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The Record (Bergen County, NJ) January 24, 1999; SUNDAY; ALL EDITIONS


Copyright 1999 North Jersey Media Group Inc., All Rights Reserved  
The Record (Bergen County, NJ)

January 24, 1999; SUNDAY; ALL EDITIONS


LENGTH: 2031 words



For a while, Magdy Elamir looked like the Horatio Alger of managed
care in New Jersey.

An Egyptian immigrant who parlayed a storefront medical practice in
Jersey City into a
multimillion-dollar health-care empire that served
thousands of the state's poorest citizens, he lived in a Saddle River
mansion and contributed generously to candidates for political office.

Now his dreams are in shambles. His health maintenance
organization, American Preferred Provider Plan Inc., is about to be sold
by state regulators to salvage some money for doctors and hospitals who
calculate they're owed more than $ 45 million.

The HMO was seized last month by the state Department of Insurance,
which accused American Preferred Provider of siphoning off millions in
Medicaid funds intended to pay providers for the health care of poor
women and children. The state alleges that the HMO made improper
payments of more than $ 5 million to Elamir and other businesses he owns
and lent more than $ 4 million to two out-of-state HMOs he was starting.

Elamir faces no criminal charges, though he has retained a
prominent attorney, who defended his client's commitment to the
communities he tried to serve.

In December, a Superior Court judge froze $ 4 million of Elamir's
business assets. The 45-year-old neurologist also was ordered to post
an $ 840,000 bond by Jan. 4 to cover payments the state says he received
improperly for"medical consultations"beyond his $ 400,000-a-year
salary. So far, he has been unable to muster the bond, said his
attorney and a spokesman for the state Department of Banking and

For all his apparent prosperity, a lavish home, a string of
commercial properties, Elamir's difficulty in fulfilling Judge Anthony
Parrillo's order offers a revealing glimpse into the precarious finances
of his tattered empire.

How could this medical entrepreneur, who had no experience running
a managed-care or health insurance company, receive a license for an HMO
that now provides care to 44,000 of New Jersey's most vulnerable
citizens? Moreover, how could the state pay such a novice $ 6 million a
month in taxpayers money to take on such a responsibility?

Elamir managed to build a big business on a very small economic
foundation. In contrast to the corporate behemoths of the managed-care
world, Aetna, Cigna, United Health Group, his HMO was home-grown and
personal, almost a family business. Elamir named himself chairman of the
board, his brother Mazhar was made senior vice president of medical
operations, and his sister-in-law, Michelle Jensen Elamir, was vice
president of administration.

The circumstances of American Preferred Provider's failure are
unique, but they also serve as a cautionary tale. In the wake of its
insolvency, just a month after the state takeover of HIP Health Plan of
New Jersey, regulators have called for a more thorough examination of
the financial well-being of companies that manage and pay for health

Both HMOs failures have demonstrated the crucial importance of
requiring financial, as well as medical, accountability from
managed-care companies, experts said. Without sufficient cash reserves
to withstand unexpected expenses, and without well-organized systems to
review and pay claims, doctors and hospitals will go without payment,
HMOs will fail, and patients will suffer.

"There is a lot of smoke and mirrors in the HMO business,"said
Robert Conroy, a lawyer who is chairman of the health and hospital law
committee of the state bar association."When you get down to it, a lot
of these companies are small; they're not well-capitalized. They're
bottom feeders."

Elamir used two pieces of property, his $ 1.75 million home in
Saddle River and a Newark office building he bought at a bank sale for
$ 650,000, currently valued at $ 4.2 million , to capitalize his HMO,
court records show.

He mortgaged, remortgaged, and borrowed against those properties to
satisfy state requirements for cash reserves, according to court
documents filed by his accountant, Mohammed Hanafy. The state also
allowed him to put up two unlicensed MRI centers he owned as a financial
safety net. But the MRI centers didn't bail out the HMO when it
floundered, in part because their cash flow dwindled after three major
auto insurers named them in lawsuits, saying they provided unnecessary
care to fake accident victims.

"I don't think there's any question that the state's oversight of
the process to create these Medicaid HMOs was negligent,"said Gary
Carter, president of the New Jersey Hospital Association, which is
pushing for stricter supervision to avoid future HMO collapses.

In the drive to shift its Medicaid obligation to managed-care
companies, the state"didn't set high enough standards,"said Carter,
adding that state criteria for establishing the financial soundness of
HMOs are"woefully inadequate."

Elamir did not respond to numerous requests directly or through his
attorney for an interview, but a picture emerges from court and other
government records of an enterprising physician turned aggressive
businessman who used cunning financial practices to enrich himself and
his family.

After receiving a medical degree in 1977 from Cairo University in
Egypt, Elamir began practicing medicine in New Jersey in 1982. He opened
a storefront neurology practice on Summit Avenue in Jersey City,
eventually buying the building and several others on that block,
located near the Pavonia PATH station.

His patients were admitted to Christ Hospital in Jersey City, where
he, along with his brother, Mazhar, still has privileges. His medical
standing is not in question; Elamir has not been disciplined by either
the hospital or the state Board of Medical Examiners.

His modest practice was the starting point for a network of
businesses that grew to include five MRI centers, a limousine and
ambulance company, a billing and management service for physicians, and
various real estate holdings in Essex, Hudson, Passaic, and Bergen
counties, according to court and property records.

In 1990, he and his wife, Wafaa, bought an unfinished Saddle River
house for $ 950,000 at a foreclosure sale, borrowing $ 700,000 from the
same Hoboken bank that sold it to them, according to Hanafy's court submissions.< The Elamirs completed construction and moved in in 1993.

Bright white behind its circular drive, the house recently was
appraised at $ 1.75 million. It includes a large indoor swimming pool,
two saunas, an elevator, marble fireplaces, bathrooms, and hallways,
and lighted tennis courts.

The house provided the foundation for Elamir to buy an old 12-story
building in Newark in 1994 for $ 650,000, according to records submitted
by Hanafy in court. Preparing to set up his HMO, he sought a downtown
location for its headquarters. He refinanced his house to obtain
$ 100,000 for a down payment, and borrowed the balance from a bank, the
records show.

A few months later, in August 1995, American Preferred Provider
received its HMO license from the New Jersey Department of Banking and
Insurance and the Department of Health. A cloth banner with the HMO's
trademark logo, a melding of the American flag and the map of the
United States , eventually would be unfurled outside the second floor
of the Broad Street building, above a Big and Tall men's store.

Elamir had to meet two financial requirements for the license:
First, he needed $ 1.5 million in cash reserves, which he obtained by
using the headquarters building, his home, and his $ 2 million life
insurance policy as security for a bank loan, Hanafy's court submissions

Second, he had to guarantee that he could supply additional cash if
problems developed. For this, he turned to his MRIs.

As a neurologist, Elamir had built a profitable sideline in
magnetic resonance imaging during the early 1990s. With an initial
investment of as little as $ 500,000 for an MRI machine, doctors can
expect fees of about $ 1,000 per patient.

Elamir committed two of these MRI centers, in Jersey City and
Irvington, as a source of additional cash for the HMO. Though neither
was licensed by the state Department of Health, the state Department of
Banking and Insurance approved the HMO license anyway.

With this foundation, Elamir won a contract with the state Medicaid
division and began signing up doctors and hospitals and recruiting
Medicaid patients, first in Hudson County and later in Bergen and
Passaic counties. He eventually extended his company's reach into 13

Around the same time, Elamir and his family members made generous
contributions to the governing party in New Jersey, donating nearly
$ 18,000 to the Republican State Committee and various GOP candidates in
1996, according to state election commission records.

But as American Preferred Provider's customer rolls increased, so
did the state's requirements for capital reserves, and Elamir found
himself in early 1997 in need of $ 3 million more.

In a complicated transaction, Elamir personally borrowed another
$ 1.5 million, using his residence as collateral, to pay off the debt
on his Newark headquarters, then transferred title to a real estate
company he owned, Hanafy said in the court documents. The office
building subsequently was reappraised at $ 4.2 million, nearly 6 1/2
times its purchase price, and American Preferred Provider issued a $ 3.5
million mortgage to Elamir's realty company.

Despite the dizzying financial maneuvering, the state approved
this arrangement to satisfy American Preferred Provider's higher cash

"It is not an uncommon business practice to use the value of real
estate to finance other business endeavors,"said Winnie Comfort, a
spokeswoman for the department.

Meanwhile, trouble was developing with the MRIs. In 1996 and 1997,
Maryland Casualty Insurance Co., National Consumer Insurance Co., and
Allstate New Jersey Insurance Co. cited Elamir and numerous other
defendants in lawsuits alleging that they performed unnecessary medical
procedures on "victims"of staged auto accidents. As a result, Allstate
stopped paying for MRIs at Elamir's unlicensed centers, and his cash
flow dropped, Elamir's attorneys have said.

Elamir ran afoul of the federal Nuclear Regulatory Commission in
1997 after applying for a license to perform radioactive imaging in
another of his offices. The NRC found that he had listed a Long Island
doctor as his office's radiation safety officer and the sole authorized
user of the material without the doctor's knowledge, NRC disciplinary
records show. The physician was not licensed in New Jersey, according
to the state Board of Medical Examiners.

As a result, the NRC has prohibited Elamir from any involvement
with nuclear medicine until 2002.

Last year, Elamir decided to take his managed-care company into two
new arenas, Washington, D.C., and Michigan. The state complaint accuses
American Preferred Provider of making improper loans to these sister
companies, using $ 4.4 million from funds intended for the care of New
Jersey Medicaid clients.

In addition, the state says American Preferred Provider improperly
diverted $ 4.2 million to other companies that Elamir owns, and made
$ 800,000 in questionable payments directly to Elamir and $ 360,000 to his
brother for"medical consultations."

Though Elamir faces no criminal charges, he hired Michael Chertoff,
the former U.S. attorney in New Jersey, as his attorney last month.

"He has put an awful lot of his effort and money into this HMO over
the last couple of years, building it into something that would serve
the underserved population,"Chertoff said. Elamir agreed to the state
takeover, his attorney said, and hoped it would"end with a healthy
ongoing HMO."

Robert Gebeloff, manager of computer-assisted reporting, contributed to
this article.