Several Detroit-area hospitals have filed an emergency motion in Michigan's Wayne County Circuit Court against the United American Healthcare Corporation, the former manager of Detroit-based OmniCare, a once-large health maintenance organization servicing primarily Medicaid recipients.
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.
"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," said Gerard Mantese, the hospitals' attorney. "The primary purpose of those payments was to pay for healthcare for Michigan's Medicaid population, which consists largely of children, disabled individuals and senior citizens living in poverty."
The hospitals, which are pursuing damages in the tens of millions of dollars for United's alleged mismanagement of OmniCare, say United has insufficient funds to pay claims of OmniCare creditors who were not paid for providing care to Medicaid patients. The 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 1990s the state of Michigan filed a petition against OmniCare, putting OmniCare under supervision, then rehabilitation, then - when it was determined that OmniCare could not be salvaged - into liquidation.
The state of Michigan asserted that OmniCare had been operating with insufficient capital requirements, in violation of state law.
According to reports, it was determined that United American Healthcare had not paid many healthcare providers for tens of millions of dollars of care rendered to OmniCare Medicaid insurees. Yet during this same period, United American Healthcare was paid more than $50 million in management fees by OmniCare.
On Dec. 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.