The official supervising the receivership of DC Chartered Health Plan Inc. said Friday he has agreed, subject to Court approval, to sell certain assets to AmeriHealth Mercy Family of Companies, a national leader in Medicaid managed care, in a transaction that aims to prevent serious disruption in health care for more than 100,000 of the District’s Medicaid beneficiaries.

“Our consistent goal has been to avoid disrupting health care delivery to this vulnerable group of people,” said William P. White, commissioner of the District’s Department of Insurance, Securities and Banking. “The sale of Chartered’s assets to a large, stable company can help ensure that.”

Chartered, the city’s largest Medicaid contractor, has had financial difficulties, losing more than $9 million in 2011 alone; the Department put it into receivership in October with the consent of Chartered’s board.

As a result of the transaction, the network of doctors and hospitals providing care to Chartered’s customers would continue serving them; and AmeriHealth would hire most of Chartered’s employees.
AmeriHealth, headquartered in Philadelphia, has agreed to put more than $30 million in capital into a new DC company. An audit of Chartered’s financial condition in 2011, completed recently, showed it had limited capital remaining.

Chartered would seek to have its Medicaid contract with the city transferred to this new company upon court approval of the transaction. AmeriHealth would also pay $5 million for assets that include Chartered’s name, other intellectual property and most of its agreements with health-care providers, as well as provide free transition services to Chartered.
AmeriHealth, meanwhile, has applied to the City for a new five-year contract to service Medicaid enrollees and members of the city’s own health-care plan, DC Healthcare Alliance, replacing Chartered.
Financial advisors Keefe, Bruyette & Woods said the AmeriHealth deal “is the best alternative and represents a reasonable reflection of any inherent value in Chartered’s business operation in its current state, given the significant challenges – legal and financial” confronting the company, said Deputy Rehabilitator Daniel L. Watkins, the official in charge of the receivership, in a status report to the Superior Court judge supervising the receivership.

AmeriHealth was the best qualified suitor, with the capital and experience to handle a large group of enrollees, according to an earlier report to the court. The company is a national leader in Medicaid managed care and other health-care solutions for the under-served with nearly 5 million members in 14 states.

The judge must approve the transaction and AmeriHealth must secure a contract with the city before the transaction can close.

“Putting this transaction together has been a complicated process and has required a lot of work and good faith on both sides,” said Mr. Watkins, the deputy rehabilitator. “But the transaction we’ve submitted to the court today is the best one to achieve the various goals and needs of the city, Chartered and its Medicaid customers, one that can guarantee the least disruption and best results for the District’s Medicaid market.”

Because the transaction is a sale of certain assets, not of the stock that represents ownership of the entire company, Chartered will keep two illiquid assets: more than $12 million in Chartered investments pledged as security for a bank loan in 2008 that its parent company, DC Health Care Systems Inc., borrowed; and more than $60 million in claims against the city for premium reimbursement, primarily for expensive HIV medications.

By law, the deputy rehabilitator must preserve any residual value (after all other claims are paid) for Chartered’s parent company, whose sole shareholder is Jeffrey Thompson. However, the deputy rehabilitator is seeking several million dollars owed by the parent company to Chartered in federal income-tax refunds. Chartered’s outside auditor has questioned additional payments of more than $1 million to a company formerly related to Chartered. Additionally, Mr. Thompson has indemnified Chartered for the collateral on the 2008 bank loan.

Chartered will remain in receivership through at least the rest of the year under the reorganization plan filed with the Court.

Visit to download the court filing, a statement from the deputy rehabilitator, questions and answers regarding the transaction and previous documents related to Chartered.