Firm picked to evaluate Blues Value of HMOs crucial to insurer's restructuring plans

November 02, 1995|By John Fairhall and Jay Hancock | John Fairhall and Jay Hancock,SUN STAFF

State Insurance Commissioner Dwight K. Bartlett III has chosen Coopers & Lybrand to calculate the value of five Blue Cross HMOs, an analysis that is critical to Blue Cross' restructuring plans.

Mr. Bartlett said yesterday that he hopes Coopers & Lybrand, a national accounting and consulting firm, will complete its work in two months.

Blue Cross and Blue Shield of Maryland officials said the timetable could enable them to file detailed restructuring plans with Mr. Bartlett in January.

The General Assembly, which intends to make the final decision on those plans, would have time to consider them before adjourning in early April, said John A. Picciotto, Blue Cross general counsel and senior vice president.

"My guess is a that a final report [from Coopers & Lybrand] would be given to the commissioner in five or six weeks," Mr. Picciotto said. If Blue Cross delivers its restructuring proposal in early January, he said, "I think clearly the legislature can have significant debate."

Blue Cross is considering splitting into new nonprofit and for-profit companies and selling stock to investors, a radical change for the historically nonprofit company. Blue Cross, which has 1.3 million subscribers, says it needs to restructure in order to raise capital and to compete more effectively.

The company's five health maintenance organizations would become part of the new for-profit company.

If he approves this, Mr. Bartlett said he would require the new company to pay a fair price for the HMOs, which are valuable assets, created while Blue Cross was a tax-exempt, nonprofit insurer.

Mr. Bartlett announced that he would evaluate the HMOs after an article in The Sun raised questions about whether Maryland's public would get its due from their sale in return for decades of tax breaks given to Blue Cross.

But some experts have said he's not going far enough. Coopers & Lybrand is charged with measuring the HMOs' worth by estimating their future profits. That may yield too low of a price, critics have said. Instead, they added, Mr. Bartlett should require an investment banking firm to find out what other companies would pay to buy Blue Cross' HMOs.

The legislature is expected to have final say over whether the payment -- which could be in the hundreds of millions of dollars -- is made to the public, subscribers or the nonprofit company.

Blue Cross had once hoped to submit a restructuring plan to Mr. Bartlett months ago. The company's timetable might be delayed beyond January depending on what Coopers & Lybrand determines and on other factors, including market conditions for a stock sale.

"If market conditions are bad enough, it could be indefinitely postponed," Mr. Bartlett said.

"My sense is [Blue Cross officials] are still hopeful, if somewhat discouraged on a number of fronts," the commissioner added. "Candidly, I think part of the discouragement is the political environment which has been produced by a number of things, including several newspaper articles," he said, referring to articles in The Sun raising questions about Blue Cross' restructuring plans.

Mr. Bartlett said Coopers & Lybrand was notified Monday that it had won the contract to perform the HMO valuation. Five companies, including four national accounting firms and one local investment banking firm, H.C. Wainwright & Co. Inc., submitted bids, he said.

The state will pay Coopers & Lybrand $79,000 and be reimbursed that amount by Blue Cross, according to Mr. Bartlett.

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