Senate panel plans hearing on Md. Blues Probe will focus on 'irregularities'

July 30, 1992|By Patricia Meisol | Patricia Meisol,Staff Writer

WASHINGTON -- Blue Cross and Blue Shield of Maryland will face a two-day hearing next month before a U.S. Senate subcommittee on a host of problems, including a "pattern of irregularities" in the Blues' handling of health benefits for federal employees.

The state's largest insurer is already under subpoena by the Senate panel for a decade's worth of financial records in a widening Senate investigation into Blues health insurance plans nationwide.

Beginning yesterday and continuing today, the Senate Permanent Subcommittee on Investigations is detailing the 1990 downfall of the Blues of West Virginia, the first-ever collapse of a Blues plan, which stuck subscribers with paying their own medical bills.

At the hearing yesterday, witnesses detailed the insider deals, mismanagement and executives' plans to enrich themselves that preceded the plan's collapse.

In response to a query by Chairman Sam Nunn, D-Ga., John Sopko, the chief staff investigator, said the Maryland plan would be examined next because of problems with its handling of the federal contract.

Senate sources said Maryland would be on the agenda ahead of two other subpoenaed plans, in part because the Maryland Blues refused to give federal auditors access to their books when called on to account for $3.6 million in questionable contract charges.

In addition, the sources said, they have received additional information confirming testimony by Maryland Insurance Commissioner John A. Donaho earlier this month in which he expressed concerns over the Blues' money-losing subsidiaries and charged that the Blues had effectively avoided his scrutiny by currying favor with the governor and lawmakers in Annapolis.

This week, in the wake of a Mr. Donaho's testimony, the Maryland Blues agreed to give the state access to financial information Mr. Donaho said was crucial for regulators.

An audit of the Maryland Blues' federal contract covering a six-year period and completed in 1990 found problems in virtually every area where costs are typically charged incorrectly. In it, the Office of Personnel Management's inspector general questioned more than $1 million in claims that the insurer couldn't document or had duplicated, along with expenses, such as marketing and public relations, that federal contractors aren't allowed to bill.

Maryland Blue Cross administers health benefits for about 4 percent of federal employees, in addition to insuring 1.4 million state residents.

Blue Cross spokeswoman Catherine Campbell said yesterday that the hearing, scheduled for Sept. 24-25, follow a request by the insurer to testify before Congress.

"Carl [Sardegna, Blues president] had sent a letter asking for a hearing so we would able to tell our side of the story. We are delighted to have the opportunity," she said.

In another move affecting Maryland residents yesterday, Mr. Nunn introduced legislation to subject the Blues plan in the District of Columbia to the scrutiny of local regulators.

The $1.5 billion D.C. plan, which has 400,000 Maryland subscribers, is the largest insurer of federal employees. It is exempt from scrutiny by district regulators and is only partly reviewed by regulators in Maryland and Virginia.

The National Capital Blues plan has lost money on more than 34 subsidiaries, and Mr. Nunn said he was increasingly concerned about its contracts with federal employees.

Testimony on what went wrong in West Virginia focused on the creation of unregulated subsidiaries and the Blues' influence in the governor's office. It echoed criticisms of the Maryland Blue Cross plan made by Mr. Donaho to the Senate.

The West Virginia Blue Cross plan went under because of poor management; the establishment of 96 subsidiaries or affiliates, some of which enriched officers and board members; political lobbying that stopped state regulators from acting; a conflict of PTC interest by auditors Ernst & Young; and a host of other problems, including poor underwriting practices, according to the Senate investigation detailed yesterday.

It wasn't only a series of sometimes illegal management decisions that led to the insolvency, however.

According to testimony, a major reason was that Blue Cross and Blue Shield of Ohio, which acquired the defunct plan's customers after its collapse but not its debts, struck a deal with the West Virginia plan for exclusive negotiating rights. That locked out other insurers that might have assumed West Virginia's debts along with its customers.

With no alternatives, regulators had to let Ohio pick up the plans' customers without paying their past bills, leaving people like Vicki Myers, a cancer victim, with a $37,191.12 bill and a police officer at her door.

In the course of the negotiations to lock up the contract, an attorney for the Ohio Blues told regulators: "There's an old Sicilian saying: You get rich in the dark."

The intent of the plan's executives to enrich themselves was clear beginning in 1986, when West Virginia regulators issued a report calling for their ouster and the removal of the board, according to the staff investigation. But the report was reviewed by staff for then-Gov. Archie Moore and never acted upon or released to the public.

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