Sardegna dismisses 3, transfers 1 Blues officer President says he considered quitting

November 20, 1992|By Patricia Meisol | Patricia Meisol,Staff Writer Staff writer Ann LoLordo contributed to this article.

An article in The Sun yesterday incorrectly reported the estimated severance due three executives dismissed by Blue Cross and Blue Shield of Maryland Inc. Their combined severance is about $500,000. In addition, The Sun reported that the Blues' health maintenance organizations have not met expected growth rates for the year. In fact, the HMOs have earned $5.2 million to date, or $1 million more than forecast for the year.

The Sun regrets the errors.

Blue Cross and Blue Shield of Maryland announced a major shake-up of its top management yesterday, and its president, Carl J. Sardegna, said he had considered resigning as well but decided to remain and "stick it out."

The health insurer said Mr. Sardegna asked three top executives to leave the company and one other to accept reassignment to other duties.


The changes come as the cash-short company tries to meet fourth-quarter expectations for its managed-care companies and to turn a profit in the administrative side of its business.

As part of the shake-up, which comes two months after a congressional investigation that found widespread mismanagement, the company announced a national search for a new chief financial officer. Together, those leaving will be paid more than $1 million in severance.

Mr. Sardegna, who assembled the management team now being dismissed, remains in charge and said he would take charge of day-to-day operations. He said he thought about resigning himself but decided against it.

"My feeling is, I believe very much in this company and what we are doing. I started something, and that's why I want to stick it out," Mr. Sardegna said.

Ultimately, Mr. Sardegna's future rests with the board of directors, which is expected to unveil its assessment of the company's management at its December meeting.

The board chairman, Frank Gunther Jr., said yesterday that directors who are examining company operations in the wake of the Senate investigation have been sharing their concerns with Mr. Sardegna regularly.

"We would like to think a lot of what we were sharing with him helped him make these decisions, but we did not make these decisions," Mr. Gunther said.

He said the board supported Mr. Sardegna's action, but that its own work would continue. "The moves made to this point are moves not by the board but by the present CEO, which is his right," Mr. Gunther said.

The changes come two months after a U.S. Senate staff report concluded the current management team was not equipped to lead the insurer through the expected lean times ahead.

With the retirement next year of the company's senior lawyer, Fred M. Gloth Jr., four of the six top-paid company officials will be gone by spring.

Mr. Sardegna said he knew he had to make changes after the September hearing.

"It happens all the time, you hire people and things change," Mr. Sardegna said. "This is something I had been thinking about for a while and decided to take action."

Mr. Sardegna said he decided not to fill two of the jobs so he could become more directly involved himself. "I wanted to get closer to the operation of the company, which meant I had to flatten it," he said.

Mr. Sardegna, whose $850,000-plus compensation makes him one of the best-paid insurance executives in America, had spent much of his time in the past few years lobbying for a pilot health-care program that would have increased business for the Blues.

During his tenure, the Maryland Blues sank to the bottom of its peers nationwide in such critical areas as cash flow and service to customers, according to numerous reports.

At the same time, the Blues lost $120 million on for-profit businesses, many of them initiated by Mr. Sardegna. As a result, the cost of insurance rose and Maryland Blue Cross/Blue Shield was named to a "watch list" of troubled Blue plans nationally.

The company escaped insolvency several times in recent years by persuading Maryland regulators to grant special exceptions to accounting rules. The Blues' net worth is expected to plummet at year's end, when regulators say the exceptions will end.

The insurer reported Monday that its health-care management companies declined 6 percent in enrollment and 13 percent in revenues so far this year. Earnings would have to increase 46 percent, to $7.6 million, to meet 1992 expectations.

Those leaving will receive a year's salary under a transition program for departing employees. The three executives whose departures were announced yesterday are:

HTC * Charles E. "Ned" Vadakin, whose job as chief operating officer is being eliminated. Mr. Vadakin was hired from Mr. Sardegna's previous insurance company in Maine and presided over many of the Blues' money-losing business ventures. He would leave in May after completing several projects. He earned $461,441 last year.

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