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Detroit Area Hospitals Sue To Recover Medicaid Funds

DETROIT, Dec. 8 /PRNewswire/ -- In a lawsuit arising out of the demise of the Detroit-based OmniCare, a once large health maintenance organization servicing primarily Medicaid recipients, several major Detroit area hospitals filed an emergency motion this morning in Wayne County Circuit Court against United American Healthcare Corporation, the former manager of the failed HMO.

In the emergency motion, the hospitals -- Beaumont Hospital, Henry Ford Hospital, the Detroit Medical Center, St. John Hospital, Trinity Health, and Oakwood Hospital -- requested that Judge Isidore Torres enjoin United American Healthcare from using up to $1 million in company funds to buy back stock from shareholders -- some of whom are individual defendants in the case.

The hospitals, which are pursuing damages in the tens of millions of dollars for United's mismanagement of OmniCare, claim that United has insufficient funds to pay claims of OmniCare creditors who were not paid for providing care to Medicaid patients. The emergency motion argues that, under Michigan law, corporations are prohibited from buying back outstanding shares of stock in order to avoid paying creditors.

In the suit, the hospitals allege that a management agreement between OmniCare and United American Healthcare was breached as a result of United American Healthcare's mismanagement of OmniCare. In the late 1990's, the State of Michigan filed a petition against OmniCare, putting OmniCare into supervision, then rehabilitation, and, when it was determined that OmniCare could not be salvaged, then into liquidation. The State of Michigan's filings in Lansing asserted that OmniCare was operating with insufficient capital requirements, in violation of state law.

During the proceedings in Ingham County Circuit Court, it was determined that United American Healthcare had not paid many health care providers for tens of millions of dollars of care rendered to OmniCare Medicaid insureds. Yet, during this same period, United American Healthcare was paid over $50 million in management fees by OmniCare. During the liquidation process, the court approved an order allowing the hospitals to pursue damages claims against United American HealthCare and various of its officers and directors for mismanaging OmniCare.

On December 2, 2008, United American Healthcare announced a "Stock Repurchase Program" under which it proposed to redeem up to $1 million of its outstanding shares, thereby transferring its cash to its shareholders. The motion alleges that this buyback will almost certainly render United American Healthcare unable to pay full damages to the hospitals.

Gerard Mantese, the hospitals' attorney, stated, "This suit establishes that, in a very real sense, United American Healthcare and many of the individual defendants took money directly from the pockets of providers caring for Michigan's most vulnerable residents. The primary purpose of those payments was to pay for health care for Michigan's Medicaid population, which consists largely of children, disabled individuals and senior citizens living in poverty."

SOURCE Mantese and Rossman, P.C.
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