New Jersey regulators disclosed last week an effort to seize control of HIP Health Plan of New Jersey.
If successful, it would be the first takeover of an HMO in the Garden State.
Ongoing concerns about the 194,000-enrollee plan's failure to meet state net-worth requirements prompted the move, the latest and most serious action against the plan. In September, the state Department of Banking and Insurance placed HIP under "administrative supervision" when the HMO's financial report showed a negative net worth of $9.5 million (Sept. 28, p. 14).
As of Aug. 30, the plan's net worth had slipped to a negative $20 million, the insurance department said.
Last week state Superior Court Judge Jack Lintner issued an order temporarily barring HIP and its medical management contractor, Pinnacle Health Enterprises, from closing any health centers or interrupting enrollee services. The state's takeover request will be heard Nov. 9.
"We have asked the court to place the company in rehabilitation in order to have control of the organization and its future," said Jaynee LaVecchia, commissioner of banking and insurance. "We will proceed to marshal the company's assets and take steps to ensure continued delivery of services to its members while addressing the liabilities of the HMO." LaVecchia has asked to be named "rehabilitator" for the plan.
In the interim, Lintner's order blocks HIP from new enrollment or selling plan assets. It also requires Pinnacle to fully operate and staff HIP's 23 health centers across the state.
Pinnacle, a subsidiary of Reston, Va.-based PHP Healthcare Corp., is under a 20-year contract to provide healthcare services and perform administrative functions for the HMO. Pinnacle receives a global capitation rate of 91.5% of premiums received.
According to Len Fishman, the state health commissioner, Pinnacle laid off 360 doctors and support staff in September without seeking required state clearance. If the state's rehabilitation plan is approved, Pinnacle's contract will be terminated. An insurance department spokeswoman said the agency has not yet determined who would provide those services. Kenneth Weixel, PHP Healthcare's executive vice president, did not return a telephone call at deadline.
In related news, the Newark Star-Ledger reported late last week that Paul Frankel, Pinnacle's president, was found dead in his home after failing to report to work Oct. 28. The paper quoted Somerset County Prosecutor Wayne Forrest, who said Frankel's death was believed to be a suicide.
Fishman's office continues to monitor the quality of care at HIP health centers. A health department spokeswoman said no life-threatening problems have been identified and HIP management is cooperating with the state to ensure quality patient care.
The New Jersey Hospital Association says HIP owes hospitals $20 million to $30 million.