HMO's founders question state spending

PrimeHealth has incurred `administrative costs' of $1.5 million since takeover

September 08, 2000|By Walter F. Roche Jr. | Walter F. Roche Jr.,SUN STAFF

The founders of a health maintenance organization taken over by the Maryland Insurance Administration are questioning some of the $1.5 million in "administrative costs" incurred by state consultants in the past two years.

During a receivership hearing this week before Baltimore Circuit Judge Joseph H. H. Kaplan, lawyers for the former operators of PrimeHealth Corp. challenged consultants over spending, including nearly $100,000 on items such as lawn mowing and house cleaning.

Goldmark Friendship, the holding company for PrimeHealth, issued a statement yesterday on the spending.

"Goldmark is shocked by the obvious abuse and mismanagement by the insurance commissioner. We will call for a federal investigation into these expenditures in the next few days," the company statement said. "This proves our point that PrimeHealth was never insolvent, but was made a political scapegoat."

PrimeHealth is the Lanham HMO that became entwined in the investigation of former state Sen. Larry Young. The former West Baltimore legislator was acquitted of charges that he extorted $72,000 in cash payments from Prime- Health's founder.

In a written response to a request for reaction to the questions raised about the receivership expenses, Insurance Commissioner Steven B. Larsen declined to comment on specifics this week.

Larsen stated that it was up to Kaplan to determine whether the expenses were appropriate.

"Prior to the receivership, PrimeHealth was insolvent and mismanaged. Under the management of the receiver, we have improved operations by reducing unnecessary staff, implementing medical utilization review and by promptly paying claims," the commissioner wrote.

Records produced recently in a long court battle over the state takeover of PrimeHealth show that one company, Maryland First Financial of Baltimore, has collected more than $732,500 in fees during the past two years.

Two years ago, Larsen appointed Maryland First and its vice president and part-owner, James A. Gordon, to run the HMO.

Gordon was asked during his June 12 deposition how much had been spent on the administrative costs of the receivership. He repeatedly said he didn't know the exact amount but gave an estimate of "maybe a million and a half."

Since June last year, another $315,231 in salary and expenses has been paid to Kenneth Mayes, a Pennsylvania executive hired by Maryland First to serve as PrimeHealth's chief financial officer. Mayes, who has been paid $150 an hour in fees, also has been reimbursed for hundreds of dollars in hotel bills in Annapolis and Prince George's County.

The records also show items such as $72,000 for business cards, $9,232 in house-cleaning charges, $6,290 for lawn mowing and $11,250 to rent a house, apparently for a company executive who is not identified in the documents.

Larsen, with court approval, took control of PrimeHealth on Oct. 1, 1998, after examiners from his agency had concluded the company was insolvent. Based in Prince George's County, PrimeHealth serves about 15,000 Maryland Medicaid recipients, many in the Baltimore region.

Larsen's actions were recently upheld in a ruling by the state Court of Special Appeals.

But the challenges have continued and, in a series of hearings that have stretched over the summer, attorneys for the founders of PrimeHealth are attempting to prove that the company wasn't insolvent and should not have been placed in receivership.

Christian Chinwuba, the founder of PrimeHealth who with his wife owns about 80 percent of the stock in Goldmark Friendship, is among the witnesses scheduled to testify next week.

Chinwuba's attorneys have been attempting to show that the health care business was entitled to millions of dollars in additional payments from the state for special categories of patients including those with AIDS and mothers with newborns. If those additional payments were paid and credited, the attorneys contend, PrimeHealth would not have been found insolvent.

To bolster that argument, the attorneys have challenged the legitimacy of fees paid since the state takeover.

Mayes replaced Albert St. Hillaire, one of a handful of top PrimeHealth executives who were kept on after the state takeover. St. Hillaire had been collecting an annual salary of $110,000.

St. Hillaire testified in a June 27 deposition that he was relieved of his duties as PrimeHealth's CFO in October 1998 after he had testified as a prosecution witness in Young's bribery and extortion trial. He was an employee until June 1. He testified that he serves as a part-time consultant to PrimeHealth for $52 an hour.

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