U.s. Senate Study Of Md. Blues

September 25, 1992

The U.S. Senate Subcommittee on Permanent Investigations spent several months interviewing regulators, subscribers, past and present Blue Cross and Blue Shield of Maryland employees, officers and directors as well as accountants, consultants and auditors. It served 30 subpoenas, and its staff reviewed about a half-million pages of documents.

These findings were taken from the executive summary of the subcommittee's report:

* "BCBSM has been beset by questionable management decisions, questionable financial practices, unprofitable subsidiaries which have been a drain on the plan's assets and resources, diversion of management and plan resources to non-health insurance subsidiary activities, inadequate oversight by state regulators, questionable spending on matters not benefiting providers or subscribers and a poor level of service to providers, subscribers and the general public."

* "The staff has found, much to its consternation, that many of the factors which contributed to the demise of the West Virginia Blue Cross/Blue Shield plan are present, in varying degrees, in ,, the Maryland Blue Cross/Blue Shield Plan."

* "The Plan's reported net worth . . . may be significantly overstated . . . if a downturn in the cycle does occur and if it is severe, the staff is very concerned about its potential impact on the Maryland Plan's low and possibly overstated reserve condition."

After examining 29 subsidiaries and three limited partnerships, the staff concluded that:

* "A series of management decisions that confused regulators, hid corporate entities, and in many cases lost policyholder money . . . after sinking millions upon millions into them, none of the subsidiaries have yet to become the rising star executives had hoped for."

EXCESSIVE SPENDING * Blue Cross bought a four-year lease, totaling $300,000, for a sky box at new Oriole Park at Camden Yards. The first installment of $75,000 was paid in March for a suite that includes 14 seats, two color televisions, private bathrooms and a wet bar. Catered food and beverage bills have averaged $588 per game this year.

* The company purchased hundreds of season tickets at Memorial Stadium between 1987 and 1991, ranging between $7,800 and $10,000 annually.

* The company paid for two "Preakness Village" tents -- replete with AstroTurf, dining tables and chairs for 150 guests and four closed-circuit television monitors -- for a total cost of $32,500 on Preakness Day 1992.

* The company paid nearly $9,000 last year for lunches, dinners, flowers and guest fees at the prestigious Center Club in downtown Baltimore atop the USF&G building. In addition, $6,250 in initiation fees, and $1,250 annual membership fees last

year for five of the company's top executives.

The company paid for a corporate membership, costing $75,000, at Cave's Valley Golf Course in Owings Mills. In addition, the company annual club dues of $2,800 in 1991 and $3,300 in 1992 for Blue Cross' general counsel Fred Gloth.

el,.5l * The company bought 64 all-expenses-paid vacation packages, costing $182,000, to the 1988 Winter Olympics and four packages to the 1992 Summer Olympics for $21,000. Company President Carl J. Sardegna had been scheduled to attend the Barcelona event but decided not to attend in light of subcommittee's investigation, the staff was told.

CHARITABLE CONTRIBUTIONS * $125,000 was given to the Baltimore Symphony with the stipulation from President Carl J. Sardegna that the gift not be acknowledged publicly.

"This contribution is not to be mentioned in any printed material," Mr. Sardegna wrote, despite company claims that Blue Cross needed to make contributions because competitors do and the company wanted to be recognized as supporting the arts.

* From 1988 through 1991, the company gave $53,000 to the National Aquarium, more than $37,000 to Center Stage, more than $18,000 to the Walters Art Gallery and more than $17,000 to the Baltimore Museum of Art.

"The staff is unaware of any other health care companies in Maryland which made similar contributions," according to the subcommittee's summary.

EXECUTIVE PAY * Mr. Sardegna's total compensation increased to $850,193 in from $221,130 in 1986, representing a 284 percent increase (including a base salary of $406,000 and a $300,000 bonus). By comparison, the average compensation for chief executives of 72 Blue Cross and Blue Shield plans nationwide was $388,164.

* The company's top 10 executives received a 181 percent increase in total compensation between 1986 and 1991, while all other Blue Cross employees received an average 28 percent increase during the same time.

* The number of employees making more than $100,000 a year has jumped from 10 in 1986 to more than 40 today, with nine making more than $200,000 and five more than $300,000. Blue Cross counsel Fred Gloth's compensation jumped from $98,987 in 1986 to $572,596 in 1991, a 478 percent increase.

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