New Start for the Blues

December 05, 1992

Carl J. Sardegna is out as chief executive officer of Blue Cros and Blue Shield of Maryland -- and none too soon. His cavalier management of a health insurance operation crucial to hundreds of thousands of Marylanders led to needless losses and diminished public confidence. That Mr. Sardegna's salary leaped outrageous levels as the mess compounded only added to an intolerable situation.

Now the company has to move ahead with needed reforms. Under the board's new chairman, Frank A. Gunther Jr., and interim CEO William A. Beasman Jr., the Blues can focus their energies on their primary mission: providing affordable medical insurance to people who need it.

Beyond that, one of the board's first inquiries should be inward. Congressional hearings drew a picture of complacency as Mr. Sardegna, without adequate supervision, was allowed to plunge into poorly conceived subsidiary ventures that were draining resources from a company already under fiscal stress. Perhaps the first reform should be the dispensing of the $20,000-a-year fees paid to board members. The Blues is a non-profit enterprise, and its board should serve in the same spirit.

Part of Mr. Sardegna's problem was that he seemed to want to run the Blues as a completely private venture. In one sense that is understandable, since the company is in stiff competition with private corporations. But BCBS, a non-profit organization, is unlike private, for-profit businesses because of its special obligation to be the public's medical insurer of last resort.

The next chief executive would be well-advised to keep fair and accurate books, and to make them readily available to public regulators. In addition, the board should continue its newly active role in providing oversight for company management. With Mr. Sardegna serving both as chairman and CEO, management was able to create a climate in which it could spend $200,000 for executives to attend the 1992 Olympics, even though that expense was far afield from the business of making sure the company could pay the medical claims of the 1.4 million Marylanders it covers.

Under Carl Sardegna, the Blues became a bigger and stronger company, but not as strong as he wanted the public -- and his board -- to believe. At a time when Blues across the country face a tough fight to provide affordable medical insurance, it's worth remembering that candor is essential to good management.

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