A proposed sale of WellCare Management Group, a troubled HMO in Kingston, N.Y., to buyers in New York and Florida will leave Hudson Valley hospitals holding the bag for tens of millions of dollars in outstanding claims, hospital representatives charged last week.
Buyers have tentatively agreed to set aside $10 million to $12 million to settle outstanding provider claims. That translates to a mere 40 cents to 48 cents of reimbursement for every dollar of service provided to WellCare's 60,000 enrollees if hospitals' estimate of outstanding claims is accurate.
The alternative, according to New York State Insurance Department spokeswoman Allison Klimerman, is to pull the plug.
"If (hospitals) don't like this deal, we will move forward and liquidate this company," she said.
That too, is an unpalatable option, as healthcare providers in neighboring New Jersey can attest. Providers there were stuck holding $100 million of unpaid claims after North Brunswick-based HIP Health Plan of New Jersey and American Preferred Provider Plan, a Medicaid plan based in Newark, went belly up earlier this year.
New York providers, who face multimillion-dollar reductions in Medicare and Medicaid reimbursements, are puzzled by the proposed WellCare remedy and outraged by its implications. News of the deal prompted the Healthcare Association of New York State to renew its call for the creation of a health insurance guaranty fund and increased insurance industry oversight.
WellCare's bailout comes on the backs of hospitals, setting a troubling precedent, said Arthur Weintraub, president of the Northern Metropolitan Hospital Association, which represents 40 hospitals.
"Why should not-for-profit hospitals, who are under contractual relationships providing health benefits to enrollees of for-profit managed-care plans, wind up subsidizing plans that undergo financial failure?" he said.
Lawmakers tend to agree but seem to be reserving judgment until more of the facts are known. It is unclear, for example, whether the WellCare situation is an anomaly or indicates real trouble. If there is a larger problem, who is at fault? Are HMOs to blame for delaying and denying appropriate claims, or are muddled hospital billing and collection practices the culprit?
A host of legislative remedies have been introduced. They include a guaranty fund bill offered by state Sen. Kemp Hannon (R-Nassau), chairman of the Senate Health Committee, and a measure creating an advisory commission on payment issues backed by Sen. James Seward (R-Oneonta), who heads the Senate Insurance Committee.
WellCare has been in disarray and out of compliance with statutory net worth requirements for some time. In 1996, several executives resigned after the company was forced to restate previous years' revenues and earnings. Net losses for the year ended 1997 topped $22 million on total revenues of $143.9 million. A year ago WellCare retained Bear, Stearns & Co. to find a merger partner or to sell all or parts of the company.
WellCare has yet to file its 1998 results with the Securities and Exchange Commission but says it expects a loss of $10 million to $11 million.
The New York State Department of Insurance helped to broker the complex buyout as part of its ongoing surveillance of WellCare. The deal involves two separate transactions with insurers in two states.
One agreement is with Kiran Patel, M.D., the principal of Well Care HMO, a Tampa, Fla.-based HMO unrelated to the Kingston-based company. Patel or "an affiliate" will make a $5 million equity investment in WellCare and manage WellCare's Medicare and Medicaid HMO business in New York and Connecticut, according to WellCare's announcement of the deal.
Under a separate agreement, WellCare's 26,000 commercial HMO enrollees and its 9,000-member network of providers will be sold to Group Health, a New York-based insurer, for about $5 million.
The sale also might force providers to settle outstanding claims for $10 million to $12 million. Providers have until May 8 to decide.
Kevin McGrath, a spokesman representing WellCare, said the company expects to sign definitive agreements with Patel and Group Health by May 15.
"WellCare's opinion is these two opportunities represent the best opportunity for the company," he said.