Blue Cross sues in bid to rid itself of MEDCASH card subsidiary

February 26, 1992|By Ross Hetrick | Ross Hetrick,Staff Writer

Blue Cross and Blue Shield of Maryland, the state's largest health insurer, is locked in a legal battle with Leona Enterprises Inc. of River Vale, N.J., over a credit card operation that Blue Cross started three years ago and now wants to sell.

The fight is over the MEDCASH card, a credit card that Blue Cross introduced in late 1988. In a suit filed in U.S. District Court in Baltimore, Blue Cross is trying to compel Leona to honor an agreement to buy the operation, said Philip H. Grantham, Blue Cross' senior vice president for corporate staff.

Leona said yesterday that the receivables of MEDCASH, an operation of the Blue Cross subsidiary Health Line, are not worth what Blue Cross said they were. Leona also said the cards were used to pay for karate classes and diet center fees, which it said are less likely to be repaid.

MEDCASH cards are used by about 18,000 people and accepted at 3,250 locations in Maryland, Washington, Delaware and Pennsylvania. The card is supposed to be used to pay for health insurance deductibles and co-payments, along with some other health care costs.

The Maryland Insurance Division also has objected to the card's being used for any expenses other than co-payments and deductibles, according to an Insurance Division spokesman. However, those objections did not prompt Blue Cross to put the credit card operation up for sale, Mr. Grantham said.

Blue Cross has focused more on managed care in recent years and wants to get out of what was essentially a financial-services operation, Mr. Grantham said.

In December, Leona Enterprises, an investment company, announced that it had agreed to buy the credit card operation from Blue Cross, and it set up a subsidiary, Medcash Financial, to acquire it. But the Jan. 31 closing date for the sale passed without Leona's completing the purchase. Shortly after that, Blue Cross filed its suit.

In a press release yesterday, Leona said that during a review of the credit card operation's assets, it found that a substantial portion of the receivables were for such expenses as karate classes and diet center membership fees.

Richard Voight, a spokesman for Leona, declined to say how much the company originally offered for the credit card subsidiary.

Mr. Grantham said Blue Cross began discussions with Leona last summer and that the insurer had asked Leona to inspect the credit card's assets before signing a sales agreement in December.

"They chose not to do so," he said. There were also "ample protections" in the agreement for the buyer, Mr. Grantham said, declining to say what they were.

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