California firm running physician practices is closing down as scrutiny ramps up

Nov 15 2017

SynerMed, a company that manages physician practices serving hundreds of thousands of Medicaid and Medicare patients across California, is planning to shut down amid scrutiny from state regulators and health insurers.

The company's chief executive, James Mason, notified employees in an internal email Nov. 6, obtained by Kaiser Health News, that audits by health plans found "several system and control failures within medical management and other departments."

As a result, Mason wrote, the company "will begin the legal and operational steps to shut down all operations." He said he was working on the transition of SynerMed's clients to another management firm within the next 180 days.

Separately, the California Department of Managed Health Care confirmed it is investigating the company.

"There is an open investigation of SynerMed, but the details are confidential right now," said spokesman Rodger Butler. His agency monitors the financial solvency and claims-payment practices of many physician groups that contract with health plans.

The company's sudden decision to shut down has sparked alarm among some doctors and medical groups that have relied on the company to handle their finances and business operations.

For years, SynerMed has served as a key middleman between health plans and independent physician practices, handling insurance contracting, paying claims and performing other administrative tasks so doctors can focus on treating patients. That role has expanded as millions more Californians are enrolled in Medicaid managed-care plans under the Affordable Care Act.

SynerMed has billed itself as "one of the largest Medicaid/Medicare management service organizations in the nation." Last year, the company boasted that it had enrollment of 1 million patients in California, aided by an influx of enrollees who got coverage under the federal health law.

Mason, the CEO, didn't respond to requests for comment. The company referred calls to its general counsel, but she couldn't be reached.

In his email to employees, Mason said he had "discovered certain internal control issues within the medical management department."

"Well," he wrote, "as a result of the manner in which those issues were disclosed to the health plans and regulatory agencies, we have been subject to unannounced audits by almost all of our health plan partners."

The CEO said two medical groups, AlphaCare and EHS (Employee Health Systems) Medical Group, have already terminated their contracts with SynerMed.

"I am heartbroken and saddened by these events after we have worked so hard to build our reputation as a company that operates with integrity," Mason wrote in his email to employees.

Part of SynerMed's growth had come from managing care for low-income seniors and people with disabilities who are eligible for both Medicare and Medicaid, called Medi-Cal in California. The state has been at the forefront nationally in trying to shift those "dual-eligible" patients into managed-care plans, which are paid a fixed rate per patient to coordinate a range of medical care.

A spokesman for the Medi-Cal program said the agency had no information to share on SynerMed.

SynerMed is a subsidiary of PAMC, Ltd., which also owns Pacific Alliance Medical Center in Los Angeles' Chinatown. The hospital agreed to pay $42 million in June to settle federal allegations of improper kickbacks to referring physicians.

The U.S. Justice Department said Pacific Alliance Medical Center agreed to the settlement to resolve a whistleblower lawsuit alleging that the hospital submitted false claims to Medi-Cal and Medicare. In a news release at the time, federal officials said the hospital and its owners did not admit liability in settling the case.

The hospital is closing later this month. Officials there attributed the closure to the fact that the lease on the property is ending and it wasn't financially feasible to retrofit facilities to meet the state's seismic requirements.

In a statement to Kaiser Health News, PAMC said "there is no connection between the closure of [the hospital] and any matters involving SynerMed. SynerMed is a wholly owned subsidiary that provides completely different services."

This story was produced by Kaiser Health News, which publishes California Healthline, a service of the California Health Care Foundation.