It was supposed to be a political jewel for the Reagan administration: a national model of low-cost health care for the elderly, a health maintenance organization that promised free drugs and eyeglasses -- and few out-of-pocket expenses to see the doctor or go to the hospital.

For residents of southern Florida, the offer was irresistible. In 1982 and 1983, they were bombarded with television endorsements by George Burns, Barbara Mandrell and Glenn Ford. And then came the intensive door-to-door sales campaign.

So they signed up by the thousands for this new brand of HMO -- the Gold Plus Plan -- offered by International Medical Centers. Ultimately, the IMC plan would attract more than 130,000 elderly subscribers, more Medicare patients than in any other health care program in the nation.

Today, five years after it began, the IMC program has collapsed amid charges of mismanagement, political string-pulling and what some industry experts claim was an unprecedented regulatory lapse by state and federal health officials.

Last month, the federal Health Care Financing Administration announced plans to terminate IMC's $360 million-a-year Medicare contract. Officials cited the company's failure to obtain adequate capital and reform its management despite repeated warnings to do so.

The state of Florida has declared the Miami-based plan insolvent, seized control of the firm and auctioned its assets to another health care company to protect IMC subscribers.

The FBI and the inspector general of the Department of Health and Human Services are investigating allegations of fraud at IMC. And Miguel Recarey Jr., the Cuban e'migre' who turned IMC from a small group of clinics into the country's largest Medicare contractor, has been indicted by a federal grand jury in Miami for conspiring to bribe union officials to send patients to the health plan.

The repercussions of the IMC debacle have been embarrassing for both the Reagan administration and the fast-growing health maintenance organization industry.

The administration has a long history of trying to promote HMOs as an alternative to traditional Medicare programs. The government's support of HMOs like IMC, which are prepaid health plans that provide comprehensive doctor and hospital services, is part of an effort to increase competition and control costs. Under rules that went into effect in 1985, more than 900,000 of the nation's 31 million Medicare beneficiaries now receive their care through more than 150 HMOs.

Now with the collapse of IMC, health officials in and out of Washington are raising difficult questions for the administration: How could one company gain so much influence so fast? Why did it take so long for government officials to crack down? What happens to the future of Medicare-backed HMOs?

The story of IMC's rise and fall also touches a number of Washington insiders: C. McClain Haddow, former chief of staff of the Department of Health and Human Services, who granted IMC several special exemptions from federal rules; Lyn Nofziger, the former Reagan adviser whom the company hired to lobby its cause; and Rep. Claude Pepper, the Florida Democrat who was an IMC supporter.

Government officials say IMC's collapse is an exception to the general success of their policy, and that the elderly have little to fear from Medicare HMOs. Yet their plans to expand the use of private health plans in Medicare have already run into trouble in Congress because of the IMC debacle.

Meanwhile, executives of other HMOs complain about being tarred by IMC's problems, and they are uneasy about federal plans to beef up HMO regulation. Earlier this month, Medicare chief Dr. William Roper asked lawmakers at a Capitol Hill hearing for more regulatory power to monitor HMOs.

"In hindsight, our contract with IMC could have been better managed," Roper said. "We have learned a great deal from our experience and mistakes with IMC."

'House of Cards'

Almost from the beginning, IMC found itself in controversy. Doctors and hospitals complained that the company wasn't paying its bills, while patients complained about inadequate care. But when federal health officials questioned the company's finances and management practices, IMC countered with a high-powered lobbying campaign by former Reagan administration officials.

"It was very much a house of cards," said Michael Herbert, an executive of a Connecticut health maintenance organization who was called in by the government last year to review IMC. "I was surprised it took so long for the whole thing to come tumbling down."

At the center of IMC's Gold Plus Plan was Miguel Recarey, an energetic refugee from Castro's Cuba who arrived penniless in Florida in 1960 and attained millionaire's status with an adept mixture of financial acumen, borrowed money and political connections. Recarey did not respond to requests for interviews for this article.

An accountant by training, Recarey purchased International Medical Centers in 1977, when it was nearly bankrupt. By 1981, IMC was at the end of a federal contract to provide medical treatment for Cuban immigrants, and Recarey began looking for new business in the health care field. It was then that he hit upon the idea that was to become the Gold Plus Plan.

Unfailingly polite, gracious and correct, Recarey "had an ability to sound very credible," said one former associate. "You came away from him with the feeling that he was an honorable man, that he wanted to do genuinely good."

Yet Recarey frequently attracted controversy. Former business partners complained of his strong-arm tactics. The Internal Revenue Service pursued him for failing to file tax returns in 1969 and 1970, ultimately forcing him to spend a few nights in jail. Nevertheless, by 1981, Recarey had built up a thriving health care empire that included a Miami hospital and a group of clinics called International Medical Centers.

Recarey approached the federal government, which at the time was expanding an experimental program to test whether Medicare patients would enroll in HMOs.

The deal was simple: For a flat payment of 95 percent of Medicare's normal per-patient costs, the company would take care of all the health needs of its enrollees. The government would thus cap rising Medicare costs, and beneficiaries would receive more comprehensive coverage. IMC expected to make its profit by delivering the care more efficiently.

At first, IMC's proposal bombed. A panel of experts convened by Medicare administrators unanimously rejected its application because of the company's lack of previous research experience, among other reasons.

For Recarey, however, the rejection was just the opening round of a high-stakes fight with government regulators for a contract worth millions of dollars.

As he would at other critical moments, Recarey sought help from his political contacts -- in this case, Rep. Claude Pepper (D-Fla.), the powerful advocate for the elderly.

At a meeting in July of 1981 in his Capitol Hill office, Pepper told IMC executives and Medicare staffers that he believed IMC's program would offer relief from the burden of high out-of-pocket costs faced by many Medicare beneficiaries, according to minutes of the meeting.

Not discussed, however, were Recarey's previous difficulties with the government -- difficulty in meeting federal HMO standards in the late 1970s, and an audit of his hospital that would result in an order to return $1.3 million in Medicare funds.

A few months after the meeting in Pepper's office, federal health officials reversed their decision and approved a new IMC application. Even though IMC received barely passing marks from the government panel, it became one of two dozen HMOs in the test program, most of which carried on without any problem.

Federal officials discount the impact of Pepper's intervention on the IMC application, saying they would have approved the plan without it. For his part, Pepper says he helped several HMOs in the state. "I encouraged the government to give them all a chance, not just IMC," he said.

What especially appealed to Pepper about the IMC program was its promise to provide free prescription drugs, eyeglasses and doctor and hospital care without Medicare's deductibles -- care that many of his low-income constituents could barely afford.

"I supported {Recarey} because he told me that it would allow him to provide better health care," Pepper said in an interview. "I thought Medicare beneficiaries would get better service under IMC than under normal Medicare . . . If he did any wrongdoing, I didn't know about it."

Behind the Glitz

IMC showed unusual aggressiveness for an HMO; the firm's forte was marketing, a high-octane blend of television advertising and high-pressure door-to-door sales techniques.

"They were pulling in enrollees like you wouldn't believe," said Brian Luce, a former federal official who oversaw IMC in the early years of the contract.

The rapid and unexpected growth clearly strained the company's administrative capability. IMC's clinics were overburdened. As a result, the company was forced to sign contracts with numerous affiliated clinics, over which the company had little oversight, to handle the overload of patients.

It was then that Florida insurance regulators and legislators began receiving a flood of complaints, including allegations of unpaid bills, charges that IMC was improperly enticing people to join and stories of inadequate care.

Luce and other former federal officials say they investigated the complaints, but much of the early complaining was dismissed as competitive griping. "Physicians don't like losing patients to HMOs, and hospitals don't like dealing with an aggressive HMO," Luce said.

"No one ever thought IMC was the best in American corporate culture . . . {But} they looked like they were doing a great job making a whole bunch of money," he said.

At the same time, the persistent complaints aroused the ire of several South Florida congressmen, including Lawrence J. Smith and Daniel A. Mica, both Democrats.

Smith said he was given "a song and dance" by federal officials when he first raised concerns about IMC in 1983. He then called in the General Accounting Office to investigate IMC and three other Florida HMOs.

Mica moved to hold hearings in his district after a raft of constituent complaints. According to Mica, IMC mounted a vociferous lobbying campaign to stop the hearings, and legislators and friends of IMC "requested more than once" that he put off an investigation.

"It's the first time I've seen such concerted efforts on this level for a local problem," he said.

But Mica's hearings in 1984 and again in 1986 were lightning rods for community complaints about IMC.

Rita Kolsin of Boca Raton told the 1986 hearing that a hospital wouldn't operate on her father until she paid $3,000 because it didn't trust the health plan to pay the bill. Kathleen Moyer, also of Boca Raton, said her mother had repeated difficulty getting chemotherapy before dying of bone cancer in 1985.

IMC officials consistently denied charges of inadequate care, saying that the vast majority of members were satisfied with treatment. But after the hearings, Mica said, they did respond to his concerns by setting up a special office solely to deal with complaints from his constituents.

Even though HCFA in recent months has taken tough action against IMC, Mica and Smith blame IMC's federal overseers for allowing the company's problems to fester. "It seemed like a lot of the time the people at HCFA were closing their eyes to what was going on," Smith said.

Representatives of the American Association of Retired Persons, the lobby group for the elderly, also fault HCFA officials. "They were almost unthinking in letting this thing get out of hand," said John Rother, director of legislation at AARP.

A 1984 investigation by the inspector general's office had found that IMC subcontractors were pressuring enrollees suffering from costly diseases to drop out of the program. While IMC promised to stop the practice, a memo from the inspector general's office in 1984 criticized HCFA for not doing enough to guard against potential abuses.

"{IMC} always seemed to be on the edge," said HHS Inspector General Richard Kusserow, who continually urged tougher action against IMC. "When nudged, they always seemed to go back in bounds."

Carolyne Davis, who headed HCFA until 1985, said the agency's investigators made numerous visits to IMC, yet found little evidence of major problems other than the charges of pressure on some enrollees to drop out. "There was a low level of problems," she said. "But, as I kept telling people, that's why we did demonstration {projects on Medicare HMOs}," she said.

Part of the oversight problem was that the main burden for monitoring IMC's financial health fell to Florida insurance regulators. Florida Insurance Commissioner Bill Gunter said his office was hamstrung by staffing shortages and a weak state law regulating HMOs. While his regulators questioned IMC's finances almost from the beginning, especially the use of IMC money by Recarey and other executives for personal loans, the department did not move until 1986 to force IMC to add more money to its capital base.

"The monitoring was nil," said Gary Gunter, who was the insurance department's top HMO regulator until 1985 (and is not related to Commissioner Bill Gunter). "IMC seemed to have caught a wave when there was less of a . . . staff to regulate them. I don't think this would happen again."

Washington Muscle

Part of Recarey's success was due to his ability to hire high-priced political talent.

To represent his interests in the nation's captial, Recarey retained former Reagan aide Lyn Nofziger. IMC's 1986 tax records show that the company paid his Washington firm $300,000, according to the St. Petersburg Times. Recarey's firm also paid more than $50,000 to the law firm of longtime Reagan adviser John P. Sears.

In addition, Recarey had an account with Black, Manafort & Stone, a local lobbying firm headed by prominent Republicans including Charles Black, Rep. Jack Kemp's presidential campaign manager.

In Florida, IMC's representatives included a former state attorney general, a former congressman and ex-aides to former governor Robert Graham.

A member since 1982 of the Republican National Committee's Eagles Club for major donors, Recarey contributed thousands of dollars to the political campaigns of Florida Republicans and Democrats, including those of Pepper and former Republican senator Paula Hawkins.

In 1985, with the help of Sears and his law firm, IMC gained a crucial concession from the federal government: a three-year waiver from the federal rule requiring that HMOs with Medicare patients have at least 50 percent of their members from the under-65 population. The so-called 50-50 rule was designed to make sure HMOs didn't turn into government-subsidized "Medicare mills" on shaky financial ground.

When the rule went into effect in early 1985, IMC's Medicare enrollment of 118,000 people represented nearly 70 percent of its total. But even critics of IMC felt the plan deserved some time to come into compliance with federal rules.

"Here were 118,000 Medicare beneficiaries who have enrolled of their own free will in the program," said Kevin Moley, the federal government's top HMO official. "We didn't want to be pointy-headed bureaucrats forcing these people to be disenrolled."

In retrospect, Moley conceded, the waiver was a grave mistake, because IMC never made progress in complying with the rule.

Besides, the 50-50 exemption was only the first of several special federal breaks for IMC.

In August 1985, C. McClain Haddow became acting head of the Medicare program. Almost immediately, he agreed to IMC's request that it be allowed to exceed the 50-50 requirement even in additional areas of Florida and, potentially, in other states. The decision reversed previous departmental policy and came over the objections of some members of the HHS staff, who argued that the expanded waiver would "allow IMC to make more money than their competitors where there was no rationale," Moley said.

The decision also perplexed Kusserow, who said he is looking into the unusual waiver because he "couldn't see the justification."

Angry lawmakers sought to eliminate the special dispensation through legislation, but this was quelled in part by Pepper and Hawkins after a lobbying blitz by IMC, Capitol Hill health staffers said.

In December 1985, despite the swelling opposition to IMC, Haddow granted IMC another concession on rules governing IMC's payments to hospitals, according to Moley. The exemption essentially gave IMC a freer hand in negotiating with local hospitals.

Both decisions were reversed after Haddow left the Medicare program in February 1986 to become a health care consultant -- with IMC as one of his clients.

Revolving Door

Recarey's most controversial tactic was his hiring of at least a half-dozen former HHS officials, including several who were involved in decisions about IMC.

Former Medicare chief Haddow was only the most well-known among former federal officials, and IMC paid him $38,000 in consulting fees, tax records show.

Haddow, who is charged in a federal indictment with fraudulently obtaining money from a foundation he helped create while at HHS, declined to discuss IMC, his attorney said.

Recarey's firm also hired HHS' former general counsel, Juan del Real, who became chief of staff at IMC, and his wife, Claire, a former public affairs official at the department who opened a Washington office for the company. Wayne Fowler, a former top HMO regulator, also went to work for the company, as did his deputy Bill Landress. Samuel Turner, also a former department lawyer, did some legal work for IMC.

The officials were attracted in part by high salaries offered at IMC. Del Real, for example, was paid $325,000 a year as IMC's chief of staff, according to documents.

Former IMC vice president Peter Bernal said the company hired the former officials for "their expertise and experience" and "to avoid a confrontation between the private sector and the government."

It is not illegal -- or unusual -- for former federal officials to later work for the companies they regulated. The former HHS officials who went to work at IMC have said that they carefully avoided violating federal law, which restricts ex-officials in lobbying their former agencies.

But IMC's political activity raised eyebrows even in a town accustomed to the so-called revolving door syndrome.

What's more, critics say Recarey's preoccupation with politics distracted him from his real problem: IMC's inability to manage its enormous growth.

To Rep. Mica, IMC officials had "a kind of cavalier attitude . . . that what they couldn't handle with good management, they could handle with political clout."

As IMC worked the Washington circuit, however, its executives appeared to be losing control of the company's operations in Miami. An audit of IMC showed that administrative expenses ballooned, totaling $86 million in 1986, about 20 percent of the firm's total expenses of $417 million -- an unusual amount for HMOs, say industry officials.

Rising advertising and sales costs were only part of the problem. A Florida regulator said IMC officials also paid themselves large salaries; at least 10 executives reported six-figure salaries, also an unusual number for an HMO of its size.

Meanwhile, IMC made a series of unusual and sizable advances to companies controlled by Recarey, according to regulators.

In 1986, the company lost $18 million after reporting a $2 million profit the year before. IMC's operations were increasingly sustained only by the federal government's monthly $30 million check, officials said.

The government gave notice that the check was in jeopardy in May of 1986, shortly after William Roper took office at HCFA. Roper told IMC that it was out of compliance with federal HMO rules and forced the company to agree to a "corrective action" plan. IMC promised to reform and, in an attempt to keep the government at bay, announced that it had reached an agreement in principle to be sold to Humana, the big Louisville health care firm.

Those negotiations were never consummated, however. An increasingly irritated Roper subsequently issued a letter to IMC in April, setting out conditions for the firm's continued operation, including finding new management and raising $8 million in new capital. When those conditions were not met two weeks later, the government announced plans to cut off the Medicare contract.

Moving to protect IMC's subscribers, the Florida insurance department seized control of the plan and, at the end of May, won approval from a state court to sell its assets to Humana for $40 million. Humana has taken over provision of health care for IMC's 165,000 members, including the remaining 120,000 Medicare beneficiaries. A Humana spokesman says IMC will continue to offer exactly the same benefits as it did before.

Despite IMC's problems, defenders of the HMO express regret over its woes. "I think it was a good American success story," said Robert Pyle, a Washington public relations executive who did some work for Recarey. "I'm not condoning all his actions, but obviously if he had 200,000 people enrolled in his program, he must have been doing something right. They're not all dupes."