance commissioner," Wasserman said.
PrimeHealth first won a state HMO license in 1996 and then won a contract to serve Medicaid patients under a new mandatory managed-care program that began a little more than a year ago.
The Sun reported last year that Young met personally at least three times with top state officials to urge them to give PrimeHealth a contract. PrimeHealth later paid $31,475 to corporations Young controlled and ran from his West Baltimore district office.
New allegations about the relationship between Young and the minority-owned firm surfaced last month in a search warrant affidavit filed in Superior Court in Washington.
Investigators for state Prosecutor Stephen Montanarelli wrote in the affidavit that Young might have been paid as much as $91,175 by PrimeHealth and that company officials then tried to cover up those payments by erasing Young's initials from company financial records.
Young's expulsion from the state Senate, the first such action in more than two centuries, was based on a legislative ethics committee investigation that cited payments from PrimeHealth and other health care firms doing or seeking business with the state.
Young chaired the health care subcommittee that plays a key role in setting state laws and reimbursement for health care firms.
Pub Date: 5/01/98