Aug. 17--A doctor who heads a North Carolina medical services company is offering to pay as much as $40 million for the HIP Health Plan of Florida, the struggling health maintenance organization that insures thousands of South Florida school employees.
Steven M. Scott of Boca Raton submitted his plan Tuesday to the Department of Insurance, which had ordered the HMO to come up with a plan to correct a $4.8 million shortfall in its reserves.
He declined to say exactly how much he intends to pay, citing a confidentiality agreement with HIP, but his proposal to regulators said he would pay as much as $40 million over six years.
Scott said through a spokeswoman that he plans to reverse the company's losses by raising insurance premiums and merging HIP with two other Florida HMOs he controls.
'HIP believes that this decision is clearly within the best interest of its members, its employees, and its business partners,' David Abernathy, HIP Florida's executive director, wrote in a letter to insurance officials.
The Insurance Department said it would review the plan in time for HIP to meet its next state-imposed deadline.
'We will try to review it as quickly as we can, keeping in mind the Sept. 15 deadline for closing any transaction,' said Don Pride, spokesman for Insurance Commissioner Bill Nelson. 'The main thing for the department is be satisfied that the money is there.'
State examiners are now working at the Hollywood-based HMO, overseeing operations and major expenses.
HIP is controlled by Health Insurance Plan of Greater New York, which has about 800,000 members in its home state, said Ron Maiorana, a senior vice president. It plans to use the money from the Florida sale to bolster the finances of its New York operation.
The Florida subsidiary was created a decade ago and now has 216,897 members. Its largest contracts are with the Miami-Dade and Broward school boards. HIP Florida has lost money over the years, forcing the parent company to invest $80 million to make up for its financial shortfalls, Maiorana said.
Scott, 52, who also has a home in Durham, N.C., has experience buying troubled HMOs.
This year, he purchased Beacon Health Plans of Coral Gables, which had been declared insolvent by the state. Regulators say that Beacon has continued to lose money, but that Scott has infused the HMO with enough cash to cure its deficit.
Most recently on July 26, Scott infused Beacon with $800,000, bringing the HMO's surplus to $1.154 million, just above the state requirement of $1.15 million, Pride said. For the quarter ended June 30, Beacon posted an operating loss of $1.6 million.
Under the HIP plan, Scott proposes to pay the purchase price over time. He would pay HIP $5 million up front and $5 million at closing. The balance would be paid in five annual installments in five years.
He also proposes to convert the nonprofit HMO to a for-profit company, which is subject to regulatory approval. He has set up Florida Health Plan Holdings to take possession of HIP Florida's stock.
Insurance Department officials said they were not ready to comment on the plan's specifics.
Through a spokeswoman, Scott described his strategy for turning HIP around:
'The company needs to increase its rates, which has already started and will need to continue,' he said. 'As in all the other health plans in the country, HIP has experienced a very rapid growth in prescription drug costs, and we will have to raise rates to accommodate that.'
He said he would combine HIP with Beacon Health Plan and Health Plan Southeast, another HMO he controls, to save administrative and other costs.
Scott founded PhyAmerica Physician Group, formerly called Coastal Physician Group, a Durham, N.C.-based management company that provides health care and administrative services to physicians, hospitals, government agencies, managed care programs and other health care organizations.
PhyAmerica has suffered years of losses, sending its stock plunging from $40 a share in 1994 to a close Wednesday of 16 cents.
Scott is PhyAmerica's president, chairman and chief executive; last year, he collected a salary of $435,000.
This year, Scott was accused in a shareholders lawsuit to have 'systematically looted' PhyAmerica by selling off subsidiaries to himself at cheap prices, according to a report in The (Raleigh) News and Observer.
'The company believes it has acted very appropriately for all shareholders,' said Scott through a spokeswoman. 'All other cases have been settled or dismissed, and the company will vigorously defend the single lawsuit that remains.'
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(c) 2000, The Miami Herald. Distributed by Knight Ridder/Tribune Business News.
