Board's key findings

December 07, 1992

Frank A. Gunther Jr., chairman of Blue Cross and Blue Shield of Maryland, oversaw a nine-week study of the insurer and provided these major findings:

* Financial operations. Blue Cross has at least $19 million in its reserve or rainy day fund and this could grow by the end of the year.

The insurer admitted this month that $88 million of its $102 million reserve was achieved by unusual accounting methods approved by the insurance commissioner and that these could be disallowed.

Mr. Gunther said cash flow is low because the Blues advanced $80 million to hospitals to pay bills.

* Subsidiaries. By year's end, the company, which once had as many as 22 subsidiary operations, should have only 14, all of them health-related. Blues officials will continue to monitor the subsidiaries to assess their value to the overall company.

* Executive pay and expenses. Besides canceling bonuses for top officials, the board is reviewing the six-figure salaries of corporate officers.

The board was "shocked" at the millions spent by company management on outside consultants when Carl J. Sardegna headed the company.

Directors also didn't know the company bought a skybox at the Orioles' new stadium, although they said they could see the need for it to entertain clients in a competitive marketplace. To get a better handle on expenses, a new board committee will review company finances monthly.

* Customer service. As company management worked to bring the company out of the red in the late 1980s, customer service suffered. The company "overemphasized sales" to the detriment subscribers and providers.

"We're going to reallocate our resources to build up and encourage those areas that are less than what they should be," )) Mr. Gunther said.

* Employee relations. The board committee found talented managers and dedicated employees who were frustrated by a lack of leadership. The board wants to institute better training and make permanent a 60-member employee group that developed goals and a mission statement for the company.

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