Fairview says it’s owed $100M by UCare as court orders consumer protections for patients

Fairview Health Services has $100 million at stake in the state’s eventual liquidation of UCare, the Minneapolis-based health system asserted in court filings this week.

The legal papers and a judge’s order offer more details into how far UCare has fallen in just a few short years, from a health plan with record annual profits of more than $300 million in 2022 to a company where the court is now barring officers and directors from running the business.

For nearly 20 years, Fairview hospitals and clinics have provided services to thousands of UCare-insured patients. In April, the health insurer began reopening and denying claims that had already been paid to the health system, according to a Dec. 18 filing in Ramsey County District Court.

UCare did so without requesting medical records to inform those decisions, Fairview said, in what was “an apparent cost-saving measure”. The insurer also withheld payments for medical and pharmacy services, according to the filing, often with no identified basis for the decision or option for appeal.

“These claims practices — which violated Fairview’s written agreement with UCare — threaten a significant revenue impact on Fairview,“ the filing states. “UCare’s unstable financial condition and impending liquidation make it likely that UCare will never be able to catch up on these obligations.”

State officials, while not commenting on pending litigation, said creditor claims will be addressed according to a process outlined in state law.

“The state is evaluating UCare’s existing claims obligations and other debts,” the Minnesota Department of Health said in a statement.

Fairview is asking to intervene in a Ramsey County District Court proceeding where a judge this week found sufficient grounds for the state to “rehabilitate” UCare. That means the Health Department, which regulates HMOs like UCare, will take possession of the insurance company’s assets and administer them going forward.

The filings also highlight the potential financial risk for hospital and clinic operators, who won’t be allowed to try collecting from patients if any of the insurer’s bills go unpaid.

“All providers of health care goods or services ... are prohibited from attempting to collect ... from any enrollee of UCare for goods or services to the extent UCare is obligated to cover the goods or services,” judge Stephen Smith wrote in his order this week.

The state has retained a company to serve as special deputy commissioner and develop what’s being called a rehabilitation plan, although UCare ultimately will be liquidated, the Health Department said in a petition filed with the court earlier this month.

UCare is unable, or is expected to be unable, to meet its debts as they become due, according to the Dec. 1 petition. It said further transaction of business at UCare would be hazardous to policyholders, creditors and the public.

The judge’s order blocks UCare leaders from transferring the insurance company’s property without written permission from the Health Department, which the court has now formally designated as rehabilitator. Officers, directors and others connected to the company are enjoined and restrained from wasting UCare’s assets or dissipating any of the company’s bank accounts.

The court order says the state should consider the interests of health care providers and other contracting groups along with the continued viability of UCare.

“The rehabilitator must seek court approval of any contract amendment that diminishes compensation of a provider or a participating entity and the amendment may not be effective for more than 60 days,” the order says.

Fairview argues this process will directly affect its interests, since the Health Department will have authority to amend the terms or health care provider contracts including reimbursement. The health system’s filing says that as of Dec. 12 it was owed about $80 million for unpaid medical services and $23.7 million for unpaid pharmacy-related services.

The rehabilitation proceedings “could jeopardize Fairview’s rights not only to recover the approximately $100 million it is owed but also to obtain reimbursement for services provided to UCare/Medica enrollees in the future,” the health system said in its court filing.

Last month, Minnetonka-based Medica said it would acquire UCare’s remaining Medicaid and MNsure business in a deal meant to minimize disruption for about 300,000 enrollees.

Total financial reserves at UCare fell from nearly $1.1 billion at the end of 2023 to about $595 million at the end of 2024. Operating losses this year were well in excess of $100 million by the end of June.

In November, the health insurer projected a cash flow deficit of $372.9 million by the end of next year’s first quarter. Savings from massive staffing cuts that are coming soon were not included, however, in this estimate, a source told the Minnesota Star Tribune earlier this month.

While it’s unknown if payments to UCare creditors might be delayed, sources close to the company have suggested the insurer should eventually be able to pay most, if not all, debts. One complication is that some state and federal payments owed to UCare aren’t currently in hand, and won’t be paid throughout 2026 and into 2027.

This all creates uncertainty for health care providers, even though two clinic operators this month told the Minnesota Star Tribune that UCare has continued to pay claims. One of the practice managers said she wasn’t overly concerned, because UCare had a good track record over the years of making timely payments.

Claims are being paid at Hennepin Healthcare, the Minneapolis-based nonprofit that runs HCMC, although the health system overall has an elevated amount of accounts receivable, said Pat Belland, the vice president of revenue cycle.

The health system will continue treating patients with UCare coverage, Belland said, despite the financial questions.

Assessing the degree of fiscal risk is difficult, given the usual lag with claims payments. For patients being treated in late December, he said, UCare wouldn’t normally pay Hennepin Healthcare until late February.

“And, so, I’m hoping they have enough cash to be able to make those payments,” Belland said.

He credited UCare leadership with trying to do the right thing in a difficult situation — one that Belland described as a “yellow flag” problem, rather than a “red flag.”

“What we’re concerned about is: Are they gonna run out of money?” he said. “That’s our biggest concern right now, and we really don’t have any answers from UCare, from the state, from Medica.

“So, if you ask if we have heartburn — yeah, the answer is: Yes.”

UCare foundered in part because it grew its Medicare Advantage business at the wrong time. The insurer added membership just as competitors pulled back amid declining reimbursement from the federal government.

Medicare Advantage is a privatized form of coverage from the original Medicare program.

UCare also lost money as a managed care organization in the state-federal Medicaid program, which provides coverage for low-income residents.

The health insurer first announced in September it would stop offering Medicare Advantage plans next year due to the financial woes. This has forced more than 150,000 enrollees to shop for new insurance coverage in 2026.

This week, UCare started notifying people that Medicare Supplement policies from UCare are being terminated, forcing about 2,500 enrollees to shop quickly for new coverage before Jan. 1.

Medica is hiring about 650 workers from UCare. Another 250 employees are facing layoffs in early January. About 400 workers likely will lose their jobs at some future point, after helping UCare wind down operations.

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