Citing financial irregularities including unexplained cash payments of $675,236 and millions of dollars in unpaid medical claims, state Insurance Commissioner Steven B. Larsen petitioned the Baltimore City Circuit Court yesterday to approve a state takeover of the PrimeHealth Corp.
In an 18-page petition, Larsen said the health maintenance organization, which won its license and a lucrative state contract with the help of expelled former state Sen. Larry Young, does not meet minimum state solvency requirements.
He said a state seizure was necessary to protect taxpayers and the 12,000 Medicaid patients being served by the 2-year-old managed care firm.
Larsen said that, if his petition is granted, he will conduct a thorough review to determine whether the company can be salvaged or should be liquidated.
Warren Weaver, an attorney for PrimeHealth, said he was surprised by the action and said the company had offered to allow the state to continue closely monitoring its fiscal operations.
"We've been in negotiations with them on this issue," said Weaver, adding that he could not respond to Larsen's charges since he had just received a copy of the complaint.
This is the first time the Maryland insurance department has attempted to place an HMO in receivership and the latest development in the aftermath of Young's expulsion from the state Senate.
State Health Commissioner Martin P. Wasserman said last night that his agency was working with the Insurance Department to ensure that whatever decision is made by the courts,patient care will not be interrupted and health care providers will be paid.
If it becomes necessary and Prime-Health ultimately is liquidated, he said, the Medicaid recipients could be shifted to other managed care firms under state contract. He stressed that PrimeHealth patients will continue to have health care coverage.
Wasserman said he was disappointed by the decision, but, "We know this has been a very difficult process. I believe he [Larsen] has come to a difficult decision that we would respect."
Major items in Larsen's petition to the court include:
PrimeHealth failed to disclose $8.6 million in unpaid medical bills for its Mediciaid patients in Washington, D.C., and Maryland.
Owners and managers of the firm, including the majority stockholder, Christian Chinwuba, provided "inaccurate, inconsistent and incomplete information" that raised "serious concerns that Prime-Health is controlled directly or indirectly by untrustworthy management."
PrimeHealth spent $3.6 million for items not related to medical care, including $675,236 in checks made out to cash.
Though it reported a surplus, the company actually had a $7.3 million deficit as of March 31 because its assets were overstated and debts understated.
PrimeHealth, based in Lanham, got a state license to operate as a health maintenance organization in 1996 and then won a $31.2 million-a-year contract to serve state Medicaid patients with the help of Young. The state legislator, who chaired a key health subcommittee, met at least three times with top state health officials to lobby in the firm's behalf.
The petition comes as state and federal investigations of Young are continuing. A grand jury in Annapolis convened by state Prosecutor Stephen Montanarelli questioned top state officials this week about PrimeHealth and how it won its license. That panel could be nearing its final deliberations.
A federal grand jury also has subpoenaed PrimeHealth officials and extensive company records.
Larsen's office began a complete review of PrimeHealth's records early this year after officials of the firm failed to file complete responses to inquiries posed by the state agency in the aftermath of Young's expulsion from the state Senate. Those questions centered on who owned the company and its assets.
At the same time as the insurance department action, officials of the state Department of Health and Mental Hygiene began developing contingency plans to shift the more than 12,000 Mediciaid recipients who were getting their health care from PrimeHealth to other managed care companies.
The Sun reported last year that PrimeHealth gave at least $31,475 to corporations Young ran out of his West Baltimore district office.
In court documents later filed in Washington, D.C., state prosecutors said they had reason to believe PrimeHealth paid Young much more -- possibly $91,175 -- to get the senator's help in winning a state license and contract.
In an internal memo uncovered by The Sun, one state official told top aides to Gov. Parris N. Glendening that the assistance to Prime-Health had been "extraordinary", "beyond the normal level expectations" and beyond that provided to any other firm seeking a state contract.
The suspected payments to Young were described in a sworn statement to justify a raid and search warrant of PrimeHealth offices in Washington. Subsequently agents from Montanarelli's office raided PrimeHealth offices in Lanham and Washington and seized computers and other records.
In the 32-page sworn affidavit filed in D.C. Superior Court, state -- agents also claimed that Prime-Health officers tried to cover up the payments to Young by erasing or obliterating references to the senator on checks and other records.
Young, a 24-year veteran of the General Assembly, was ousted Jan. 16 by his Senate colleagues after being charged by the legislature's ethics committee with violations of the state ethics laws. The payments from Prime-Health were among things cited by the committee.
Shortly after beginning his review of PrimeHealth, Larsen warned that he might eventually revoke the company's license. In the meantime, he urged state health officials to halt any direct payments to PrimeHealth and instead have the firm's finances supervised by an outside expert. The health department followed Larsen's recommendation and hired a private financial consultant to oversee the firm.
In a letter released April 1, Larsen accused PrimeHealth executives of filing contradictory and inconsistent statements about its ownership and financial affairs. In the letter to Wasserman, Larsen said he had "substantial concerns over both the solvency and the management" of PrimeHealth.
Among the things PrimeHealth had failed to disclose to state officials were millions of dollars in outstanding debts run up by a closely affiliated firm, Diagnostic Health Imaging Systems. Among the debtors were the state of Maryland and the federal government, which were owed more than $1 million in back taxes.
Despite those debts, Prime-Health's owners shifted key DHIS assets to PrimeHealth in order to meet minimum state financial standards.
In the petition he filed yesterday, Larsen cited certified statements filed by Chinwuba declaring that the transfer of assets from DHIS to PrimeHealth could not be set aside by creditors' claims. He said the department subsequently learned there were more than $5 million in debts not disclosed by Chinwuba.
"His failure to disclose essential information regarding the debts of DHIS resulted in the insurance administration granting an HMO license to PrimeHealth based upon an inaccurate certification," the petition states.
Other items cited by Larsen include inconsistent statements from PrimeHealth officers about who served on its board of directors, including Chinwuba, and failure to report that a major piece of equipment had been sold to another company.
Insurance examiners, Larsen said in the petition, discovered that clinics they had been told were in operation and producing revenue had been closed for more than a year, with their equipment placed in storage.
"For all the above reasons," the petition concludes, "PrimeHealth is insolvent and continued operation in its present condition would be hazardous either to its members or to the people of the state of Maryland."
Pub Date: 8/29/98