D.C. Blues cast doubt on merger with Va. plan

January 28, 1993|By Patricia Meisol | Patricia Meisol,Staff Writer

WASHINGTON -- The financially ailing Blue Cross and Blue Shield plan for the Washington area is hunting for a new merger partner, casting doubt on a proposed affiliation with the Blues plan in Virginia.

Although talks between the two sides continue, according to Peter F. O'Malley, the interim chairman of the D.C. Blues' parent company, an affiliation with the Virginia plan "is not a certainty," he told members of the Senate Permanent Subcommittee on Investigations yesterday.

Indeed, Mr. O'Malley illustrated his interest in finding a new suitor by offering to recite his toll-free phone number before TV cameras in the congressional hearing room.

Mr. O'Malley, a prominent lawyer in Prince George's County and a former D.C. Blues trustee who was hired last fall to help the plan prepare for the congressional investigation, said Virginia Blues officials have offered to make available to other Blue plans the results of their nearly complete financial review.

The Virginia plan is set to decide by February whether to affiliate with the D.C. plan in any of several ways, Jim Goss, a spokesman for the Virginia plan, said yesterday.

Mr. O'Malley, testifying on the second day of hearings into possible abuses by the D.C. Blues plan, acknowledged that the plan suffered from poor management and a precarious financial situation. But, he asserted, the company has rid itself of money-losing companies and is "on the mend."

The D.C. plan serves 1.2 million people, including 400,000 in Montgomery and Prince George's counties, and is the main division of its parent company, Group Hospitalization and Medical Services Inc. (GHMSI) Although the nonprofit health insurer has a negative net worth of $25 million, officials said that the plan had good cash flow and more than $90 million in investments and that it paid claims faster than most Blue plans nationwide.

GHMSI said it expected to lose $38.8 million for 1992, including $25.6 million from three subsidiaries. Until recently, GHMSI ran 45 subsidiaries in dozens of countries.

The first witness subpoenaed yesterday, former GHMSI President Joseph P. Gamble, cited his Fifth Amendment right against self-incrimination as he refused to answer questions about travel expenses charged to the company and what the committee chairman, Sen. Sam Nunn, a Georgia Democrat, said were "misleading" statements he had made to the company's trustees.

Mr. Gamble's tenure was marked by extravagant spending, artful dodging of regulators, misinformation to trustees and $118 million in losses on for-profit subsidiaries, a report issued by the committee said.

The man to whom Mr. Gamble reported, Charles P. Duvall, a Sibley Memorial Hospital doctor and Georgetown University clinical professor, defended himself and other trustees yesterday, saying they had tried their best.

The D.C. plan went to great lengths to keep secret the finances of its subsidiaries, according to testimony over the past two days. Disgusted by the lack of information, Virginia's insurance commissioner, beginning three years ago, barred the Blues' chief financial officer from his office, according to testimony.

But Dr. Duvall said he was unaware of any of this. Had somebody told him about the frequent use of Concorde jets, or worthless subsidiaries, he said, the plan "might not be in this mess."

Benjamin W. Giuliani, an accountant who held various posts with the D.C. plan over 30 years and was named chief executive in July, also said he was unaware of failed subsidiaries because they reported directly to Mr. Gamble.

Mr. Giuliani said he once flew the Concorde and conceded embarrassment for having approved a $30,000 gift for Mr. Gamble upon Mr. Gamble's retirement. But Mr. Giuliani told the Senate committee that he went to the board chairman, Mr. Duvall, to stop Mr. Gamble's ventures once he became aware of the subsidiaries' failings in February 1992. That was also when the Senate panel began asking questions about the plan, according to testimony.

Mr. Giuliani, who now earns $319,000 a year, said he has taken a 25 percent cut in pay, ended first-class executive travel and closed 24 of the insurer's 45 subsidiaries. He said Blue plans around the country "must consolidate -- probably in seven to 10 regions -- to effectively serve our customers."

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