Challenges surround HMO sale

PrimeHealth founders, rival bidder question validity of deal

Md. supports Universal

Company selected by state is target of three lawsuits

May 22, 2000|By Walter F. Roche Jr. | Walter F. Roche Jr.,SUN STAFF

The company picked by state officials to take over the operations of a troubled health maintenance organization has been sued three times recently, and some of its shareholders have borrowed heavily to make the purchase.

Universal Health Plan of Lanham was picked by the Maryland Insurance Administration this month to take over the operations of PrimeHealth, an HMO serving more than 15,500 patients, many in the Baltimore area.

But at least two groups are stepping up efforts to challenge the state's proposed sale. One challenge is by the founders of PrimeHealth, who contend that the state never had the authority to seize the company.

A second challenge is expected from a rival bidder for the HMO. Officials of Maryland Physicians Care contend that their bid would provide more money to PrimeHealth's creditors. State officials have not disclosed rival bid details but contend the Universal proposal is best for all parties.

State officials say PrimeHealth's creditors, who originally filed claims of $21 million, are owed about $9 million, and under the takeover plan will be paid 44 cents on the dollar, according to filings with the state.

Court records show Universal, which was formed in 1997, has been sued recently by three business consulting companies that claimed they provided services to Universal but were not paid. One of the claims, for a little over $5,000, was paid only after a judgment order was issued. A second claim of $7,833 has been filed by a Virginia company. In the third case, a Columbia company is charging it is owed $60,000.

Universal was formed by a group of Prince George's County physicians who note their minority ownership as a major selling point, according to records.

"First and foremost Universal Health Plan is primarily owned by minority physicians who have each made a [sizable] investment in the company,"

Universal officials stated in a revised business plan filed with the state in early March.

Universal, state records show, also has enlisted the financial assistance of William G. Franey, an Annapolis businessman, who has agreed to invest $500,000 in the company if the PrimeHealth purchase goes forward.

According to a suit filed in Prince George's County Circuit Court late last year, Alliance Healthcare Solutions was hired by Universal to help the physicians' group get $1 million in financing. The suit charges that Alliance got the financing for Universal but the Prince George's company failed to pay its fee, a $20,000-a-month retainer plus 10 percent of the loan amount. According to the suit, only $50,000 was paid on an obligation of $110,000.

The suit also seeks $500,000 in damages for breach of a contract between the two firms.

Attorneys for Universal have yet to file a response to the claim, though the deadline passed several months ago. They did not respond to requests for comment for this article.

In addition to the suits, records show a group of Universal shareholders has borrowed $1 million from Newcourt Financial USA of Chicago.

Records filed with the state show the loan was issued by Newcourt to Universal Health Equities, an affiliated firm. The loan pledges 550,000 shares of Universal Health Plan stock as collateral for that loan.

According to sources familiar with that loan, payments have not been made in about 10 months. The company would not respond to requests for comment.

Dr. Frederick Corder, who is listed on state records as president of Universal Health Equities, has a loan of his own from Newcourt of $382,000. He and his wife also have a loan of $1.4 million, records show, from Neighborhood Economic Development Corp. of Washington.

PrimeHealth was seized by the state and placed in receivership in 1998 after a financial review triggered by the investigation of former state Sen. Larry Young. Young had assisted PrimeHealth in getting a state license and a contract to serve Medicaid recipients. The West Baltimore Democrat was expelled from the Senate on ethics charges, some of which related to his intervention for PrimeHealth. Young was acquitted of criminal charges of bribery and extortion.

The company has continued to operate under the direction of a receiver named by state Insurance Commissioner Steven B. Larsen.

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