Md. Blues to let regulators see financial data Pact is signed during hearing in Annapolis

July 29, 1992|By Ann LoLordo and Suzanne Wooton | Ann LoLordo and Suzanne Wooton,The companyStaff Writers

Blue Cross and Blue Shield of Maryland and the state insurance commissioner unveiled an agreement yesterday that will give regulators access to financial information they had previously sought unsuccessfully.

The agreement, announced at a special legislative hearing in Annapolis on the financial health of the Blues, provides Insurance Commissioner John A. Donaho with information that he says he needs to adequately regulate Maryland's largest health insurer.

The pact was signed Monday, three weeks after Mr. Donaho described the company in startling testimony before a U.S. Senate subcommittee as "barely solvent" and accused Blue Cross of poor management and setting up money-losing subsidiaries outside his purview.

During yesterday's hearing, Blue Cross also disclosed that it paid its top four executives $1.85 million in 1991, including $706,000 to Chairman and Chief Executive Carl J. Sardegna, and released a management study that Mr. Donaho also had sought unsuccessfully. Among other things, the year-old report criticized the company's administrative expenses, prompting the company to cut those costs through layoffs and other measures.

But the study said salaries and other compensation for top Blue Cross officials were at or below averages paid by other Blue plans and financial-services companies.

The five-hour hearing before a standing-room-only audience was prompted by Mr. Donaho's allegations before the Senate panel, which shocked many state officials and legislators. His testimony in Washington apparently stemmed from his growing frustration over an inability to secure information from Blue Cross, including data about the health insurer's subsidiaries and the salaries of its executives.

But yesterday, Mr. Donaho said Marylanders "can feel comfortable" that the insurer "is going to be able to meet their needs."

The hearing put pressure on Blue Cross to counter Mr. Donaho's allegations but also gave the company a forum in which to assure Marylanders they can count on the company they have trusted for 50 years.

"You can be assured that Maryland continues to have a caring, responsive and financially sound health insurer of last resort," Mr. Sardegna said.

Blue Cross' 4 1/2 hours of testimony went largely unchallenged by the committee, prompting Del. Lawrence A. LaMotte, D-Baltimore County, to characterize the hearing "as a real public relations show."

The company's interest in getting out its story was clearly apparent. Stacks of gray folders containing printed statements by corporate executives lined the front tables. Charts and other financial data were flashed on an overhead screen.

Besides his top management team, Mr. Sardegna had with him a representative of Arthur Anderson & Co., the Blues' independent auditor; a vice president of Booz, Allen & Hamilton, the consulting firm that prepared the 1990 management study; and a consultant who had studied the company's executive salaries.

At least 10 members of the Blues board of directors -- including chief executive officers of major corporations as well as close associates of Gov. William Donald Schaefer -- sat in the audience.

By contrast, Mr. Donaho was accompanied by three of the

Insurance Division's top administrators. While the Blue Cross officials and consultants testified for more than four hours, the insurance commissioner read a brief statement about his

subpoenaed appearance before the U.S. Senate Permanent Subcommittee on Investigations and responded to less than half a dozen questions. His appearance lasted less than 20 minutes.

After the hearing, Mr. Donaho said the agreement reached with the Blues would provide information he needs to evaluate the insurer's 16 subsidiaries and their effect on the company's overall financial health.

"Since the day I took office, I've had questions about the subsidiaries," Mr. Donaho told the committee yesterday. "This is the first time we've gotten answers on the subsidiaries."

Blue Cross officials testified that all but one of the 16 subsidiaries are profitable.

The company's Health Line subsidiary, a credit-card company that helps consumers pay medical bills, has lost $5 million and is expected to lose another $8 million, according to company officials who are trying to sell the company.

The agreement was worked out in a series of private meetings between Mr. Donaho and Benjamin R. Civiletti, a former U.S. attorney general and currently managing partner of Venable Baetjer & Howard, who was hired by the Blues to represent them in the ongoing federal investigation of Blue Cross plans nationwide and in their dealings with the state.

The agreement calls for the Blues to turn over financial statements on all subsidiaries every six months and to increase from 30 to 60 days the notice it must give the Insurance Division on the creation of new subsidiaries.

Mr. Donaho has claimed that there were some Blue Cross subsidiaries that he didn't even know existed.

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