Witness in Blues probe says his warnings were ignored

July 31, 1992|By Patricia Meisol | Patricia Meisol,Staff Writer

WASHINGTON -- A surprise witness in a Senate investigation of insurance fraud testified yesterday that the current insurance commissioner of West Virginia sent him packing in 1985 after he discovered that the Blue Cross and Blue Shield plan was insolvent and accused its president of being "a crook."

The witness, John F. King, a former West Virginia insurance examiner who is now a public relations official for Vietnam Veterans of America Inc. in Alexandria, Va., said he was pulled off the case after writing a five-page summary of his findings, delivered to his bosses and Blues officials, in which he recommended that the state find a merger partner or put the plan into receivership.

The West Virginia plan was liquidated in 1990, leaving $40 million in debt, despite a second, more complete report by state examiners. That report, which followed Mr. King's, warned of the plan's demise and recommended the removal of its officers and board.

Neither report was acted on or made public, Mr. King told the Senate Permanent Subcommittee on Investigations yesterday.

The subcommittee has begun a national investigation into Blues health-insurance plans and has subpoenaed records from three plans, including those in Maryland and the District of Columbia. A separate hearing focusing on Blue Cross and Blue Shield of Maryland is planned for September.

Mr. King said yesterday that it was common practice for John Leahberry, an aide to former Gov. Arch Moore who later turned state's evidence in his boss' bribery trial, to give out money for votes and other purposes.

"It was a state for sale," Mr. King said.

Moore pleaded guilty to federal charges of fraudulent conduct, including extortion, mail fraud and obstruction of justice, in 1990. There was no answer yesterday at a phone listed in Mr. Leahberry's name.

Mr. King ended up in the witness chair after reading press accounts yesterday of the panel's investigation and contacting committee staffers, who had been searching for him without success for months.

Mr. King's testimony came as a shock to Hanley C. Clark, the West Virginia commissioner of insurance, who moments earlier had portrayed himself as a white knight in the effort to recover lost money and repay tens of thousands of people left without insurance.

In initial questioning by Sen. Sam Nunn, D-Ga., Mr. Clark, deputy commissioner at the time, and his former boss, Fred E. Wright, both denied covering up the King report at the request of Moore. Mr. Clark also denied firing Mr. King, and the former

commissioner, Mr. Wright, said he did so because Mr. King was "causing too much trouble" in dealings with Blues employees.

After hearing Mr. King speak, Mr. Clark said he did recall ordering the examiner off the Blues case. He denied ordering the record of the case closed, however, and pointed out that he distributed another report critical of Blue Cross to the media. He said he acted against Mr. King on orders from the commissioner and was not aware of involvement by the governor.

Mr. Clark said his staff had come to expect from the Blues nothing but "misinformation, deceit, arrogance and defiance." The attitude of the managers of the Cleveland Blues plan that took over the West Virginia plan "is even more combative," he said. Cleveland Blues is one of at least three plans whose records have been subpoenaed by the Senate. Its spokesman, William Silverman, could not be reached for comment yesterday.

Mr. Clark also said Blue Cross and Blue Shield Association, the Chicago-based trade group that sets standards and has awarded its seal to 73 Blue Cross plans, settled a lawsuit by West Virginia regulators for $8.3 million within a month of its filing in January.

In the lawsuit, Mr. Clark said, West Virginia investigators charged that the national association covered up the West Virginia Blues' insolvency. In addition, he said, the lawsuit contends that all 73 plans had voted to honor a "lockout" agreement set up between Blue Cross and Blue Shield of Ohio, which ultimately took over the plan, and West Virginia, effectively excluding other potential bidders.

He also testified that the national Blues association never told West Virginia regulators that the Ohio plan was itself on a "watch list" for insolvency.

Cheryl van Tilburg, spokeswoman for the association, said yesterday that the "lockout agreement between Cleveland and Charleston [W.Va. Blues plans] was never recognized by the Blue Cross Association." She also denied that there was any vote by the 73 plans.

"In fact, the association actively sought other merger partners for the plan during the negotiations between the parties and up to the signing of the agreement between the two plans," she said.

Ms. van Tilburg said she did not know whether another bidder was ever found.

Although the association did not provide financial information to West Virginia about the Cleveland plan, she said, officials of the Charleston plan conducted their own investigation before the takeover.

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