By Bill Poovey
Published Sept. 21, 2015
A judge has approved a plan to partially pay hundreds of medical providers who are owed money by a Seneca-based health insurer that shut down due to fraudulent letters of credit. A state Insurance Department receivership has paid a “quarter on a dollar” to about 1,700 providers stuck with claims totaling $11.1 million from the collapse of the S.C. Health Cooperative.
A circuit judge in Columbia signed the “rehabilitation plan” Friday in the receivership that was prompted by a discovery last year that the cooperative used two letters of credit totaling $8 million that turned out to be fraudulent. In December, a judge appointed state Insurance Director Ray Farmer to be receiver of S.C. Health Cooperative finances after an audit showed the insurer to be financially insolvent, with $10.6 million in liabilities and $250,000 in assets.
Since November, Farmer and others have said the FBI and U.S. Department of Labor are investigating the bogus letters of credit provided on a national bank’s stationery to the Insurance Department. The FBI has declined comment and Farmer said Friday he has not had any recent contact from any investigative agency.
Farmer also said he has continued to “pursue all avenues for additional resources” to possibly boost the payments to providers. The payments have been largely funded with a $5 million donation that Farmer arranged. He has declined to identify the source but said it is unlikely that there will be any more money donated.
“It’s just a great corporate gift, and I’m thankful for it,” Farmer said.
Farmer’s deputy receiver in the court-approved plan, Mike Fitzgibbons, is administering the payments to providers. Fitzgibbons said the $5 million donation will hopefully allow him to boost the payments to each provider to 40 cents on the dollar by the second quarter of 2016. He said about $2.8 million has been paid to providers, or about 25% of the “estimated plan liability.”
Fitzgibbons said he most recently had conversations with the FBI and Department of Labor about the case a few months ago.
“I haven’t heard a word since,” Fitzgibbons said today. “I’ll say they’ve got an open file on it.”
The cooperative, also known as the S.C. Health Cooperative Welfare Benefit Plan, was conditionally licensed in 2012 as the state’s only multiple employer self-insured health plan under the state’s Small Employer Health Insurance Availability Act. Farmer said, unlike other insurers, no guaranty fund was required. He said the state is not liable for unpaid health services and without the $5 million donation, the hundreds of affected employers would be liable for health and medical service costs owed to thousands of providers unless money becomes available through ongoing attempts to recover funds or assets
Farmer previously said the insurer did not appear to be aware that the documents were fraudulent. Jay Seibels Jr., a Charleston attorney who represented the insurer in regulatory matters, previously declined comment about the donation and the fraud. He has said in an email that “no one at the cooperative has any information about how the fraud was perpetrated.” Seibels said the Insurance Department had the Bank of America letters of credit that the cooperative purchased. Seibels said the cooperative received information from a securities commission investigator in another state that there could be questions about the validity of the letters of credit and the Insurance Department was immediately notified.
Cooper Littlejohn of Seneca, the founding president and CEO of the S.C. Health Cooperative, previously declined comment. State Insurance Department records show the company’s board also included John Hamilton, Dave Kroeger, Angie Littlejohn, Vaughn Schmidt, Jim Wanner, Donald Jones, David Land and Gene Waller.
Fitzgibbons said today that he has had occasional contacts with some of the insurer’s former board members and employees. He declined to discuss potential liability.
“We are looking at that,” Fitzgibbons said.
Farmer said he believes affected medical providers “will be happy with whatever amount we will be able to distribute. There are some that seem to be more aggressive than others” in their efforts to collect from patients who thought they were insured when they received medical services, he said.
“The court order says that what the get from the receivership will be it,” Farmer said.