Despite its dismal record insuring state workers, Intergroup has been welcomed back with open arms. The move has some employees seething.

The highest-scoring health plan in the survey was CIGNA HealthCare of Tucson, which scored a 90 on overall care and mainly in the 80s on specific care issues.

Still, Kreutz says Intergroup's growing enrollment is a testament to the plan's quality. "When given a choice, people vote with their feet--and every year more people are walking towards Intergroup, not away," she states.

However, Carol Long, an assistant professor at ASU and a registered nurse, walked away from Intergroup--once she was finally able to walk.

Long testified before the Legislature in 1993 about her problems with Intergroup Prepaid Health Services, which refused to pay for her hip-replacement surgery. Only 40 at the time, Long suffered from a degenerative hip condition which made walking so painful she had to limit the number of steps she took each day.

Intergroup told her to wait until she was 65, when the procedure would be covered by Medicare. Until then, she was supposed to tough it out, she says. After she testified, Intergroup reversed itself and paid for the operation--but not before Long had racked up significant out-of-pocket expenses and suffered a great deal of avoidable pain.

"You wonder, how the hell did that happen?" Long says. "It's like they snuck in again. All the media coverage, all the publicity, and they snuck in again.

"We were outright lied to. It's the maiden voyage of the Titanic, as far as I'm concerned."

Cranky customers aren't the only potential problems with Intergroup's receipt of the contract. Since patients are charged more under Intergroup's indemnity plan if they use an out-of-network physician, it's important that they have access to contracted doctors.

But doctors are leaving Intergroup in significant numbers. According to internal reports obtained by New Times, some 75 physicians have left or given notice to leave one of Intergroup's major contractors in the past nine months. Combined with Intergroup's earlier numbers, that's at least 222 physicians who've left Intergroup since 1995, out of a primary-care pool of 967--a turnover rate of 22.9 percent.

Intergroup says its physicians' network is larger than required by Medicare and Arizona statutes, and that its contractor will recruit new doctors to replace those who resigned. "We have the doctors needed to serve the state contract," Intergroup's Kreutz states.

Intergroup posted a net loss for 1996 of $3,081,025--down from a $26 million profit in 1995. Kreutz explains that the rising cost of health care--Intergroup's medical costs increased by a staggering $100 million from 1995--as well the FHC merger, caused the loss. She says it's a one-time occurrence.

That's troublesome, because a former assistant medical director of Intergroup, now in his own practice, says Intergroup will lose money on its state indemnity contract because the bid was unreasonably low.

"I'm not saying they won't be able to deliver the care," Dr. Bradley Gordon says. "But they cannot do it for that amount of money. They'll just have to make up the money someplace else."

If Intergroup's profits continue to decline, then there will be fewer places for the company to make up the difference on its indemnity.

Gordon thinks the state should've been wary of Intergroup's bid.
"If you get a bid on a construction project that was extremely low, you say to the bidder, 'How can you do that?'" Gordon says. "I seriously doubt the state asked Intergroup, 'How can you do that?' They were probably too busy salivating at the numbers."

While the amount of drool Intergroup's bid generated isn't known, the state says it doesn't have to look too deeply.

Intergroup made the bid, and it's obligated to meet it, DOA spokesman Howard Boice says. "There are provisions to ensure that they meet their obligations," Boice says. "This time it [the contract] was written with a lot more guarantees."

Without providing details, Intergroup's Donna Kreutz maintains the bid is a reasonable one.

Protesting state employees are concerned that Mary Ann Knight, DOA's employee-benefits manager, is married to Richard Knight, an account manager for Intergroup.

"She [Knight] serves on the legislative oversight committee for health insurance as DOA's representative," Harvey Smith says. "She was responsible for writing the RFP [request for proposal, seeking bids]. She supervises two people who were on the [bid] evaluation committee. . . . I'm not saying she has a conflict, I'm no lawyer, so it's not for me to say. But it beats me how she avoids one."

The Department of Administration isn't long on explaining how Knight avoided impropriety, either.

"Mary Ann Knight had no conflict of interest," DOA director Rudy Serino wrote in a terse response to questions from New Times. Serino maintains that the Attorney General's Office already has investigated the possible conflict and cleared Knight.

Howard Boice, public information officer for DOA, puts it even more succinctly: "Oh, bullshit," he says. Boice says the fact that Mary Ann Knight is married to an Intergroup account manager is "irrelevant" and that DOA has taken steps to avoid any impropriety.

Richard Knight has been employed by Intergroup since February 19, 1996. On August 13, six months after he started, Mary Ann Knight wrote her superiors to formally notify them of a potential conflict.

"The fact that my husband works for Intergroup has not been kept a secret. Upon his acceptance of employment, I advised you and I contacted each of the State's contracted vendors individually and advised them. It is unfortunate that at that time I did not initiate this formal letter," she wrote.

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