Contract Canceled Last Winter Is Reinstated : Maxicare, Hawthorne Medical Agree to Bury the Hatchet

Maxicare Health Plans and Hawthorne Community Medical Group announced Monday that they have settled their long-running dispute, which would have forced thousands of Southern Californians to choose between their doctors and their health plan.

The two companies said they have agreed to reinstate the contract, effective Oct. 1, under which Hawthorne provides medical care for Maxicare members. Details were not disclosed.

The agreement cures a recurring headache for ailing Maxicare, which has rolled up huge losses during the last several quarters and, under new management, is shrinking its business by selling several money-losing health-care plans.

The convoluted tale began to unfold in February, when a three-member arbitration panel ruled that Los Angeles-based Maxicare, the nation’s largest publicly held health maintenance organization, had systematically been underpaying Hawthorne for services to Maxicare members.

A few days after the panel awarded Hawthorne a net amount of about $11.7 million, Maxicare canceled its contract with Hawthorne, giving slightly more than 100,000 Maxicare members until next July 1 to decide whether they should stay with their Hawthorne group doctors or their Maxicare benefits.

Hawthorne had charged that the cancellation was in retaliation for the arbitration victory, but Maxicare contended that it was for a variety of business reasons. Both sides acknowledged that their relationship, which traces back to the founding of Maxicare in 1973 by former Maxicare Chairman Fred W. Wasserman and several Hawthorne doctors, had been deteriorating for some time.

The reinstatement of the contract with Hawthorne, Maxicare’s largest health-care provider in Southern California, “results from new management coming in and looking at the situation and opening new channels of communication,” a Maxicare spokeswoman said.

“We’re acting in what’s in the best interests of our patients and both organizations,” said Rafael Amaro, the doctor who heads Hawthorne Community Medical Group. “I think that both organizations are in a different place than they were” at the time of the cancellation, he said. Amaro added that negotiations began with Wasserman and continued with Peter J. Ratican, who replaced Wasserman as chairman and chief executive in early August.

As part of the agreement, Hawthorne will take over operation of three of the seven health centers that Maxicare opened in July to care for the patients it expected to win from Hawthorne. Maxicare will continue to run three centers--its first move into direct health care in Southern California--and a fourth is run by another health-care provider.

“We certainly hope that employers will continue to support Maxicare,” Amaro said. “We think that, basically, they’ve turned the corner. They’ve shown us that their new business plan will put them where they need to be.”