The Record (Bergen County, NJ)
January 24, 1999; SUNDAY; ALL EDITIONS
Copyright 1999 North Jersey Media
Group Inc., All Rights Reserved
The Record (Bergen County, NJ)
January 24, 1999; SUNDAY; ALL EDITIONS
SECTION: NEWS; Pg. A01
LENGTH: 2031 words
HMO DREAMS END IN FINANCIAL NIGHTMARE
BYLINE: LINDY WASHBURN,
For a while, Magdy Elamir looked like the Horatio Alger of managed
care in New Jersey.
An Egyptian immigrant who parlayed a storefront
medical practice in
Jersey City into a multimillion-dollar health-care empire that
thousands of the state's poorest citizens, he lived in a Saddle
mansion and contributed generously to candidates for political
Now his dreams are in shambles. His health maintenance
organization, American Preferred Provider Plan Inc., is about to
by state regulators to salvage some money for doctors and
calculate they're owed more than $ 45 million.
The HMO was seized last month by the state Department of
which accused American Preferred Provider of siphoning off
Medicaid funds intended to pay providers for the health care of
women and children. The state alleges that the HMO made improper
payments of more than $ 5 million to Elamir and other businesses
and lent more than $ 4 million to two out-of-state HMOs he was
Elamir faces no criminal charges, though he has retained a
prominent attorney, who defended his client's commitment to the
communities he tried to serve.
In December, a Superior Court judge froze $ 4 million of Elamir's
business assets. The 45-year-old neurologist also was ordered to
an $ 840,000 bond by Jan. 4 to cover payments the state says he
improperly for"medical consultations"beyond his $ 400,000-a-year
salary. So far, he has been unable to muster the bond, said his
attorney and a spokesman for the state Department of Banking and
For all his apparent prosperity, a lavish home, a string of
commercial properties, Elamir's difficulty in fulfilling Judge
Parrillo's order offers a revealing glimpse into the precarious
of his tattered empire.
How could this medical entrepreneur, who had no experience running
a managed-care or health insurance company, receive a license for
that now provides care to 44,000 of New Jersey's most vulnerable
citizens? Moreover, how could the state pay such a novice $ 6
month in taxpayers money to take on such a responsibility?
Elamir managed to build a big business on a very small economic
foundation. In contrast to the corporate behemoths of the
world, Aetna, Cigna, United Health Group, his HMO was home-grown
personal, almost a family business. Elamir named himself chairman
board, his brother Mazhar was made senior vice president of
operations, and his sister-in-law, Michelle Jensen Elamir, was
president of administration.
The circumstances of American Preferred Provider's failure are
unique, but they also serve as a cautionary tale. In the wake of
insolvency, just a month after the state takeover of HIP Health
New Jersey, regulators have called for a more thorough examination
the financial well-being of companies that manage and pay for
Both HMOs failures have demonstrated the crucial importance of
requiring financial, as well as medical, accountability from
managed-care companies, experts said. Without sufficient cash
to withstand unexpected expenses, and without well-organized
review and pay claims, doctors and hospitals will go without
HMOs will fail, and patients will suffer.
"There is a lot of smoke and mirrors in the HMO business,"said
Robert Conroy, a lawyer who is chairman of the health and hospital
committee of the state bar association."When you get down to it, a
of these companies are small; they're not well-capitalized.
Elamir used two pieces of property, his $ 1.75 million home in
Saddle River and a Newark office building he bought at a bank sale
$ 650,000, currently valued at $ 4.2 million , to capitalize his
court records show.
He mortgaged, remortgaged, and borrowed against those properties
satisfy state requirements for cash reserves, according to court
documents filed by his accountant, Mohammed Hanafy. The state also
allowed him to put up two unlicensed MRI centers he owned as a
safety net. But the MRI centers didn't bail out the HMO when it
floundered, in part because their cash flow dwindled after three
auto insurers named them in lawsuits, saying they provided
care to fake accident victims.
"I don't think there's any question that the state's oversight of
the process to create these Medicaid HMOs was negligent,"said Gary
Carter, president of the New Jersey Hospital Association, which is
pushing for stricter supervision to avoid future HMO collapses.
In the drive to shift its Medicaid obligation to managed-care
companies, the state"didn't set high enough standards,"said
adding that state criteria for establishing the financial
HMOs are"woefully inadequate."
Elamir did not respond to numerous requests directly or through
attorney for an interview, but a picture emerges from court and
government records of an enterprising physician turned aggressive
businessman who used cunning financial practices to enrich himself
After receiving a medical degree in 1977 from Cairo University in
Egypt, Elamir began practicing medicine in New Jersey in 1982. He
a storefront neurology practice on Summit Avenue in Jersey City,
eventually buying the building and several others on that block,
located near the Pavonia PATH station.
His patients were admitted to Christ Hospital in Jersey City,
he, along with his brother, Mazhar, still has privileges. His
standing is not in question; Elamir has not been disciplined by
the hospital or the state Board of Medical Examiners.
His modest practice was the starting point for a network of
businesses that grew to include five MRI centers, a limousine and
ambulance company, a billing and management service for
various real estate holdings in Essex, Hudson, Passaic, and Bergen
counties, according to court and property records.
In 1990, he and his wife, Wafaa, bought an unfinished Saddle River
house for $ 950,000 at a foreclosure sale, borrowing $ 700,000
same Hoboken bank that sold it to them, according to Hanafy's
court submissions.< The Elamirs completed construction and moved
in in 1993.
Bright white behind its circular drive, the house recently was
appraised at $ 1.75 million. It includes a large indoor swimming
two saunas, an elevator, marble fireplaces, bathrooms, and
and lighted tennis courts.
The house provided the foundation for Elamir to buy an old
building in Newark in 1994 for $ 650,000, according to records
by Hanafy in court. Preparing to set up his HMO, he sought a
location for its headquarters. He refinanced his house to obtain
$ 100,000 for a down payment, and borrowed the balance from a
A few months later, in August 1995, American Preferred Provider
received its HMO license from the New Jersey Department of Banking
Insurance and the Department of Health. A cloth banner with the
trademark logo, a melding of the American flag and the map of the
United States , eventually would be unfurled outside the second
of the Broad Street building, above a Big and Tall men's store.
Elamir had to meet two financial requirements for the license:
First, he needed $ 1.5 million in cash reserves, which he obtained
using the headquarters building, his home, and his $ 2 million
insurance policy as security for a bank loan, Hanafy's court
Second, he had to guarantee that he could supply additional cash
problems developed. For this, he turned to his MRIs.
As a neurologist, Elamir had built a profitable sideline in
magnetic resonance imaging during the early 1990s. With an initial
investment of as little as $ 500,000 for an MRI machine, doctors
expect fees of about $ 1,000 per patient.
Elamir committed two of these MRI centers, in Jersey City and
Irvington, as a source of additional cash for the HMO. Though
was licensed by the state Department of Health, the state
Banking and Insurance approved the HMO license anyway.
With this foundation, Elamir won a contract with the state
division and began signing up doctors and hospitals and recruiting
Medicaid patients, first in Hudson County and later in Bergen and
Passaic counties. He eventually extended his company's reach into
Around the same time, Elamir and his family members made generous
contributions to the governing party in New Jersey, donating
$ 18,000 to the Republican State Committee and various GOP
1996, according to state election commission records.
But as American Preferred Provider's customer rolls increased, so
did the state's requirements for capital reserves, and Elamir
himself in early 1997 in need of $ 3 million more.
In a complicated transaction, Elamir personally borrowed another
$ 1.5 million, using his residence as collateral, to pay off the
on his Newark headquarters, then transferred title to a real
company he owned, Hanafy said in the court documents. The office
building subsequently was reappraised at $ 4.2 million, nearly 6
times its purchase price, and American Preferred Provider issued a
million mortgage to Elamir's realty company.
Despite the dizzying financial maneuvering, the state approved
this arrangement to satisfy American Preferred Provider's higher
"It is not an uncommon business practice to use the value of real
estate to finance other business endeavors,"said Winnie Comfort, a
spokeswoman for the department.
Meanwhile, trouble was developing with the MRIs. In 1996 and 1997,
Maryland Casualty Insurance Co., National Consumer Insurance Co.,
Allstate New Jersey Insurance Co. cited Elamir and numerous other
defendants in lawsuits alleging that they performed unnecessary
procedures on "victims"of staged auto accidents. As a result,
stopped paying for MRIs at Elamir's unlicensed centers, and his
flow dropped, Elamir's attorneys have said.
Elamir ran afoul of the federal Nuclear Regulatory Commission in
1997 after applying for a license to perform radioactive imaging
another of his offices. The NRC found that he had listed a Long
doctor as his office's radiation safety officer and the sole
user of the material without the doctor's knowledge, NRC
records show. The physician was not licensed in New Jersey,
to the state Board of Medical Examiners.
As a result, the NRC has prohibited Elamir from any involvement
with nuclear medicine until 2002.
Last year, Elamir decided to take his managed-care company into
new arenas, Washington, D.C., and Michigan. The state complaint
American Preferred Provider of making improper loans to these
companies, using $ 4.4 million from funds intended for the care of
Jersey Medicaid clients.
In addition, the state says American Preferred Provider improperly
diverted $ 4.2 million to other companies that Elamir owns, and
$ 800,000 in questionable payments directly to Elamir and $
360,000 to his
brother for"medical consultations."
Though Elamir faces no criminal charges, he hired Michael
the former U.S. attorney in New Jersey, as his attorney last
"He has put an awful lot of his effort and money into this HMO
the last couple of years, building it into something that would
the underserved population,"Chertoff said. Elamir agreed to the
takeover, his attorney said, and hoped it would"end with a healthy
Robert Gebeloff, manager of computer-assisted reporting,