Embattled Blues chief resigns Sardegna unable to shake criticism

December 05, 1992|By Patricia Meisol and Ann LoLordo | Patricia Meisol and Ann LoLordo,Staff Writers

Carl J. Sardegna resigned yesterday as president of Blu Cross and Blue Shield of Maryland, unable to overcome the insurer's business problems and his own image for doling out huge executive salaries and lavish corporate perks.

Mr. Sardegna's departure comes after three months of increasingly sharp criticism by state and federal officials over his leadership and after nearly seven years as head of the company that hired him to remake it into a leader in health care delivery for the 21st century. But he created expensive new ventures that contributed to large losses, even as the quality of the insurance company's service to its 1.4 million subscribers deteriorated and became one of the worst in the country. During this period, Mr. Sardegna's own compensation tripled.

Mr. Sardegna submitted his resignation to Blues directors as they assembled in private yesterday morning to hear a report from a special board committee charged with examining why a company that claimed success could be in so much trouble. While exact figures were not available yesterday, he could receive nearly $2.5 million in severance and retirement pay.

His resignation was accepted immediately. The board named one of its own, William A. Beasman Jr., retired chairman of the board of the Bank of Baltimore, as chief executive officer on an interim basis. Mr. Beasman resigned from the board to take over the insurer's day-to-day operation.

Frank A. Gunther Jr., a retired Baltimore businessman who has ** chaired the Blues board and taken charge of its review since October, said the committee had conducted its own review of the company's performance and concluded that the board had not been receiving sufficient information from Mr. Sardegna and other senior managers.

"In all candor, I think what we were told was accurate but in many instances it did not go far enough," said Mr. Gunther. As a result, he said, the board was surprised at the high level of executive bonuses and the extent of losses in some subsidiary businesses.

Responding to concerns over the insurer's financial solvency, the committee also examined at length the "entire matter of how we arrived at" the figures used under Mr. Sardegna to represent the company's reserves available to pay unexpected claims.

Mr. Gunther said directors had concluded that the company is solvent. Further, even if it's required to adopt more stringent accounting rules, the resulting decline in reserves would not threaten its solvency.

Mr. Sardegna's resignation came after three days of debate, discussion, and meetings by Blues directors that began Wednesday at the insurer's Owings Mills headquarters, when members of the special committee assembled to debate their findings. The discussions continued Thursday at the Wye Conference Center on the Eastern Shore, where the committee presented its findings to the full board, with senior Blues staff and Mr. Sardegna present, according to Mr. Gunther.

At 9 a.m. yesterday, the board went into executive session to decide what to do, he said. While they were meeting, Mr. Gunther said, he was informed that Mr. Sardegna had decided to resign.

In accepting the resignation, Mr. Gunther explained, "everybody probably had the same thought I had, which is, now we have the opportunity to come up with somebody with better skills to do the job. And now is the opportunity. It was an opportunity that made sense to us."

He said the perception of Mr. Sardegna's management, "whether justified or not," made it difficult for him to continue. So, in Mr. Gunther's view, Mr. Sardegna "seized the opportunity to look forward" and thus resigned.

The board yesterday did not provide specifics from its review, saying only that it has three priorities: improving customer service, reducing expenses and improving the company's financial condition. In all those areas, the Maryland Blues fail miserably when compared with peers nationwide. It is one of a handful of plans whose poor finances warrant a place on a "watch list" among Blues plans nationwide, ranking as it does, well below the average when it comes to cash and reserve levels.

Mr. Gunther has been meeting with Blues employees almost non-stop over the direction of the company and the problems it faces.

The company, the state's largest health insurer, has been reporting profits in its main insurance business and, recently, for its health maintenance organizations. In the short term, it can pay the bills. The board's actions yesterday are intended to improve its ability to navigate through difficult times expected in the health insurance industry.

The board review began in October, days after the U.S. Senate Permanent Subcommittee on Investigations detailed a pattern of spending abuses and poor management that had resulted in higher costs to subscribers. Directors had previously announced end to annual executive bonuses for this year as well as other symbols of excessive spending, including a skybox at Oriole Park.

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