State orders management-efficiency audit of Blues

January 22, 1991|By Peter H. Frank

State insurance regulators have ordered a top-to-bottom look at the operations and management of Blue Cross and Blue Shield of Maryland, sparking objections from company officials who challenged the legality of the audit.

In what marks the first time the state has delved into the operating efficiency of Maryland's largest health-insurance company, the state Insurance Division is seeking an analysis of "the overall effectiveness and efficiency of management and operations" of Blue Cross, according to an outline of the proposed audit.

The study is also to include recommendations to the state for ways to "improve the overall operation [of Blue Cross], including service and/or cost savings to subscribers," the outline said.

"Until now, examinations of market conduct and financial studies were the stock-in-trade," said John A. Donaho, the state insurance commissioner.

"Increasingly, though, insurance departments around the country are making management audits and are engaging firms to do so," he said. "Here, the legislature has had a long-term interest in doing such studies of insurance carriers."

Among the areas to be examined and evaluated at Blue Cross are the overall management structure, the company's salary plan and whether its strategic plan "appropriately reflects the mission and responsibilities of the company."

In addition, regulators are seeking a comparison of the Maryland Blues with Blue Cross plans in other states and have asked for recommendations to streamline and upgrade the insurer's process for settling and paying claims.

The outline of the audit is contained in a proposal -- dated Jan. 8 but amended Friday -- from the Insurance Division asking consulting firms to submit bids for the management study. The audit is expected to be completed Oct. 31.

Mr. Donaho said the proposed study grew out of budget legislation passed last year that appropriated $500,000 to the division for management reviews of health-insurance companies based in Maryland.

State regulators already conduct regular financial and market conduct reviews of all insurance companies based in the state, but lawmakers in Annapolis financed the additional studies after worrying that a key aspect of how insurance companies operate and establish premiums was being overlooked by regulators strapped for funding.

"We were concerned about making sure there were enough resources in the Insurance Division to regulate and review the JTC rate filings of all the health-insurance carriers, of which Blue Cross is the largest," said Delegate Timothy F. Maloney, D-Prince George's, chairman of the subcommittee that oversees the division's budget. "If you look at the rate filing itself and not the management practices that drive the rate filings, you really don't get the whole picture."

Mr. Maloney likened the management review of Blue Cross to similar audits that the Public Service Commission has conducted at the regulated utility companies for years.

But Blue Cross, saying it feared that information in the findings could fall into the hands of competitors, challenged the division's legal right to conduct the audit.

"My understanding is that proprietary information, by virtue of the fact that it is held by the Insurance Division, would be accessible to the public and therefore would be accessible to the competition," said Amy Levy, vice president at the company.

Worried that certain services could be jeopardized if other companies learned of them, Ms. Levy said, "The issue is, what do you do against the competition so you can meet client needs? Obviously, you don't want your competitor to know what you're planning to do."

The staff of the state attorney general, which acts as counsel to the Insurance Division, ruled Friday that the division had the authority under state law to conduct the study.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.