An effort by New Jersey's commissioner of banking and insurance to revive insolvent HIP Health Plans of New Jersey encountered a serious glitch last week. The HMO's medical services provider, Reston, Va.-based PHP Healthcare Corp., moved to liquidate its Garden State subsidiaries.
Those subsidiaries-Pinnacle Health Enterprises, which manages medical and administrative services under a percent-of-premium contract with HIP of New Jersey, and PHP NJ MSO, which employs Pinnacle's staff-are in Chapter 7 in U.S. Bankruptcy Court in Wilmington, Del. Chapter 7 involves corporate liquidation.
PHP, the parent company, hopes to reorganize its troubled operations under Chapter 11 of the U.S. Bankruptcy Code. It filed for protection from creditors Nov. 19, after HIP pulled its contract with Pinnacle. The company gave up hope of salvaging its New Jersey operations after the state seized control of Pinnacle's New Jersey facilities.
Horizon Blue Cross and Blue Shield of New Jersey also is affected by Pinnacle's liquidation. The Newark-based Blues plan has 22,700 enrollees who use 10 centers operated by Pinnacle. Fred Hillmann, a plan spokesman, said a letter to enrollees will outline alternatives should the centers close.
The latest twists in the HIP-PHP saga follow a failed attempt by two organizations and state regulators to negotiate a fiscal remedy to financial woes. Talks ended at midnight on Nov. 18. The following morning, HIP said it was pulling its 20-year global capitation contract with Pinnacle, worth some $28 million a month.
A statement issued by New York-based HIP Health Plans, an affiliate of HIP of New Jersey, asserts that Pinnacle breached its contract by failing to pay provider claims on a timely basis and by attempting to shut down services to enrollees without first notifying HIP or the state.
HIP canceled the contract after agreeing to a state takeover. State Superior Court Judge Jack Lintner in New Brunswick approved the state's HMO rehabilitation plan Nov. 20 and ordered Insurance Commissioner Jaynee LaVecchia to seize control of the health centers where HIP enrollees receive care.
HIP sold its 18 health centers and related assets to Pinnacle in November 1997. The $80 million deal was tied to Pinnacle's agreement to provide healthcare services to HIP's 194,000 enrollees. With Pinnacle seeking to liquidate assets, it was unclear at deadline whether those centers would remain open for business.
Although some observers say the state was wise to intervene to protect enrollees and providers, others see the takeover as the state's way of exerting power the only way it knows how. New Jersey's insurance department has no direct authority to regulate PHP, which assumed most of the financial risk for the care of HIP's enrollees.
In September, LaVecchia placed HIP under "administrative supervision" when the HMO's financial report revealed a negative net worth of $9.5 million (Sept. 28, p. 14). As of Aug. 30, its net worth slipped to a negative $20 million, prompting the state's takeover.
Gary Carter, president of the New Jersey Hospital Association, said hospitals and doctors are owed roughly $100 million for services provided to HIP enrollees.
In court papers, PHP asserted that a major reason Pinnacle fell behind in paying providers was that HIP owed the subsidiary more than $20 million. HIP of New Jersey denies the allegation.