Report uncovers pattern of hiding facts Senate probe finds deep flaws in Md.Blues

September 25, 1992|By Patricia Meisol | Patricia Meisol,Staff Writer Staff writer Ann LoLordo contributed to this article.

WASHINGTON -- Senate investigators issued a scathing report on Blue Cross and Blue Shield of Maryland yesterday, charging that the state's largest insurer overstated its financial worth by as much as $100 million and hid its true condition from state regulators and even its own board while spending lavishly on executive salaries and perks.

Moreover, Senate probers told a packed hearing before the Senate Governmental Affairs Permanent Subcommittee on Investigations, the Blues' own consultant questioned in a secret report whetherthe insurer could survive an industry downturn.

Despite the oft-repeated claim by its top executives that the insurer is in the best shape ever, the company's internal audits, obtained by subpoena, reveal a long and repeated history of management failings that led the Senate investigators to question whether the present management is able or willing to turn it around.

"An excessive amount of money appears to have been spent by [the company] over the years on matters that brought no direct )) benefit to subscribers or providers; indeed, this spending ultimately may have driven costs up," the report said.

A non-group subscriber to the Blues' most popular insurance plan "who paid $3,000 for a policy in 1988 would today be paying over $5,800 in premiums for the same policy," the report noted.

The subcommittee staff "is particularly concerned about the company's apparent frugality when it comes to payment of claims, given the company's affinity for excessive spending in other areas," the report said.

"Simply put, the public has the right to know the complete story about the operations of a company which insures 30 percent of Maryland's citizens," it said.

Yesterday's session was the first of a two-day hearing on the Maryland Blues. Company officials and state insurance regulators are scheduled to testify today.

Lavish spending

The subcommittee staff's report took aim at the company's management in the past few years, from the high salaries paid its top officials to the failings of a host of subsidiary businesses.

While the insurer spent lavishly on top executives -- sending them on trips around the world and paying to move the horse and boat of a new recruit, for instance -- it battled doctors and patients over paying their medical bills and raised their rates many times over, according to yesterday's testimony.

Some of the same conditions -- questionable management decisions and financial practices unearthed in the review of a decade of Blues files, as well as unsuccessful attempts by regulators to control them -- also existed in West Virginia before the Blue Cross plan there collapsed in 1990, the report concluded.

"This isn't a fluke," said Eleni P. Kalisch, counsel to the subcommittee, who headed the Maryland investigation. "I believe we may have just seen the tip of the iceberg."

The panel is investigating the practices of the 73 independent Blues plans nationwide. The subcommittee targeted the Maryland plan after state Insurance Commissioner John A. Donaho complained of his inability to adequately regulate the company at a hearing in July.

Blue Cross defended itself yesterday against the committee's comparison to the failed West Virginia plan and continued to attest to its financial health.

"We are having the best financial year in the history of the company," said Thomas J. Higgins, vice president of public policy for the Maryland Blues.

The staff's findings, including a reluctance by regulators to take on the Blues in the face of political pressure, led the staff to wonder whether the company has become too large for regulators to treat as they do other insurance companies.

"The decisions by the insurance regulators may have served to mask, or even perpetuate," the Blues' financial shortcomings, the report said. "The big question is, is the Blues too big to fail?"

Among the staff's recommendations are that the company be barred from operating non-health-related subsidiaries, that salaries of top executives be publicly reported as a check on excessive spending, that compensation of board members be limited to ensure independent judgment and that the insurer be forced to submit audited statements on its subsidiaries.

Financial data witheld

As recently as July in a hearing in Annapolis, according to testimony

yesterday, Blue Cross executives withheld information on the financial picture of the company. That was a critical piece of a report by consultants Booz Allen & Hamilton Inc. that questions the company's reserve level.

The subcommittee staff said it issued approximately 30 subpoenas and reviewed roughly 500,000 documents durings its month probe of the Maryland Blues. Among its findings:

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