Chartered Health Plan’s Uncertain Future

 

On October 25, Councilmembers David Catania (At-large) and Yvette Alexander (Ward 7) hosted a joint oversight roundtable focusing on issues regarding Chartered Health Plan, Inc. As chairpersons for the Committees on Health and Public Services and Consumer Affairs, Catania and Alexander, respectively, questioned Wayne Turnage, director of the Department of Health Care Finances (DHCF), and William White, commissioner for the Department of Insurance, Securities and Banking (DISB). Councilmember Marion Barry (Ward 8), a member of the Committee on Health, was also questioned the witnesses. 

Financial Warning Signs

In his testimony, White detailed Chartered’s timeline of financial issues. In 2009 and 2010, the company’s financial statements showed that its capital level was “…at a level of concern to my department.” Despite increasing financial oversight for Chartered and granting an extension to file its 2011 statement, the company reported a $15 million loss this April. “That weakened the company’s finances to the point that I was worried about whether it had sufficient capital to keep operating,” White said. An audit from Brown Smith Wallace is analyzing the loss; however, the audit’s finishing date was originally scheduled for the end of October.

Chartered’s situation worsened over the summer: then-owner Jeffery Thompson’s legal issues were revealed (leading to his resignation as chairman of the board), the original auditors resigned in May, and potential buyers couldn’t reach a deal with the company. Additionally, Turnage testified that CHP’s budget had $4 million in irregularities: $3 million in unsourced revenue and $1 million transferred to an unknown receiver.  As a result, DHCF announced that it will not renew Chartered’s Medicaid five-year contract under present ownership; the contract ends on April 30, 2013, putting CHP’s 110,000 Medicaid and Alliance members at risk for losing benefits and health care and endangering 160 jobs.

Receivership and Possible Sale

“Recently, it became clear from our careful half-year of intensive supervision that the department would have to step in and assume a larger role to ensure health care for Medicaid and Alliance enrollees would continue,” White testified.  On October 16, White, Turnage, and their staff met with Chartered’s board and outlined their proposal for receivership, in which a court appointee will manages its affairs; Thompson (as Chartered’s parent company’s sole shareholder) and the board approved. Three days later, Chartered was officially in receivership, with White as its head. He, in turn, hired insurance lawyer Daniel Watkins as special deputy rehabilitator to help oversee the company’s finances.

However, both witnesses agreed that “…a sale and change of ownership, if feasible, is the best and safest outcome for everyone.” Although White stated that there are a few potential bids, he didn’t give any names. However, Alexander pointed out that the ongoing audit could hinder a potential sale, stating “There’s no company that wants to buy another company without knowing their financial status.”

Potential Implications

White noted, “At no time did these possible financial irregularities found by the ongoing audit affect the quality of care or payment to providers. To our knowledge, patients are being seen and medical providers are being paid.”  He also noted that Chartered will continue to operate as a private company and won’t become a city agency. Turnage said that the receivership “…allows the DHCF to extend a contract to CHP for the remainder of the original contract period...” He also noted that “…this decision does not alter or diminish the existing health care provider network for Chartered’s beneficiaries,” nor will it change payment arrangements to providers.

However, the receivership could also potentially hinder Chartered. A Request for Proposals (RFP) for a new five-year Medicaid contract was released on November 2; although Chartered can bid for a new contract, it can’t receive a new contract if under receivership. Therefore, CHP must either be sold or successfully exit the receivership before May 1, 2013, when the new contract begins.  Should Chartered fail to win a contract, the company would transfer its members to either MedStar Family Choice or United Healthcare.

Barry voiced concerns that Chartered’s disadvantage could hinder a potential sale. “Here’s the problem,” he said, “A new purchaser of Chartered is not going to purchase Chartered unless they’re able to bid on the five-year contract.” With the deadline set for December 3, the new owners would most likely not have enough time to make their own bid. Although Turnage suggests that the buyer won’t make the sale official unless Chartered won its contract, Barry believes no investor will sign such a deal.

Challenges

Now that Chartered is under receivership, the embattled company is on track to improve its financial standing. However, it will be a challenge to do this with limited disruption to members’ benefits and services. “Finding a qualified buyer and completing a purchase agreement within the timeline to allow Chartered to effectively compete for a new contract will be challenging,” White said, “but we are going to do our best.”

For more information, call Chartered Health Plan at (202) 408-4720 (toll free 1-800-7511) or the DCHCF Office of the Health Care Ombudsman and Bill of Rights at (202) 724-7491 (toll free 1-877-685-6391).


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