District insurance regulators have taken control of Chartered Health Plan, the city’s largest manager of health care for low-income residents, amid questions about “irregularities” in its finances.
The takeover is the latest setback for its owner, embattled businessman Jeffrey E. Thompson, who has been implicated in funding a $650,000 “shadow campaign” to elect Mayor Vincent C. Gray (D).
Chartered’s board of directors voted Tuesday to support the deal under pressure from city officials, and a D.C. Superior Court judge signed off Friday. District insurance commissioner William P. White is now in charge of Chartered and will seek a buyer for the company, which serves about 110,000 Medicaid-eligible city residents.
“This is something that was necessary to do,” White said.
Chartered attorney A. Scott Bolden said the decision to enter receivership is “in the best interests of the company” and represents a “rebuilding chapter” for the plan. “Operations will continue,” he said.
Thompson has been sole owner of Chartered since 2000 and will remain so while the company is under receivership. Under his control, the firm became the dominant insurer of city residents enrolled in government-subsidized health programs. In 2011 alone the company did $355 million in business with the city.
But the company, wholly reliant on city contracts for its business, has found itself under increasing scrutiny in recent years, starting with a 2008 audit that resulted in a $12 million settlement with the District’s attorney general. More recently, the firm has been under a microscope since Thompson was targeted in March raids by federal agents investigating campaign finance violations. He stepped down from the board of directors in April.
White said the department had been watching Chartered for the past six months, after its financial positions had “fallen below certain regulatory standards.” More recently, company representatives alerted the District’s Department of Health Care Finance to “irregularities” identified in the company’s books by its independent auditor.
Wayne Turnage, the city’s health care finance director, said he was told earlier this month about “unsourced receivables and a transfer of cash out of the company,” prompting him not to extend Chartered’s contract through April, when it is set to expire.
Turnage and White declined to discuss the scale of the financial irregularities, citing the ongoing audit. In a statement, the insurance department said it anticipates “certain negative adjustments to capital and surplus” once the audit is complete; White would not say when that might be. Neither official said they had dealt personally with Thompson on the takeover or knew of his whereabouts.
Two other D.C. officials with knowledge of the matter said the amount in question stretches into the “low seven figures.”
Had the city not moved to take over the company, Chartered’s beneficiaries would have been moved on to other managed-care plans within 30 days, Turnage said. Putting the company into receivership will allow the city to continue paying Chartered until May. By that time, the city expects to have completed a solicitation for new five-year contracts.
Currently, the city offers Medicaid-eligible residents two additional managed-care plans, subsidiaries of the UnitedHealthcare and MedStar companies. Both plans’ enrollments are significantly smaller than Chartered’s.
City officials sought to assure Chartered’s members that their insurance would continue uninterrupted in the coming months.
“Chartered has contracts with all of its providers,” Turnage said. “Those contracts will stand. The process for submitting, processing and paying claims have not changed. We have informed providers there is no reason they should not be paid.”
White said he would name insurance attorney Daniel L. Watkins of Lawrence, Kan., to serve as receiver for the city. Watkins will be paid out of Chartered’s accounts, he said, and taxpayers bear no risk in the takeover.
Both White and Bolden said they were optimistic a buyer might still be found for Chartered, which has been exploring a sale since at least April.
“By taking the company into receivership . . . it’s a little bit easier to clarify their overall financial situation,” White said. “It gives them sort of a fresh start in terms of what they look like to a potential buyer.”
It is clear that Thompson’s role in the company is essentially over. That could ease a sale, said Sharon Baskerville, head of the D.C. Primary Care Association and a close monitor of city health-care matters. “The issue isn’t not having a buyer,” she said, “it’s not having a buyer willing to pay what he wants.”