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A chronic case of red tape: slow-paying American HMO fined $10,000.

WHEN AMERICAN HMO dived into Arkansas' health maintenance organization market in 1985, no one imagined the troubled waters ahead.

Success seemed inevitable. Within three years, American HMO had purchased two failed health plans and was beating the state's largest hospital and largest insurer in a race for HMO enrollees.

Today, however, it may be the most notorious insurance organization in Arkansas and has lost its competitive edge.

The reasons for the decline can be found in the files of the state Insurance Department.

American Health Care Providers Inc. of Illinois, which owns the health plan, recently was fined $10,000 by the Insurance Department after an investigation revealed a pattern of slow claim payments.

The penalty is the largest ever levied under the three-year administration of Insurance Commissioner Lee Douglass.

Asif Sayeed, the India native who is president of the company, believes he is being unfairly singled out for punishment. He claims the state's insurance regulations have been misinterpreted.

"My organization is not an exception," Sayeed says. "When the Insurance Department comes to perform a market conduct examination, they are going to find problems in any company."

Douglass, who personally issued the fine, isn't buying Sayeed's story.

"We get complaints on every company, but never, to my knowledge, have we had this kind of volume before," Douglass says. "There were some claims that were several hundred days old. That's unacceptable. The main element in the fine was the claims practices."

There were other, smaller elements, including the company's expanding into Craighead County without the permission of the commissioner and failing to include a financial statement in the annual report to enrollees.

Slow Response

The problems with American HMO surfaced in 1990, when numerous slow-payment complaints led the Insurance Department to investigate its operations.

The department found evidence of wrongdoing by American HMO, but Douglass did not issue a fine.

"The company indicated they were making personnel changes that would cure it," Douglass says. "It did for a while, then we got this second round of complaints."

The floodgates burst open for American HMO in the spring of 1992, when Pulaski County filed a complaint citing 150 cases of unpaid or underpaid claims from its employees.

Sayeed cried foul, claiming the county never informed him of the problems before taking its complaint to the state.

"The complaint they filed is full of inaccuracies," Sayeed says. "This is a clear case of people putting things out of proportion."

Indeed, many of the county's complaints proved to be unfounded, but there were enough to justify re-opening the earlier examination.

The department found that in 1988 and 1989, American HMO probably violated its provider contract in 40 cases and possibly violated state regulations in 10 cases.

At the same time, Douglass was looking into the Pulaski County case. His examiners found 23 probable contract violations and 20 possible violations of the insurance code.

Sayeed calls it a "technicality."

County administrator Sonny Simpson tells a story about a female employee who suffered from a respiratory illness.

The woman, who had collapsed at work, went to see her HMO primary care doctor on a Friday. She was told to keep in touch over the weekend if her condition worsened. On Saturday, she was feeling poorly and returned to the clinic to find another doctor sitting in for her regular physician.

The trouble was that the substitute doctor was not a member of American HMO's physician "network." The woman was hospitalized for her condition, and later faced stern resistance from the HMO, which didn't want to pay for a visit to a non-participating doctor, according to Simpson.

After Pulaski County Judge Buddy Villines intervened on her behalf, Simpson says, the company paid the claim.

Sayeed says his company bent over backward to please the county.

In one case, he says, a county employee filed a claim even through her medical bills already had been paid by another insurance company.

Sayeed says American HMO paid for many services not covered by its contract, including expensive in vitro fertilization and birth control pills.

Simpson, on the other hand, says he has tape-recorded proof that the pills were negotiated into the contract. He also says most of the company's conciliatory actions were taken after the bulk of complaints were made by employees.

"I accept that they were trying to catch up, but they never did," Simpson says. "At some point we just had to say, 'Look, we've worked this long and it hasn't been resolved.'"

With a new HMO plan, the county is now getting far fewer complaints.

American HMO also angered medical providers.

Sparks Regional Medical Center in Fort Smith for several years has served as a health care provider for American HMO's Sebastian County network but filed its own complaint last year when payments slowed to a trickle.

"The office definitely was inefficient from time to time," says Everett Knight, the hospital's vice president for finance. "We had the feeling that there was some intentional slow pay from a cash-flow standpoint. We would have to talk to the Insurance Department to get anything done."

In its investigation, the Insurance Department found 56 violations of American HMO's contract with the hospital.

Some companies have had positive experiences with American HMO.

"We're satisfied," says Don Zimmerman, executive director of the Arkansas Municipal League, a self-insured group that uses American for utilization review, pre-certification and hospital audits.

"We've been with them for a little over a year," he says. "I understand they've had problems with claims processing, so we've not depended on them for that."

Sandy York, assistant manager of operation at the Sears store on University Avenue in Little Rock, says her employees are very satisfied with their American HMO health plan, and called the company "very efficient."

But she noted problems with claims in the first two years of the contract.

"In the beginning it was a little bit rough," York says. "In the last couple of years it has smoothed out."

The company's operations in Arkansas were very limited until 1988, when it purchased Equicor HMO of Little Rock and Maxicare HMO of Fort Smith.
Arkansas Insurance Department Fines, 1990-1992
Name of Company Amount of Fine
Safeco Life Insurance Company $10,000
United Assurance Company 3,000
Reserve Life Insurance Company 2,500
Amwest Surety Insurance Company 2,000
Auto Club of America of Ark. 1,000
Farmers Insurance Company, Inc. 1,000
Mid-Century Insurance Company, Inc. 1,000
Ohio Hospital Insurance Company 1,000
Country Mutual Insurance Company 1,000
Country Casualty Insurance Company 1,000
American Fidelity Assurance Company 250
Source: Arkansas Insurance Department


Insurance Department figures show that American HMO's network in the Chicago area, northwest Indiana and Arkansas had a declining net income of $224,989 in 1991. The company received $41.6 million in premiums that year, with $17.2 million coming from its Arkansas operations.

By comparison, Arkansas Blue Cross & Blue Shield's HMO Arkansas had 1991 premiums of $19.3 million, and Baptist Medical System's Health Advantage had premiums of $22.2 million.

Sayeed contends that the state's regulations on claims turnaround don't apply to HMOs, but even a casual reading of the insurance code seems to contradict his claim.

He argues that his company should have more time to pay claims for service provided by out-of-network doctors. The Insurance Department says that because there is no contract in those cases, American HMO must meet the state's 45-day deadline.

Douglass believes the fine was the best possible punishment for American HMO, and the only one that is fair to its clients.

"They have 14,000-15,000 enrollees," he says. "If I revoke their license, you basically put all those people out on the street."
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No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:American Health Care Providers Inc.
Author:Haman, John
Publication:Arkansas Business
Date:Apr 5, 1993
Words:1282
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