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Posted at 07:14 PM ET, 03/27/2012

The rise and fall of Jeffrey Thompson’s health care profits


A 2008 city settlement took a big chunk out of Thompson’s health care profits. (C-SPAN)
In the three-plus weeks since Jeffrey E. Thompson became a household name in this town, one fact has appeared in nearly every story written about the media-shy 56-year-old businessman: He holds the District’s largest contract, worth as much as $322 million yearly.

That figure, while accurate, requires some elaboration. It doesn’t mean, for instance, that $322 million a year is going directly to Thompson.

Thompson’s company, D.C. Chartered Health Plan, is by far the largest of two companies that hold contracts to provide managed-care services for the city’s Medicaid and Alliance programs. It works like this: Any of the approximately 213,000 Medicaid-eligible and 23,000 Alliance-eligible residents can enroll with Chartered, which manages a network of doctors and hospitals and other health-care providers, paying them with a 70/30 mix of federal and local tax money, according to a government-set rate schedule.

The $322 million figure includes all of that — including the federal and local funds that merely passes through Chartered on the way to doctors and hospitals and so on. Chartered, whose only client is the District, also gets to take a cut for its overhead. That includes the costs of administration, claim reserves, and Thompson’s profit — which, until recently, has been considerable.

According to a September 2008 government report, Chartered is wholly owned by a holding company, D.C. Healthcare Systems, which is in turn wholly owned by Thompson. The report, done by the Department of Insurance, Securities and Banking, shows owning Chartered was very good business for a time.

Thompson’s lawyer, Brendan V. Sullivan Jr., has declined to comment since his client’s home and offices were raided March 2 in connection with a federal campaign finance investigation.

Thompson purchased the company in 2000 and, over much of the next decade, consistently grew its premium revenue and profits — doubling both, in fact, between 2003 and 2007.

In 2006, the company paid a $1.54 million dividend to D.C. Healthcare Systems — and hence, Thompson. The next year, Chartered paid a $4.02 million dividend, which included a $2 million “extraordinary distribution” that required the approval of Chartered’s board and regulators. In 2008, a regulatory filing indicates the company paid a $2.1 million dividend.

The dividend was paid in addition to a “management services” payment to D.C. Healthcare Systems during that period — $1.35 million in 2007 and $1.8 million the following year.

But it appears a 2008 settlement Chartered reached with the District government over questionable billing practices had quite an impact on Thompson’s business fortunes.

For one, the settlement ended Chartered’s practice of doing lots of business with other Thompson-owned companies, including a clinic, a transportation provider and his accounting firm. Those transactions provided Thompson with profit not directly shown on Chartered’s balance sheet.

For another, financial filings show that Chartered’s balance sheet has bleakened in the years since the settlement. In 2009 — the first full year after the settlement took effect — the company recorded a $5.47 million operating loss and paid Thompson no dividend. Things improved the next year, with a $1.21 million operating surplus, but it appears the company was still not profitable enough to pay a dividend.

Those “lost years” of 2009 and 2010 indicate why Thompson so vigorously sought a $14.9 million repayment from the city, on the grounds that it set “actuarially unsound” reimbursement rates for certain dental procedures.

The dispute was settled in September, with the city agreeing to pay Chartered $7.5 million.

It remains unclear whether Chartered is now solidly in the black. Chartered’s most recent regulatory filing, current as of last Sept. 30, showed that the company running a $763,000 surplus with another three months to go in 2011. But the $7.5 million settlement already appears to have been booked, offsetting a $7.13 million underwriting loss. (That’s still significantly better than the District’s other managed care company is doing; UnitedHealthcare has reported a $15 million loss for 2011.)

Chartered’s 2011 annual filing — which has been delayed to April, the Washington Business Journal reported — will show whether things are now looking up for Thompson, his legal troubles aside. But what we already can see shows that if you’re doing all of your business with the government, it can certainly pay to have friends inside it.

By  |  07:14 PM ET, 03/27/2012

 
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