It’s only a matter of time now before a local community institution, Bremerton-based KPS Health Plans, will become the property of mega-HMO Group Health Cooperative. In a fire sale deal that gifts Group Health with assets worth considerably more than its $19 million purchase price, Insurance Commissioner Mike Kreidler — a former Group Health employee — will finalize the deal that stunned the community and KPS board members alike when it was announced.

Thurston County Superior Court Judge Richard D. Hicks rejected a last ditch effort to intervene in the sale by the City of Bremerton, along with Kitsap County, the Kitsap County Medical Society and three local doctors. They had requested Hicks grant them standing as interveners, even though they are not parties in the case, and allow 90 days to gather more information about the sale.

County and city officials are extremely concerned Group Health will move KPS out of Kitsap County when the four-year period required by terms of the sale expires, exporting at least 175 family-wage jobs with it. Local doctors are even more concerned that the giant HMO will accelerate its standard practice of sending patients in need of specialty care to its own providers located outside of the community before that four-year period is over. Group Health maintains KPS is contractually bound to continue its arrangements with local providers and is required to operate under its current business plan for at least those four years.

Hicks, who has overseen the management and financial rehabilitation of KPS since it was declared insolvent several years ago, said he was very sympathetic to the community’s fears. He added that even if he wanted to overrule Kreidler, he does not have legal authority to do so. Washington law prevents the court from second-guessing the Insurance Commissioner without evidence the decision to sell KPS either violated the law or abused the significant latitude allowed by the legislature in such situations. Hicks defended Kriedler’s action, saying the Insurance Commissioner hasn’t done anything he termed, “capricious, untenable or unlawful.”

Challengers to the sale may ask Hicks to reconsider his decision, or possibly try to appeal it to a higher court. Bremerton City Attorney Roger Lubovich said he doesn’t know if the city will take any further action until all the parties involved can meet to discuss Hicks’ ruling.

Bremerton had proposed an alternative plan to the sale several weeks ago, but Hicks concurred with Kriedler that it did not meet the minimum standards he’d established, which called for $19 million in capitalization.

It’s that $19 million figure that is the central issue. That number bewildered members of KPS’s management and interim board as well as community interests when news of the sale to Group Health was announced in early April. No one had heard it before then. Group Health’s offer to pump $19 million in cash into KPS meets that requirement, and Kriedler’s office claims it’s the same standard applied to all other companies in the state. However, the city and the proposed interveners argued they couldn’t find any legal evidence to support that requirement.

Meanwhile, Kriedler’s office initially refused to share any more information about the $19 million requirement, elevating the suspicion that Kriedler imposed a special standard on KPS to facilitate the sale to his former employer. However, his office later maintained the capitalization requirement comes from standards of the National Association of Insurance Commissioners, which doesn’t publish them, specifically to prevent insurance companies from altering financial records to appear compliant.

An attorney in Kriedler’s office stated that publicly filed financial documents required of each insurance company doing business in the state would have revealed that figure to the objecting parties had they bothered to research it — something Hicks agreed with.

Another issue in the case is that of possible other purchasers. Kreidler’s office has been extremely vague about whether or not the company was offered to any other possible buyers besides Group Health. At least one out of state company expressed interest, but was reportedly discouraged from requesting the necessary due diligence materials — something Kreidler’s office has declined to comment on.

KPS has steadily climbed out of the $8 million hole it was in when then Insurance Commissioner Deborah Senn took control of the company. But in spite of its steady progress, Kreidler claims KPS still has too far to go. As of June 30, the insurer’s net worth was around $4 million — a $12 million turnaround. Many feel KPS could meet the $19 million requirement necessary to get out from under Kreidler’s control, if given enough time.

Group Health CFO Jim Truess said the HMO is eager to demonstrate its desire to be a “good partner” to the community and to local physicians — a claim being met with open skepticism by many in both groups. Group Health has also said it will retain KPS’s president and CEO, Elizabeth Gilje, who was originally brought in by the Insurance Commissioner’s office as a consultant, and then later hired to run the company. She is widely credited with KPS’s financial turnaround and its solid, increasingly profitable performance.

Kreidler immediately imposed a gag order on all KPS board members and management when the sale was originally announced. But one KPS board member speaking under the condition of anonymity declared the sale a giant farce. “This was a sweetheart deal from the get go,” said the board member. “This is a bad deal for KPS, a bad deal for the doctors who have financed KPS’s recovery, a bad deal for our community and a bad deal for our customers. The only party this is a good deal for, is Group Health.”.