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In the emergency motion, the hospitals -- Beaumont Hospital, Henry FordHospital, the Detroit Medical Center, St. John Hospital, Trinity Health, andOakwood Hospital -- requested that Judge Isidore Torres enjoin United AmericanHealthcare from using up to $1 million in company funds to buy back stock fromshareholders -- some of whom are individual defendants in the case.
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The hospitals, which are pursuing damages in the tens of millions ofdollars for United's mismanagement of OmniCare, claim that United hasinsufficient funds to pay claims of OmniCare creditors who were not paid forproviding care to Medicaid patients. The emergency motion argues that, underMichigan law, corporations are prohibited from buying back outstanding sharesof stock in order to avoid paying creditors.
In the suit, the hospitals allege that a management agreement betweenOmniCare and United American Healthcare was breached as a result of UnitedAmerican Healthcare's mismanagement of OmniCare. In the late 1990's, theState of Michigan filed a petition against OmniCare, putting OmniCare intosupervision, then rehabilitation, and, when it was determined that OmniCarecould not be salvaged, then into liquidation. The State of Michigan's filingsin Lansing asserted that OmniCare was operating with insufficient capitalrequirements, in violation of state law.
During the proceedings in Ingham County Circuit Court, it was determinedthat United American Healthcare had not paid many health care providers fortens of millions of dollars of care rendered to OmniCare Medicaid insureds.Yet, during this same period, United American Healthcare was paid over $50million in management fees by OmniCare. During the liquidation process, thecourt approved an order allowing the hospitals to pursue damages claimsagainst United American HealthCare and various of its officers and directorsfor mismanaging OmniCare.
On December 2, 2008, United American Healthcare announced a "StockRepurchase Program" under which it proposed to redeem up to $1 million of itsoutstanding shares, thereby transferring its cash to its shareholders. Themotion alleges that this buyback will almost certainly render United AmericanHealthcare unable to pay full damages to the hospitals.
Gerard Mantese, the hospitals' attorney, stated, "This suit establishesthat, in a very real sense, United American Healthcare and many of theindividual defendants took money directly from the pockets of providers caringfor Michigan's most vulnerable residents. The primary purpose of thosepayments was to pay for health care for Michigan's Medicaid population, whichconsists largely of children, disabled individuals and senior citizens livingin poverty."
SOURCE Mantese and Rossman, P.C.
