New Jersey doctors are fuming over the mess created by a financially disastrous one-year marriage between PHP Healthcare Corp. and HIP Health Plan of New Jersey.
The relationship resulted in the state takeover of the insurance company and up to $120 million in unpaid claims to providers.
It also inspired rival legislation about how to handle HMO failures. Gov. Christine Todd Whitman's office on Dec. 17 proposed legislation that would put a 3% surcharge on HMOs to create a bailout fund for plans that fail. However, other legislators are backing a bill that would take $150 million from the state's general fund to pay off HIP's debts and close the company.
But right now, HIP is operating under a reorganization plan set forth by the New Jersey Department of Banking and Insurance and approved by a Middlesex County Superior Court judge on Dec. 18. Under the plan, doctors and hospitals will receive 30% of past unpaid claims, with $13.5 million going to physicians and $22.5 million to hospitals. Providers would receive 75% of their claims from Dec. 18 to Feb. 19, when HIP is scheduled to leave the department's watch.
About 2,000 physicians and 28 hospitals have agreed to the state's plan. Doctors and hospitals can decline to participate, but they won't get paid for past or present claims. A Merck & Co. subsidiary that is HIP's exclusive pharmaceutical provider decided to opt out of the plan as of Jan. 1. A new supplier hasn't been found.
Robert Conroy, attorney for the 9,000-member Medical Association of New Jersey, says the state's plan is as good a deal as doctors can get. But Conroy says his group is investigating how to ensure all physician claims are paid, whether through litigation or other means.
"All I want to hear (PHP) say is they've made a grievous error and they're prepared to pay 100%," Conroy says. "And they shouldn't waste a dime (of that money) to call me." As for HIP, "I view them as being equally as culpable as PHP," he adds.
HIP, New Jersey's fourth-largest HMO, came under state control in November after its net worth fell to negative $20 million. At that time, the state canceled a contract with PHP's Pinnacle Health Enterprises subsidiary to provide care to its 194,000 enrollees. Also, Middlesex County Judge Jack Linter ordered the state to seize Pinnacle's 18 clinics, which it bought from HIP in November 1997 for $73 million. The HIP contract represented 70% of Reston, Va.-based PHP's business.
HIP is blaming PHP for its problems. The New Jersey group's parent, HIP Foundation, and sister company HIP Health Insurance Plan of Greater New York on Dec. 7 filed a lawsuit in New York against three present and former PHP executives. HIP accused President and Chief Executive Officer Jack Mazur and senior vice presidents William Lubin and Jerrold Hercenberg of fraud, seeking $90 million in damages.
One charge was that PHP used prepaid capitation money to buy back preferred stock. The money was supposed to be used to pay doctors' claims, which HIP says it ended up paying.
PHP and Pinnacle are not defendants in the lawsuit because they are in bankruptcy, says Loretta Creggett, a spokeswoman for HIP of New York. PHP filed for Chapter 11 reorganization in U.S. Bankruptcy Court in Wilmington, Del., on Nov. 19. It moved Pinnacle to Chapter 7 liquidation on Nov. 23.
PHP has not commented on the lawsuit, but the company on Nov. 25 suspended Mazur with pay. Lubin resigned from PHP's board on Oct. 15, although he and Hercenberg remain executives.
Arlington, Va.-based Ambulatory Healthcare of America, which manages or owns the practice of 40 physicians and operates ambulatory healthcare centers, on Dec. 16 offered to purchase PHP, a deal the Bankruptcy Court would have to approve. Terms were not disclosed.
Ambulatory Healthcare is interested in PHP's Medicaid HMO in Washington and the company's government and military contracts, says CEO William Danielczyk. All he would say about New Jersey is it is "out of my hands" because its assets are being liquidated.
State Sen. Jack Sinagra, a Republican from Edison, N.J., is planning to hold hearings to determine who is to blame for the HIP-PHP mess, a Sinagra assistant says. No date has been set.
One issue that may be investigated is whether HIP and the state agencies, out of desperation to solve HIP's troubles, failed to dig hard enough to discover PHP's past problems, which is what Sinagra believes happened. The departments of Banking and Insurance and Health and Senior Services helped broker the PHP deal.
For example, HIP said in its lawsuit that PHP "knowingly concealed" that Mazur, PHP and other defendants in the late 1980s paid out $5.5 million to settle a stock manipulation lawsuit. That also resulted in Mazur losing his license to practice law in Missouri, where he worked at the time as PHP's counsel.