State halts sale of HMO

Md. insurance head says once-favored buyer is unqualified

June 02, 2000|By Walter F. Roche Jr. | Walter F. Roche Jr.,SUN STAFF

Under mounting pressure and facing growing criticism, the state insurance commissioner abruptly reversed himself yesterday, canceling plans to sell a troubled health maintenance organization to a group of minority physicians for $2 million.

Commissioner Steven B. Larsen said he abandoned the sale plan because the physicians' group, Universal Health Plan of Lanham, had failed to disclose important financial details when it submitted its final bid earlier this year. The financial information that led to the cancellation was disclosed by Universal after the proposed sale had been filed and announced, he said.

"We received information related to the finances and ownership of Universal Health Plan that is contrary to information submitted with the bid. Had this information been initially submitted, Universal would not have been considered a qualified bidder," Larsen said.

Larsen refused to detail the financial information that led to the cancellation. Officials for Universal did not respond yesterday to requests for comment.

Larsen's announcement is the latest development in the short history of PrimeHealth, an HMO serving more than 15,000 welfare recipients in the Baltimore region and Prince George's County. The health care company, formed in October 1995, figured prominently in the 1998 expulsion of Larry Young from the state Senate.

Young, a West Baltimore Democrat, was accused of intervening with state officials to win the company a state license and a lucrative contract under a new state managed care program called Health Choices.

PrimeHealth was placed in receivership in October 1998 after state insurance officials said they had concluded the company was insolvent. It has continued to operate under the control of a receiver, James A. Gordon, who was appointed by Larsen. The receivership followed the discovery by state examiners of millions of dollars in unpaid bills owed by a closely affiliated firm, Diagnostic Health Systems.

State Health Secretary Georges Benjamin, whose agency contracts with PrimeHealth, called yesterday's development "unfortunate and disappointing. Both of our agencies have invested a substantial amount of time and energy in this transaction," he said.

Last month, the commissioner announced that after more than six months of review, he had concluded that the sale of PrimeHealth to Universal was in the best interests of all parties. Simultaneously, Larsen petitioned Baltimore City Circuit Judge Joseph H. H. Kaplan to approve the sale.

Earlier this week, Kaplan rejected a request by PrimeHealth's original owners to delay the sale. Attorneys for Christian Chinwuba, PrimeHealth's founder, contend the state never had the right to seize the company. Kaplan had scheduled a hearing for June 12 to hear other objections to the sale. Larsen said he had filed papers with the court late yesterday notifying the judge of his decision.

Larsen's reversal came a day after a half-dozen major creditors of PrimeHealth filed motions in Baltimore City Circuit Court opposing his recommendation and charging that the state was in effect giving away the health care company at their expense.

The creditors, which include Maryland General Health System, Dimensions Health Corp. and Children's National Medical Center of Washington, said that a competing bid from Maryland Physicians Care would provide at least $2.3 million more to pay bills dating back to 1998 and totaling $9 million.

Attorneys for the creditors said that under the deal originally proposed by Larsen, the state would have turned nearly $2.5 million worth of assets over to Universal in return for a payment of $2 million.

"Universal should pay a fair price for the equity in PrimeHealth. PrimeHealth's equity should not be used to capitalize a successful purchase to meet Maryland's statutory requirement," attorneys for Dimensions Health Corp. said in court briefs.

They also questioned whether Universal was financially sound.

Records filed with the state Department of Assessments and Taxation and a lawsuit filed in Prince George's County show that more than 500,000 shares of stock in Universal were pledged to secure a loan of $1 million from Newcourt Financial in August 1999.

In an interview yesterday, Larsen said that his agency would now resume discussions with other firms that had submitted bids for PrimeHealth. He said the process would not be opened to new bidders.

Though Larsen declined to name the remaining bidders, Maryland Physicians Care, which already participates in the state's Health Choices program, disclosed in court filings last week that it submitted a bid of $2.1 million to take on PrimeHealth's patient load.

Don Blanchon, chief financial officer for Maryland Physicians Care, said, "As one of the original bidders and one of the finalists, we look forward to talking with the commissioner about the next step in the process."

Larsen rejected yesterday any suggestion that the reversal was cause for embarrassment to his agency.

"It came out as part of the process," said Larsen. "It was certainly not the eventuality we had hoped for. We chose the best-qualified bidder based on the information we had at the time."

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