Universal Health Care Inc., the troubled St. Petersburg Medicare insurer run by Dr. A.K. Desai, has been subjected to "a pattern of mismanagement" and illegal financial conduct that rendered it "insolvent or about to become insolvent," forcing regulators to seize control, a state investigation has found.
The insurer, which employs almost 1,000 people in downtown St. Petersburg, has been the victim of embezzlement, diversion of its assets, forgery or fraud, Florida Insurance Commissioner Kevin McCarty said in documents obtained Thursday by the Times through a public records request.
The disclosure comes a day after McCarty recommended that Chief Financial Officer Jeff Atwater's office launch delinquency proceedings against Universal and seek to put the company into receivership.
Desai, who founded Universal in 2002 and grew its operation to cover 20 states, is well-known in both the health care community and in politics. A major contributor to the Republican Party, he was named the state party's finance chairman last year.
He resigned from that position Tuesday, saying in a letter to Chairman Lenny Curry: "I no longer have the proper amount of time to devote to such an important cause."
Desai could not be reached for comment late Thursday.
Regulatory scrutiny aside, Universal late Wednesday filed for Chapter 11 bankruptcy reorganization seeking to stay in operation as it tries to sell itself to a company controlled by Tampa cardiologist and WellCare Health Plans founder Kiran Patel.
In its bankruptcy filing, Universal listed assets of $50 million to $100 million and debts between $10 million and $50 million. Its biggest creditors are HCA in Palm Harbor, which is owed $6 million, and Colorado IT systems provider TriZetto, which is owed $4 million. Both unsecured claims are listed as disputed.
But the bankruptcy and prospects of a sale are both tethered to what happens with the state's investigation.
In a scathing report, McCarty's office outlined a pattern of financial mismanagement within Universal through the years.
Toma Wilkerson, director of life and health financial oversight within McCarty's office, said in an affidavit that her office "has determined that (Universal) is engaging in methods or practices which render the continuance of business hazardous to the public or insureds."
The company allegedly materially overstated its assets, masking the severity of its financial problems, investigators found.
The state said management told Universal employees to inflate how much money was in certain accounts. "Management was aware of the error and did not want the matter discussed," the report said.
Compounding the problem was frequent turnover in the position of chief financial officer, with five people rotating through as CFO within a period of six years. Between May 2011 and October 2012, Universal was without a chief financial officer.
The insurer has a $60 million credit line with BankUnited. Three times since Oct. 29, the bank notified the company it could be in default. The bank alleged that financial statements it had provided were "incorrect, false, and/or misleading," state documents showed.
In financial statements that Universal management floated to potential buyers, the company showed "by its own admission" that it was insolvent by $12.6 million as of Dec. 31, 2012. The company would need more than $30 million to continue, based on paperwork prepared for several suitors considering buying the company, investigators concluded.
Universal has been battling customer defections and heightened regulatory oversight over concerns of poor quality and insufficient funding throughout the past year.
Regulators in Ohio and Georgia cited concerns over the company's relatively low reserves in contrast to its rising losses. Last month, Universal stopped marketing Medicare services in all areas.
Jeff Harrington can be reached at firstname.lastname@example.org or (727) 893-8242.