California seizes complete control of Maxicare HMO

Bankruptcy declared, may be illegitimate

LOS ANGELES -- California state regulators seized control of Maxicare Health Plans Inc. on Friday, triggering a bankruptcy filing by the California subsidiary of the troubled health maintenance organization.

Regulators took over Maxicare in a drastic attempt to prevent the Los Angeles-based HMO from slipping into insolvency. The Department of Managed Health Care said Maxicare has failed to meet minimal financial requirements and is being run in a manner that is unsafe and injurious to its enrollees. It cited delays in administering mammograms and hearing patient grievances.

The state and Maxicare pledged no interruption in service to patients or payments to physicians.

Leadership questioned

The series of legal maneuvers raised immediate questions about who was in control of Maxicare, which has 272,000 enrollees in California.

Department of Managed Health Care Director Daniel Zingale said the filing seemed like an illegitimate bankruptcy. He said the state took control of Maxicare on Friday morning and the company no longer "owns the assets to liquidate." Zingale said Maxicare apparently had misled state regulators about its fiscal health.

Maxicare did not respond to requests for comment beyond its news release. Paul Dupee, chairman and chief executive of Maxicare, pledged to work with regulators to "assure continuity of care for our members, compensation for health care providers and an orderly transition of Maxicare enrollees to appropriate health plans."

It disclosed in a regulatory filing earlier this week that it had put some of its California operations up for sale in order to raise cash.

A receiver, Mark Abernathy of Peterson Consulting of Los Angeles, will run Maxicare while regulators sort through its finances to determine whether the HMO should be preserved, sold or closed, said Zingale.

Maxicare also announced that it has asked the federal Health Care Finance Administration to have its Medicare contract terminated. According to state regulators, 13,000 seniors are enrolled in Maxicare's Medicare program. An additional 78,000 are covered by a Medi-Cal program administered by Maxicare.

Rising costs a cause

The state takeover comes against a backdrop of rising health care costs that have been hurting profits at strong health insurers and threatening weaker HMOs.

Health care costs have been rising in the double digits, driven by costly life-extending medical technologies and higher prescription drug prices. Insurers are feeling the squeeze because employers are reluctant to share the burden in the form of higher premiums. Physicians groups, meanwhile, are resisting a return to the low reimbursement rates that drove some providers into insolvency.

Zingale said that no other HMO in California appeared to be in financial danger, but some experts said that could change.

if the economic picture in health care does not improve.

The state's action comes on the heels of a similar takeover in Indiana, where Maxicare's 99,000 enrollees are being assigned to other HMOs. Zingale said that his department moved to take control of Maxicare before it ran low on cash in California, as it had in Indiana.

Consumer advocacy groups applauded the state's intervention.

Anthony Wright of Oakland, Calif.-based Health Access said its "aggressive stance" could stave off disaster down the road. "The state acted decisively to ensure patients are protected and providers are payed," he said. "We've seen other states screw this up.

For instance, New Jersey authorities took over HIP Health Plan -- then the state's fourth-largest HMO -- only after the insurer failed spectacularly in October 1998. By then, the insurer owed hospitals $150 million and 200,000 HIP members had to search for new coverage, he said.

Maxicare has a long history of financial trouble and Friday's bankruptcy filing marks its second trip to bankruptcy court in a decade.

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-- Martin Thompson (mthom1927@aol.com), May 28, 2001