SECTION: NEWS; Pg. A04

LENGTH: 863 words

HEADLINE: JUDGE ORDERS STATE TO TAKE OVER NEWARK-BASED MEDICAID HMO

BYLINE: LINDY WASHBURN, Staff Writer

DATELINE: TRENTON

BODY:
A Superior Court judge on Thursday ordered state Insurance
Commissioner Jaynee LaVecchia to take control of American Preferred
Provider Plan Inc., a health-maintenance organization for Medicaid
patients allegedly bled dry by its Saddle River owner, neurologist Magdy
Elamir.

Judge Anthony Parrillo, presiding in Mercer County, ruled that the
plan's 1,900 doctors, dentists, and hospitals must continue to treat the
HMO's members, but declined to give legal assurances that physicians
and medical centers would be paid the rates set in their contracts.

"If they are not mandated to stay with this program, we will have
many Medicaid recipients going to the hospital for critical care, going
to the doctor, and going to their pharmacy for lifesaving medicine, and
being turned away,"said Emerald E. Kuepper, the deputy attorney general
who represented the state in its petition for "rehabilitation"of APPP.

Elamir, who has been accused by insurance department officials of
diverting state Medicaid funds to other businesses he owns, did not
oppose the state's takeover. No criminal charges have been filed against
him.

But in a hint of the gravity of his legal predicament, he was
represented in court by Michael Chertoff, the former U.S. attorney in
Newark and counsel to U.S. Sen. Alfonse D'Amato's Whitewater
investigation.

"He was happy to consent to this rehabilitation,"Chertoff said,
and hopes that it will end with a"healthy, ongoing HMO."

Over the last month, the state has received about 170 calls from
the HMO's members complaining about services or providers, almost half
of them in the last week, said Winnie Comfort, a spokeswoman for the
state Department of Banking and Insurance.

The state alleges that American Preferred Provider illegally
"loaned"more than $ 4 million to two start-up HMOs in Michigan and
Washington, D.C., also owned by Elamir, and that APPP paid Elamir and
various other businesses he owned more than $ 5 million out of Medicaid
funds.

American Preferred Provider, which is headquartered in Newark, is
one of 10 HMOs in New Jersey providing care for Medicaid recipients
under a state policy designed to control health care costs for poor
women and children by enrolling them in managed-care plans. Of its
44,000 members statewide, 13,000 reside in Passaic County, making it by
far the largest of the Medicaid HMOs there. Another 3,000 live in Bergen
County.

The judge said the HMO's insolvency was sufficient reason to place
it"in rehabilitation."American Preferred Provider is losing $ 500,000 a
day, owes $ 5.7 million to hospitals and doctors, and has a deficit of
$ 25 million, far below the minimum net worth of $ 3.7 million it is
required to maintain by law, Parrillo said.

Additionally, the state charged that the diversion of Medicaid
funds and the HMO's failure to turn over its accounts for state
examination also constituted grounds for a state takeover.

These other two criteria for a takeover"have been sustained,"
Parrillo said from the bench,"but I do not need to go into the reasons.

The first ground is enough."Both sides are expected to return to court
for a hearing on the issues surrounding Elamir at a later date, although
none was set.

The state Attorney General's Office has declined to confirm or
deny that Elamir is under criminal investigation. He is the sole owner
of American Preferred Provider, having founded it in 1995. As part of
the guarantee to the state that the HMO had sufficient cash reserves, he
listed two MRI facilities that are part of a chain of six imaging
centers that he owns around northern New Jersey.

The judge continued his Dec. 4 order freezing those assets.

American Preferred Provider has been under a secret order of state
supervision since Oct. 15.

Under Thursday's court order, hospitals and doctors are barred from
billing patients for any past or future services, beyond the amount of
the co-payment they normally pay.

Kuepper, the deputy attorney general, said the state would pay
providers as close as possible to the full rate required by the contract
with APPP. The judge added an escape clause for doctors and hospitals,
however. They can, with 48 hours notice, ask the court to be absolved
from the requirement to continue to see American Preferred Provider
patients.


(SIDEBAR, PAGE a04)



IF YOU WANT TO SWITCH HMO'S

Medicaid recipients can change the HMO through which they receive
care by calling the state Health Benefits Coordinator at any time. The
change will take effect the following month. That number is listed on
the back of each member's Medicaid card.

Medicaid members in Passaic County have a choice of seven plans:


Americaid Community Health


AmeriHealth Insurance Co.


Liberty Health Plan


Horizon


Blue Cross and Blue Shield


Managed Health Care Systems University Health Plan


Aetna/U.S. Healthcare.

In Bergen County, there are five:


Americaid


AmeriHealth


Horizon


Managed Health Care Systems


University Health Plan