Third HMO Seized by Regulators
State regulators Friday took control of financially troubled Tower Health, a Long Beach-based HMO with 111,000 enrollees in Los Angeles, Orange, San Bernardino and Riverside counties.
Tower is the third health maintenance organization seized this year. But Daniel Zingale, director of the Department of Managed Health Care, said the takeovers don’t signal broader weakness in the industry.
“There are management issues in all three cases,” Zingale said. “I still can’t predict that this is a trend.”
Zingale said Friday’s action came hours after regulators completed an audit of Tower Health’s financial condition. The fiscal examination began last summer after Tower Health told regulators that its current liabilities were 20 times larger than available cash.
Zingale said he has no information on whether Tower Health’s poor condition has affected patient care. Authorities won’t have more details until the state-appointed conservator, Karen Miller of Dallas-based Pace Group, reviews Tower Health’s operations, he said.
“What we know is that when finances are this bad, at best hospitals and doctors are not getting paid,” said Zingale. “We know that financial problems lead to problems with quality of care.”
Voicemail messages to Tower Health President Dr. Robert Cohen and two other executives weren’t returned. Cohen owns the HMO with his brother, David Cohen, and sister, Susan Weinberg, regulators said.
Documents released Friday indicated regulators have been aware of Tower Health’s troubled finances since at least September 2000. The state gave the HMO nearly a year to correct its problems before acting.
By July 2001, documents show, Tower Health did not meet key financial requirements. The HMO “failed to demonstrate a fiscally sound operation,” fell below tangible net worth requirements and did not pay claims in a timely manner.
Tower Health had a cash balance of $650,000 on July 31, while current liabilities totaled $13.6 million, documents show. It had negative net worth of $985,000 on that date though it is required to maintain a net worth, or financial cushion, of $1.46 million.
Regulators said that Tower Health is currently holding $5 million in claim checks to doctors and hospitals that would bounce if mailed out and deposited.
In its report, regulators said inside deals potentially strained Tower Health’s finances. During fiscal 2000, Tower Health forgave $19.5 million lent to shareholders or affiliated companies, documents show. The action “drained the working capital and cash needed to operate [Tower Health] as a financially viable health plan,” regulators said.
The shareholders and affiliates were not identified.
A separate deal involving a company owned by Robert Cohen put Tower Health at further risk, according to regulators. The HMO guaranteed certain financial obligations of Western Alliance Physicians Assn., a doctors group that, records show, Robert Cohen owns. Western Alliance is in poor financial condition and, like Tower Health, has not been paying claims, authorities said.
State managed care regulators have seized two other HMOs, both based in Los Angeles. Authorities took control of Watts Health Plans in August and seized Maxicare Health Plans in May. Maxicare is operating under bankruptcy court protection.
