Health Plan to Be Sold, Judge Says
U. S. Bankruptcy Judge Peter Bowie on Friday ordered financially troubled Western Health Plans to sell its Greater San Diego Health Plan subsidiary to Choice, a health-care consortium that includes several local hospitals and a partnership led by Aetna Healthcare Programs of California.
Greater San Diego Health Plan’s 97,000 subscribers “are now being served by us,” Aetna Vice President John G. Pearce said Friday. Aetna, which already serves 24,000 subscribers in San Diego County, is affiliated with Partners, a company that provides care for several thousand military dependents in the county.
San Diegans who were served by GSDHP will continue to be treated by their regular doctors and hospitals. But the consortium eventually will drop contracts with some of the defunct plan’s health-care providers, consortium spokesmen said Friday.
‘Most Protection Possible’
Had the sale not occurred, more than 14,000 of GSDHP’s subscribers “might have fallen through the cracks” and been unable to secure new coverage, California Department of Corporations attorney Mark Harmon said. Friday’s bankruptcy court order “gave us everything we were looking for. . . . It offers the most protection possible for the enrollees,” he said.
Bowie said the sale, which was hammered out late Thursday night and early Friday morning, is necessary because GSDHP could no longer guarantee health care for its subscribers.
Four hospitals in San Diego that are owed money by the plan asked Bowie Friday to delay his order and seek out a better deal. But Bowie refused, arguing that “there may be a better deal somewhere, sometime and under certain circumstances . . . but we really do have a time problem.”
Bowie was referring to jittery employers who, in growing numbers, have been severing ties with GSDHP. A continued drain would have hurt the plan’s financial condition by depleting the value of its subscriber list--its only real asset, Bowie said.
GSDHP’s court-appointed receiver said Friday that General Dynamics, the plan’s largest single customer, with about 20,000 employees, was considering a switch to another health-care plan. Already, many private employers, as well as the state and the city and county of San Diego, have dropped GSDHP and switched to other providers.
Drastic Drop Predicted
GSDHP’s subscriber list, which recently topped 125,000, tumbled to 97,000 during the past few months. State regulators predicted that the total will fall to 35,000 in coming months as more employers turn elsewhere for coverage. During the past four months, employers who represent 42,000 San Diegans have given notice that they intend to switch, GSDHP Chief Executive Officer Sam Westover said Friday.
That exodus was driven by Western Health Plans’ increasing losses. The company, which is largely owned by doctors who also cared for GSDHP’s members, has lost $30 million during the three years ended June 30. GSDHP, a wholly owned subsidiary, has been losing about $1 million a month, and the state corporations department has been seeking a cash infusion or an asset sale for more than a year.
On Sept. 8, a Superior Court judge in San Diego, citing the plan’s “growing financial crisis,” placed GSDHP in receivership. At the time, regulators feared that health care would suffer because the plan and its parent company were struggling to make payments to doctors and hospitals.
According to court records, the plan has $20 million in cash, most of which was generated through premiums paid by subscribers. Friday’s agreement called for the consortium to pay WHP $50 for each plan member who remains with the consortium after Jan. 15. The consortium agreed to make a minimum payment of $1.5 million.
GSDHP owes $32 million to creditors, including doctors, hospitals and suppliers in San Diego. According to court records, all but $10 million of that evidently is owed to doctors and hospitals associated with the consortium.
Complicated Arrangement
But, in a complicated and unusual arrangement, the consortium’s hospitals and doctors Friday agreed to subordinate their $22-million debt and allow WHP to first-pay claims by other creditors, including hospitals and doctors not associated with the consortium.
Existing cash and proceeds from the asset sale initiated Friday should generate enough cash to pay in full the hospitals and other non-consortium doctors and hospitals, according to Ray H. Pace, a court-appointed receiver who has been running the health plan since Sept. 8.
Administrators of four local hospitals who are not associated with the consortium--but who are owed more than $800,000 by Greater San Diego--at first objected to the highly unusual sale. Bowie, responding to a request by those hospitals, on Thursday placed the plan in “involuntary Chapter 11 bankruptcy proceedings.”
Don Rothman, an attorney representing the hospitals--Paradise Valley, Mission Bay, Harbor View Health and Valley Medical Center--said his clients were satisfied with the Chapter 11 bankruptcy proceeding because it provided “the bare minimum” of protection they had sought.
Department of Corporations attorneys Friday claimed that the four hospitals forced GSDHP into bankruptcy proceedings in a last-ditch attempt to stop the deal. Those hospitals were upset because the consortium eventually might stop directing patients to hospitals not in the consortium.
The consortium that acquired GSDHP’s assets includes Children’s Hospital and Health Center; Community Hospital of Chula Vista; Grossmont Hospital; Mercy Hospital and Medical Center; Palomar Medical Center; Pomerado Hospital; Scripps Memorial hospitals in Chula Vista, La Jolla and Encinitas; Sharp Cabrillo Hospital, and Tri-City Hospital District.
It also includes Choice, the health plan operated by Partners National Health Plans, Aetna Healthcare Programs of California and VHA Enterprises, a subsidiary of Voluntary Hospitals of America.
