The state attorney general has ruled that there is no legal roadblock to a plan by Blue Cross and Blue Shield of Maryland to sell stock in its managed care companies -- a move that could boost its assets by tens of millions of dollars.
But, in an opinion released yesterday, Attorney General J. Joseph Curran Jr. said regulators may not approve the plan unless they are satisfied that potential conflicts of interest are resolved in advance.
The opinion means it is now up to the insurance commissioner, John A. Donaho, to decide whether Blue Cross may go ahead with the plan.
The commissioner, who declined to comment on the matter yesterday pending his ruling, has previously expressed concern over arrangements such as NEWCO that appear to deviate from rules used by the insurance industry to value assets.
Blue Cross proposed last spring to create a holding company called NEWCO for its managed care businesses -- the HMOs CareFirst, Columbia Medical Plan and FreeState Health Plan as well as Green Spring Mental Health Services, a substance abuse and managed care center -- and sell a minority stake to outside investors.
The arrangement would allow the Blues to raise cash.
More important, however, the Blues hope to use the partial sale of the company to establish a market price for its managed care businesses and boost its own net worth at a time when the company is anticipating a downturn in the industry.
The commissioner has put the Blues on notice that he will hold the company to rules set by the National Association of Insurance Commissioners in valuing its wholly owned HMOs. Under the most commonly used rule, the value of an HMO is equal to its year-end net worth. In the case of the Blues HMOs, that amounted to $11 million last year.
The company estimates its HMOs are worth $100 million were they to be sold today, and has cited a report by the investment firm Legg Mason in support of this value.
In his opinion, Mr. Curran cautioned that Blue Cross, as the majority stockholder of NEWCO, could face a conflict between its duty to its HMO subscribers and the financial interests of its outside investors.
The transaction should not be approved, Mr. Curran said, "unless the commissioner is satisfied that the duties imposed upon Blue Cross as majority shareholder would be compatible with its statutory duties to its health service plan subscribers."