Philadelphia-area hospitals are charging that state regulators failed to properly oversee a collapsed Medicaid managed-care plan, leaving the hospitals holding the bag for an estimated $40 million in unpaid claims.
They want the state insurance department to cut to the chase and pay them for the losses.
"We think given the financial posture of hospitals in this region and what has been happening, the state ought to step up to the plate and at least make the hospitals whole while the legal proceedings play out," says Andrew Wigglesworth, president of the Delaware Valley Healthcare Council of the Hospital and Healthsystem Association of Pennsylvania. "Hospitals in this area are in no position to absorb losses of this magnitude."
The failed plan, HRM Health Plans-Pa., a Philadelphia-based subsidiary of Health Risk Management, Minneapolis, which itself is in federal bankruptcy court, was seized and put into rehabilitation by state insurance officials in August 2000. On Oct. 1, regulators moved to liquidate its assets when they realized that claims could not be fully paid, says Rosanne Placey, an insurance department spokeswoman.
In total, the plan covered 45,000 Medicaid patients in southeastern Pennsylvania under the name OakTree Health Plan and 20,000 patients in the central part of the state under the HealthMate name. In August, the OakTree business was transferred to AmeriChoice of Pennsylvania, Placey says. The next month, HealthMate members were moved to AmeriHealth Mercy Health Plan.
"Obviously, this is a Medicaid waiver program, and there are very clear requirements that the Department of Public Welfare has in terms of oversight-financial and otherwise-in terms of contractors," Wigglesworth says. "It would appear the oversight was not as good as it could have been."
Red flags were raised first in the insurance department in March 2001 when the plan's annual statement for 2000 showed a low level of risk-based capital, a measurement of the company's ability to meet its risks, Placey says. For example, the plan's net worth plummeted to a negative $5.7 million in 2000 from a positive $6.2 million in 1999, according to a financial statement supplied by the insurance department.
The insurance department subsequently asked HRM-Pa. to develop a corrective action plan. The strategy relied heavily on raising capital, which the plan was unable to do, Placey says. That forced the health plan into rehabilitation last summer.
With no hope of reorganizing the plan, state regulators are now trying to sell assets to pay unpaid claims and the expenses of rehabilitation, Placey says. Any numbers would be speculative, she says. Placey could not confirm the hospitals' claim that they are owed $40 million.
In its 2000 annual statement, the plan reported $37.1 million in assets and $32.8 million in liabilities.
Wigglesworth says hospitals have had problems with HRM-Pa. since 1999 when it purchased OakTree from struggling Oxford Health Plans. "There were slow payments, denials, downgrades-a whole variety of things not unique to any plan," Wigglesworth says. Various hospitals complained to the state at different times, he says. One year ago, the trade association stepped in.
"They said, `Thank you for raising the concern,' " Wigglesworth says.
Meanwhile, a "whole series of lawsuits" has been filed against HRM-Pa. by Philadelphia-area hospital systems, Wigglesworth says, but they were all stayed pending the outcome of the insurance department's action. The trade group is "actively considering what kind of cause of action we can bring and against whom," he says.
"Hospitals are relying on the state to ensure that managed-care contractors are fiscally sound and solvent. Hospitals provide care in good faith," Wigglesworth says. "Pay the providers now. That's the equitable thing to do."