State OK's HMO bailout

By Frank Phillips, Globe Staff, 12/08/1999

Harvard Pilgrim Health Care, the state's largest health insurer, was given a financial boost yesterday when a state finance authority approved a $147 million bonding plan designed to stem the HMO's huge losses.

On a 6-0 vote, the Massachusetts Health and Educational Facilities Authority approved the plan, which will allow the health maintenance organization to sell eight of its Boston-area medical centers to a HEFA affiliate, and then lease back the space.

The vote also appears to have satisfied Attorney General Thomas Reilly, whose office determined the HEFA board did not violate the state's open-meeting law when it held a public hearing on the proposal Monday. Another hearing is scheduled for Dec. 20.

The bailout plan comes a month after HEFA approved another $90 million bond issue last month to allow Harvard to sell its furniture and equipment to investors, and lease them back.

Charles D. Baker, Harvard's president, said the $240 million HEFA-sponsored plan will give the insurer an infusion of much needed cash and allow it to assure its members and providers that it will continue to be in business.

"This should lend some degree of comfort to our members and provider partners about our financial situation," Baker said after the meeting. "This gives us the ability to close the books for 1999 with a very positive outlook for 2000."

Baker, who served as Governor Cellucci's secretary of administration and finance until last year, said the bonding deals will add $60 million to $80 million to Harvard's net worth. The insurer lost $98 million last year, and is expected to declare a $100 million loss for 1999.

Baker said the company has taken other measures as part of its turnaround. It will increase premiums by 15 percent in Massachusetts and by 20 percent in New Hampshire and Maine. He also noted that Harvard ended operations in Rhode Island, which represented 10 percent of its membership, but 40 percent of its operating loss.

Both Baker and HEFA claim there is no taxpayer risk in the financial plan. The risk will be assumed by investors holding liens on Harvard Pilgrim assets.

Still, critics accused the Cellucci administration and HEFA of failing to use the bailout plan to gain a commitment from Harvard Pilgrim to provide a high level of patient care and pay their providers on a timely basis.

Cellucci this week rejected the idea of demanding concessions from Harvard, saying a patients' bill of rights, which is stuck in the Legislature, would better impose uniform standards for all HMOs.

The vote yesterday came amid controversy over whether the public hearing HEFA held on the plan on Monday violated the state's open-meeting law.

HEFA posted its first notice for Monday's hearing on Nov. 18 with Secretary of State William F. Galvin's office, asking the public to comment on the plan.

But it amended the notice on Dec. 2, saying the hearing would be held on Dec. 13 and that the cost of the bonding had increased from $140 million to $150 million. Then, in a confusing sequence late last Friday, HEFA said it planned to go ahead with Monday's hearing but switched the Dec. 13 hearing to Dec. 20.

Galvin, who said he supports efforts to save the insurer from financial collapse but also feels the public should have more input into the process, had said the hearing Monday violated the state's open-meeting law and notified Reilly's office.

Robert J. Ciolek, HEFA's executive director, said the board is not required by law or its own rules to hold a hearing on a bonding proposal before it votes on the matter. He said the hearing Monday was held because federal law requires public comment be given to the governor, who must sign off on the deal.

Reilly's top aide, first assistant Dean Richlin, said yesterday that, based on the documents and HEFA's explanation of its purpose, the public had received appropriate notice. He also said hearings are not subject to the state's open-meeting law, which calls for 48-hour notice.

"The question is whether the public will have an opportunity to be heard before the governor makes a decision and on appropriate notice," Richlin said. "Based on the documents, it appears that goal will be accomplished."

Galvin strongly disputed HEFA's position. He said the agency had provided misleading information about Monday's hearing because the notice states the hearing was for public input on a HEFA board decision. It does not mention the governor.

"There were many people who called my office and looking for information about this hearing and we gave them information presented by the authoritity," Galvin said. "This was clearly a hearing on the proposal pending before this agency to approve this transaction."