District insurance regulators are seeking a $2.8 million payment from city businessman Jeffrey E. Thompson, alleging that his health insurance company did not receive an income tax refund to which it was entitled.
That company, D.C. Chartered Health Plan, has been under the District’s control since October, following reports of financial weakness and accounting irregularities.
Regulators are seeking the payment after an independent audit completed this week identified the missing tax refund, as well as $1 million in transactions with a company once owned by Thompson for which there is “inadequate supporting documentation.”
The income tax refund was paid to Chartered’s corporate parent, D.C. Healthcare Systems, which remains under Thompson’s control. The city’s position is that the refund should have passed on to Chartered rather than retained on the parent company’s books, said William P. White, the District’s insurance commissioner.
An attorney for Chartered, A. Scott Bolden, declined to comment Friday.
Thompson was a prominent business figure and political kingmaker in the city before he became ensnared in the federal investigation into Mayor Vincent C. Gray’s 2010 mayoral campaign. An associate of Thompson’s pleaded guilty in July to funneling $650,000 to a “shadow campaign” in support of Gray (D). The source of those funds, according to people familiar with the investigation, was Thompson.
Since then, Thompson has divested himself of many of his local business and real estate holdings. Unrelated to the federal investigation, Chartered Health encountered financial troubles in 2011, leading the D.C. insurance department to seek receivership last fall.
Chartered is the largest manager of health care for low-income District residents, serving about 110,000 as of late last year. In 2011, the company collected $384 million in insurance premiums from the District government.
In December, officials announced they were in talks with a Philadelphia-based firm, AmeriHealth Mercy, to sell “certain assets” of Chartered. Those talks continue, officials said Friday.
“We are working with a willing partner here to try and get this done,” White said. “We are hoping we could complete something sooner rather than later.”
The audit, he said, “helps move this along” by clearing up the status of the company’s books.
While Chartered’s 2011 financial statements initially showed a $14.9 million operating loss for the year, revised statements prepared pursuant to the audit showed a more modest $9.4 million loss. That, in part, reflects $10 million in additional premiums related to HIV pharmacy costs. While the revenue has been booked, it is not certain that it will materialize — the funds are now being sought in an action before the D.C. Contract Appeals Board.
Officials have sent a letter to Thompson asking him to forward the $2.8 million, White said. They have also asked for more information about $1.03 million worth of transactions with Chartered Family Health Center, a clinic that Thompson sold in February 2011. Because of the shared ownership, auditors are seeking to verify the propriety of the transactions.
Despite the accounting disputes, Daniel L. Watkins, the city-picked receiver now managing the company, said Chartered remains stable and that the financial concerns have not caused any “major fluctuation” in its customer base.
Still, the audit found issues that could complicate a sale.
Thompson in 2008 took out a loan from Cardinal Bank to settle a $13.3 million lawsuit with the District government, putting up Chartered assets as collateral. Those assets remain under the bank’s control, and were Thompson to default on the loan, they could be seized.
While Thompson has pledged to repay Chartered should the funds be seized, there is significant question as to whether he would have the assets to do so — particularly if he defaults on his loan obligations.
Meanwhile, Thompson has challenged the city’s decision as receiver not to pursue a new health-care contract for Chartered, whose current contract expires at the end of April.
In a bid protest filed with the Contract Appeals Board late last month, he alleged conflicts of interest that influenced the decision not to bid on a new D.C. contract — the ultimate source of virtually all of Chartered’s value.
Neither White nor Watkins would comment on Thompson’s allegations. District lawyers on Thursday filed to dismiss the protest, arguing that Thompson does not have standing to intervene.