The state of Maryland is trying to peddle an insolvent Medicaid HMO to the highest bidder nearly a year after placing it in receivership and attempting to reverse a money-losing and deficit-ridden operation.
The principal owner of PrimeHealth Corp. is a physician who has challenged both the validity of the receivership and the decision of the Maryland Insurance Administration to accept bids until Sept. 10 for the Lanham, Md.-based HMO.
Hanging in the balance are $6.8 million in unpaid medical claims from physicians and hospitals, which had accrued by the time the state took over last Oct. 1.
The insurance administration has reduced costs by cutting employees to 80 from 150 and renegotiating capitated contracts with providers, said James Gordon, the state-appointed deputy receiver for PrimeHealth. Enrollment has increased to 14,400 from 12,200.
But the company's net worth has slipped to a negative $7.2 million, and Gordon said PrimeHealth doesn't have sufficient capital to climb out of that hole and also finance the quality of care demanded by Maryland's Medicaid managed-care program, called HealthChoice.
Launched in June 1997, the state program disbursed capitated monthly payments to managed-care organizations serving only Medicaid-eligible beneficiaries. In return, Medicaid HMOs had to offer a specific benefit package, collect data on medical encounters and meet other requirements governing the standard of care (May 26, 1997, p. 18).
In July 1997, PrimeHealth became the last of eight HMOs to be approved as a HealthChoice provider, but by early 1998 local press reports were questioning the company's financial health. In an investigation, the insurance administration determined the HMO was insolvent, said Dennis Carroll, deputy commissioner.
Despite getting an average $2.5 million per month from Medicaid, PrimeHealth had millions of dollars in unpaid claims, Carroll said. In addition, the probe uncovered disbursements made out to cash totaling $675,000, he said.
The capitation payments, said Gordon, were not sufficient to pay what he characterized as "lucrative arrangements" negotiated with providers.
The first thing Gordon did as receiver was cut the rates paid to providers. For example, a "significantly overpriced" capitation arrangement with a radiology service was reduced to $5 per enrollee per month from $12. According to Carroll, the principals of the radiology business were former associates of PrimeHealth's majority owner, Christian Chinwuba, M.D., a radiologist. Chinwuba's lawyer could not be reached for comment.
PrimeHealth's parent company, Goldmark Friendship, filed suit last week questioning the validity of the receivership. Chinwuba and his wife own a majority of Goldmark.