HMO in Young case to be sold by state

PrimeHealth's deficit of $7.2 million called too large to overcome

July 28, 1999|By Walter F. Roche Jr. and Scott Higham | Walter F. Roche Jr. and Scott Higham,SUN STAFF

Citing what he called an insurmountable $7.2 million deficit, state Insurance Commissioner Steven B. Larsen put on the auction block yesterday the Lanham health care firm that figured prominently in the political demise of former state Sen. Larry Young.

The commissioner, in a two-page announcement, said the Maryland Insurance Administration will accept bids for Prime-Health Corp. until Sept. 10.

If a suitable bid is not submitted by then, Larsen said, the company will be liquidated and its 14,763 patients will be forced to pick another HMO participating in the state and federally funded HealthChoice program.

A liquidation could limit the choices for some patients.

Attorneys for Prime-Health's founder and principal owner, Dr. Christian E. Chinwuba, have questioned the legality of Larsen's move to auction the company and have indicated they might challenge the action in court.

Prime-Health was placed in receivership in October, the first such seizure of a health maintenance organization in state history. It has continued to operate under the direction of an administrator, James Gordon, whom Larsen appointed.

"Unquestionably, without a large infusion of cash, Prime-Health is not viable," Larsen said, adding that any sale would be subject to court approval and that it was unlikely that under either a sale or liquidation, anything would be left for shareholders in the minority-owned health care firm.

"The bidder will have to come up with the capital to satisfy Prime-Health's debt or some portion of it, as well as the resources to fund Prime-Health's future operations," Larsen said.

Young, a West Baltimore Democrat, is scheduled to go on trial in Anne Arundel County Circuit Court on Sept. 7 on charges that he sought and received bribes from Chinwuba in return for helping the new firm get a license and state contract. He also is charged with extortion and filing a false tax return.

Young was expelled from the state Senate last year on ethics charges stemming from his relationship with Prime-Health and a private consulting business he ran from his state-financed office near the B&O Railroad Museum in West Baltimore.

Lawyers for the former senator are trying to move his trial from Anne Arundel to Baltimore. A hearing on that request has been scheduled for Aug. 20 in Annapolis before Judge Joseph P. Manck.

Chinwuba, who is expected to testify in Young's trial, has filed suit against Larsen and the Maryland Insurance Administration.

In his suit, pending in Prince George's Circuit Court, Chinwuba has charged that Larsen improperly disclosed financial information about Prime-Health last year and that the commissioner defamed Chinwuba by declaring the radiologist "untrustworthy, unfit and unreliable to own any interest in an HMO in the state of Maryland."

Larsen has denied those charges and said Chinwuba's suit, which seeks $45 million in damages, "has absolutely no merit."

In a statement yesterday, Chinwuba's attorney, Sunanda K. Holmes, said the new financial data released by Larsen in announcing the planned sale were not accurate.

Holmes, in a letter to the state attorney general that was provided to The Sun, said it was unlawful for Larsen to release such "damaging" and "unverified" financial data. By releasing the deficit numbers, she said, Larsen acted in a "grossly negligent and reckless manner."

She added that by disclosing the data, Larsen "has undoubtedly negatively impacted the value of the company."

Holmes also said that if further disclosures about Prime-Health's financial condition and the bid plans are made, "we will have no recourse but to file an appropriate legal action."

Asked yesterday whether a court challenge would be filed, Holmes declined to comment.

State health department spokeswoman Karen Black said that if Prime-Health is liquidated, its current patients will be allowed to switch to one of the seven remaining managed care companies participating in the state and federally funded HealthChoice program.

Prime-Health's patients reside primarily in Baltimore and in Prince George's County.

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