Bankrupt tower health leaves widespread trail of debt. (Up front).

The bankruptcy last month of Tower Health -- the third local HMO to be seized by the state this year -- is shaping up to be the toughest one yet for the area's doctors, hospitals and other medical care providers.

The Long Beach-based HMO, which the state forced into bankruptcy after seizing it Sept. 14, went under owing providers millions of dollars in payments for medical care patients received in August, state officials said.

The loss of the monthly capitation payments have hit the largest hospitals down to smaller community clinics, which operate as part of the safety net for the county's many thousands of uninsured residents.

"We are just assessing what the losses are," said Mandy Johnson, executive director of the Community Clinics Association of Los Angeles County, which represents 39 clinic organizations. "I don't believe anyone is in trouble, but when safety net providers lose money they have less ability to take care of the uninsured.

The HMO was seized after regulators with the state Department of Managed Health Care completed an audit that found the plan had a cash balance of just $650,000 as of July 31, with total current liabilities of $13.6 million.

Agency Director Daniel Zingale has said creditors should not expect much given the financial condition of the plan, which served 111,000 enrollees.

That is unlike the situation with Maxicare Health Plans Inc., which made its capitation payments even after the state seized it in May and it voluntarily entered into bankruptcy. It's also different from the seizure of WATTSHealth Foundation Inc., which regulators took over in August but has not filed for bankruptcy and continues to operate normally.

The loss of the capitation payments means that providers such as Northeast Valley Health Corp., a San Fernando-based community clinic with 10 locations, is out at least $56,000 Tower owed it for Medi-Cal patients.

It's also out nearly $221,000 Tower owed it for lower-than-expected hospital and pharmaceutical use by patients in 1999. (Those payments are made years later after it is assumed all claims from the prior years have been filed.)

"Those dollars help us provide money for the uninsured (who don't qualify for Medi-Cal)," said Kimberly Wyard, Northeast Valley's chief executive. "Any surplus we would make goes back to services."

The creditor with the largest unsecured claim against Tower is Rx America, a Salt Lake City-based pharmaceutical benefits manager. It is owed $2.8 million, according to bankruptcy court documents.

Other top creditors include more than a dozen county hospitals, including Garfield Medical Center, which is owed $497,000.

Richard Diamond, an attorney hired by the state conservator to represent Tower in bankruptcy court proceedings, agreed with the assessment that Tower creditors should expect worse than those of Maxicare.

Diamond, who also represents Maxicare in its separate bankruptcy court proceedings, noted that when Maxicare filed for bankruptcy court protections it did so with substantial cash assets. (Those assets were reported by the state to be about $30 million.)

However, when Tower went bankrupt that was not the case. It had less than $300,000 in the bank and a payroll due the next day at least equal that, Diamond said.