Latino Health firm collapses amid police investigation. (Up Front).

Latino Health Care, a medical group that billed itself as one of the nation's largest Latino-owned health care firms, abruptly shut down this month amid growing losses and a police investigation into alleged financial improprieties.

The Long Beach-based company, which consists of a management corporation and a separate, doctor-run independent practice association, lost all its remaining 14,000 patients in early December, when major insurers like Health Net Inc. moved their patients to other medical groups.

The collapse followed a Nov. 21 search of the company's offices by Long Beach police, who had been contacted by the board of the doctors' group. Doctors feared that insurance company payments for medical services were being diverted by the management corporation to another business venture. The money should have been passed through to the doctors and vendors who provided care.

At the request of police, a Long Beach Superior Court judge last month froze the bank accounts of several groups that do business under the Latino Health Care name, including the management corporation and the doctors' practice association.

The management corporation ran the business operations of the independent practice association through a contractual relationship. The IPA includes 300 primary care physicians who maintain their own offices.

The IPA's board alerted police after it learned it was as much as $5 million to $10 million in arrears, said Dr. Robert Karns, chairman of the IPA board. Among the arrears was $3.9 million owed to specialists who had contracted with IPA to provide advanced services to patients and $600,000 to $700,00 owed to primary care doctors who were members of the IPA. Private investors also lost substantial sums as did a computer system vendor.

"We sat as board members hearing glowing reports and suddenly found that the company was way in arrears' Karns said.

Long Beach police declined to comment on the investigation, except to confirm they had executed a search warrant on the company's offices.

The board was aware that the IPA had been in arrears as the result of $1 million in losses it suffered last year when Tower Health, a Long Beach-based health maintenance organization, was dissolved in bankruptcy court, Karns said. But the board had been reassured by Jose Gonzalez, chairman and chief executive of LatinoCare Management Corp., the management corporation, that Latino Care was catching up on its payments, Karns said.

Karns said he and other board members now suspect IPA funds were used to shore up a money-losing medical clinic in Chula Vista, near San Diego. It is not clear who owns the clinic, although a source close to the transactions said it was at least partly owned by Gonzalez, who used IPA funds as collateral for the purchase.

Gonzalez did not return calls seeking comment. His criminal defense attorney, Daniel Guerrero, wouldn't discuss specifics of the allegations. He blamed the failure of the firm on the chaos caused by the police investigation.

"He has complied with the authority invested in him as chairman and the CEO," Guerrero said. "I am convinced he definitely will not be charged (with a crime.)"

Growing firm

Prior to its collapse, Latino Health Care's independent practice association was aimed at providing culturally sensitive care to Latino patients via doctors' offices located in ethnic neighborhoods.

Gonzalez had even bigger plans. He took the management corporation public in February, through a reverse merger with a shell company. In an earlier interview, Gonzalez told the Business Journal he planned to triple the IPA's membership, which totaled about 30,000 enrollees at the time, and expand to other states.

"We know there is a segment of the Latino population that responds to what we have to offer. Some want the big clinics, but a very large part of our population wants to go to Dr. Sanchez on the corner," Gonzalez said in January 2001. "I like to say 'We just do chicken, rice and beans, but we do it well."

Shares of LatinoCare Management, which have traded as high as $2.11 per share, most recently traded at 12 cents on the over-the-counter market. Its membership dwindled this year because of the financial problems.

Latino Health Care was founded in the mid-1990s by Gonzalez and Dr. Roberto Chiprut, a physician who had written a book on how Latinos interact with health care providers. Chiprut had been less active in recent years and was killed in a March auto accident in Mexico City.

Latino Health Care received a $1.75 million investment from Cedars-Sinai Medical Center at its inception. The hospital wanted to boost health services to Latino residents.

Rick Jacobs, senior vice president for system at Cedars-Sinai, said the hospital is trying to recoup its money but was not hopeful it would be able to. "It does not look promising;" he said.

Karns said he has not been paid for two months of medical services provided to Latino Health Care patients, but is hopeful that the IPA can be resurrected.

RELATED ARTICLE: Latino Health Care

Year Founded: 1995

Headquarters: Long Beach

Core Business: Independent practice association targeting Latino patients

Leadership: Jose Gonzalez chairman and chief executive officer of LatinoCare Management Corp., the association's management organization