State Seizes Maxicare Health Plan, Company Files for Bankruptcy

The California Department of Managed Health Care on Friday "seized control" of Maxicare Health Plans Inc. in a "drastic attempt to prevent the Los Angeles-based HMO from slipping into insolvency," the Los Angeles Times reports (Ballon/Gellene, Los Angeles Times, 5/26). However, the company then "unexpected[ly]" filed for protection in federal bankruptcy court, which could "thwart state efforts to ensure the HMO's payments to hospitals and doctors and force its 272,000 members to scramble for new health insurance," the Sacramento Bee reports. According to DMHC Director Daniel Zingale, the agency moved to seize Maxicare to avert a "potential health care crisis" after a recent state audit found that the managed care company was "$8 million short of minimum solvency requirements in March and April and lacked up to $12 million necessary to meet incoming medical claims for care already provided to its members" (Rapaport, Sacramento Bee, 5/26). Earlier this month, Indiana regulators seized and shut down Maxicare's operations in that state, also citing financial concerns (Fong, San Diego Union-Tribune, 5/26). Maxicare was "being run in a manner that is unsafe and injurious to enrollees," according to DMHC officials. Zingale said that Maxicare failed to provide prompt access to mammograms and delayed addressing patient grievances. Zingale added, "Our goal is for the care to continue uninterrupted for patients. We lost confidence in Maxicare's ability to do that."

Both state officials and Maxicare representatives "pledged" that the takeover would not affect patient services and physician payments (Los Angeles Times, 5/26). The DMHC on Friday appointed a conservator of Maxicare to handle the company's finances. However, the Bee reports that the company's bankruptcy filing "may derail state efforts to stabilize the HMO's finances and pay the doctors who treated its members." W. Austin Cooper, a Sacramento-based bankruptcy lawyer, said, "It has the effect of undoing the seizure and putting the company under the jurisdiction of the federal court," adding that a bankruptcy reorganization could take years. Maxicare on Friday also notified HCFA officials that it would like to abandon its Medicare+Choice program, which covers 13,000 Medicare beneficiaries, on Aug.1 -- "a move state regulators had hoped to avoid" (Sacramento Bee, 5/26). Another 78,000 members participate in Maxicare's Medi-Cal program. Zingale said that despite the company's financial difficulties, it still has $35 million in cash, "enough to ensure continuity of service as regulators determine the depth of the company's problems" (Los Angeles Times, 5/26).