Donaho may be gone, but Blues' woes aren't Insurer must regain stability, public trust

April 10, 1993|By Patricia Meisol | Patricia Meisol,Staff Writer

Its nemesis is gone, but Blue Cross and Blue Shield of Maryland remains a troubled company struggling to recover financially and regain public confidence in a hotly competitive health care market.

The ouster of John A. Donaho as insurance commissioner Thursday by Gov. William Donald Schaefer, after a running battle on how to regulate the state's largest health insurance company, leaves key regulatory decisions up in the air and paves the way for company directors to take up anew some of the fights they lost to the feisty regulator.

Under Mr. Donaho's reign as the state's top regulator, Blue Cross was forced to reduce the value of its reserves by 75 percent, and it dumped its top management and then cut off multimillion-dollar retirement bonuses. Mr. Donaho was also pushing for more regulatory power over the Blues as well as for limitations on board members' terms -- restrictions contained in legislation now before the General Assembly.

The Blues' new chief executive officer, William L. Jews, stayed out of the limelight last week -- his first on the job -- and was unavailable yesterday. But here are some of the outstanding issues he faces:

* The $1.5 billion insurer is trying to turn a profit on its non-risk business, which accounts for over half its revenues. The Blues lost nearly $10 million last year on this business, which involves administering claims for self-insured companies, largely because it charged low fees to win contracts.

* The insurer is under pressure to maintain profits to meet even the first level of a phased-in minimum reserve requirement contained in the bill before the General Assembly. Reserves were $24.9 million at year-end as the industry entered a downturn in the cyclical business. Blue Cross must still have at least $23 million by December 1993 to remain solvent.

* The insurer remains on the watch list of the Blue Cross and Blue Shield Association, the national group that grants license to operate a Blue Cross or Blue Shield plan. The Maryland plan is one of about a half-dozen on the association's monitoring list for substandard financial or service levels.

* The Blues are seeking a bigger market share of the managed care business in Maryland. Enrollment in its health maintenance organizations dipped slightly last year, but operations remained profitable. The insurer's biggest challenge, corporate Vice President Amy Levy said yesterday, is getting its board and new CEO to "refine and define" a strategic direction for the company in line with changes occurring in the health care arena, both state and national. "We need to be ready for them," she said.

* The Blues directors are facing a $145 million lawsuit filed 10 days ago by five subscribers. The suit names board members as well as some former top executives and accuses them of recklessly wasting millions of dollars. It asks that any damages be returned to the company. The plaintiffs hope rates could be reduced, or would at least stay level, the lawsuit says.

* The company faces a possible lawsuit from former President Carl J. Sardegna and former Senior Vice President Fred M. Gloth Jr. as a result of its decision not to pay the former managers $5.1 million in supplemental retirement payments.

* The company also faces a possible lawsuit from Attorney General J. Joseph Curran Jr. Deputy Attorney General Ralph S. Tyler III, whose office represents both the insurance division and state of Maryland employees insured by Blue Cross, said yesterday that Mr. Curran is awaiting a decision from the Blues directors on whether they themselves will sue the former executives before the attorney general's office takes action.

* The discount Blue Cross receives from hospitals is under review by the Health Services Cost Review Commission, the agency that oversees hospital payments in Maryland. The state is looking into whether the insurer provides enough low-cost health insurance to warrant its current $20 million hospital discount.

How well the company fares -- and particularly whether it can boost its reserves -- depends to a large extent on the actions and rules set by Mr. Donaho's successor in such matters as whether to hold the company to strict accounting standards.

For instance, the next commissioner could use his discretion to allow Blue Cross to claim higher asset levels for the company's HMOs.

The Blues also are hoping for approval of a joint venture with a private company, InforMed Physician Services, which it hopes will allow it to select doctors who treat patients at expense levels the insurer considers reasonable.

The plan was criticized by Mr. Donaho, who said Thursday it would cost state employees $5 million more a year.

The Blues spokeswoman, Ms. Levy, said the company had no plans to seek a second opinion about the value of its assets from a new commissioner.

Mr. Donaho, reached at home yesterday, said he remained concerned about the regulation of the Blues in Maryland and nationally.

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