Maxicare Health Plans Negotiating to Sell California HMO Business


Maxicare Health Plans Inc. is negotiating to sell its California HMO business piecemeal to various health insurers, according to an attorney familiar with the discussions.

Separately, the Indiana Department of Insurance has filed a civil fraud lawsuit against Los Angeles-based Maxicare and the five former directors of its defunct Indiana operations.

Maxicare, with 254,000 enrollees in California, is operating under Bankruptcy Court protection. The company declared bankruptcy May 25, hours after California regulators seized control of the troubled company.

Ivan L. Kallick, a partner with Manatt, Phelps & Phillips who represents the California Department of Managed Care, said Maxicare is talking with potential buyers interested in segments of its HMO business, such as its Medicare HMO and its commercial HMO line, which is provided through employers. Kallick didn't identify the interested parties.

Kallick said the company recently disclosed in Bankruptcy Court that it has about $60 million in cash. "Operations are going smoothly" under the direction of a state-appointed conservator, he said.

Maxicare referred questions to its outside public relations firm, Hill & Knowlton, which didn't respond to a request for comment.

Maxicare disclosed plans to sell the troubled HMO business in a Securities and Exchange Commission filing June 8. The company said there was no assurance agreements would be reached.

Adding to Maxicare's problems are allegations of fraud arising from the shutdown of its Indiana operations. The lawsuit in Indiana state court accuses Maxicare of misleading state insurance regulators about its business.

Specifically, the lawsuit claims that Maxicare said it made provisions to continue health benefits for enrollees when it had not done so. Indiana law requires HMOs to have contingency plans to cover health benefits 60 days after they discontinue operations. Maxicare has not operated in Indiana since May 4.

Greg Thomas, chief deputy of the Indiana Department of Insurance, said Maxicare had a reinsurance policy to cover its obligations, but had allowed the policy to lapse without informing authorities.

Besides the company, the suit names as defendants Chief Operating Officer Susan Blais, general counsel Alan Bloom and Patricia Fitzpatrick, Patricia Richards and Jeffrey Welch--all directors of Maxicare Indiana.

Thomas said how much Maxicare owes in unpaid benefits is not known. He said 98% of its 87,000 former enrollees in Indiana have been moved to other HMOs.

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