Restrictions on Blue Cross consolidation are urged Preservation of assets if plans turn for-profit

November 05, 1997|By M. William Salganik | M. William Salganik,SUN STAFF

WASHINGTON — An article in yesterday's editions incorrectly reported the time for a hearing by the Maryland Insurance Administration on a proposed business consolidation between the Blue Cross plans of Maryland and the District of Columbia. The hearing will be 9: 30 a.m. Monday, Nov. 10, at 211 E. Madison St., Baltimore.

The Sun regrets the error.

WASHINGTON -- Regulators should impose restrictions on the proposed business consolidation between the Maryland and District of Columbia Blue Cross plans to preserve charitable assets in the event they convert to for-profit status, the representative of a consumer group said yesterday.

Kathleen C. Collins, staff attorney for Community Catalyst, testified yesterday at a hearing by the D.C. commissioner of insurance and securities regulation. Community Catalyst is a Boston-based organization that works with Consumers Union on issues involving for-profit conversions of hospitals, HMOs and Blue Cross plans.


"Sometimes, a simple effort to restructure within the nonprofit corporate form is really the first step in a full-blown conversion to mutual or for-profit status," Collins said. The Maryland and D.C. Blue Cross plans propose creating a new nonprofit holding company that would control the boards of both plans.

Collins called on D.C. and Maryland regulators, whose approval is necessary for the consolidation to go forward, to require:

That both Blue Cross plans and the new holding company stipulate that they are charitable corporations. When charitable corporations are sold or convert to for-profit status, their assets must, by law, be placed in a public trust. But some hospitals and Blue Cross plans, when converting, have said they are not charitable, touching off legal wrangling over the assets.

That an accounting mechanism be developed to apportion assets to charities in D.C., Maryland and Virginia in the event of a subsequent conversion.

That there be a two-year moratorium on for-profit conversion by the new holding company and the two Blue Cross plans and their subsidiaries.

That each Blue Cross plan be required to earmark a percentage of premium revenue for charity health care.

Also at yesterday's hearing, Deloitte & Touche, consultants to the D.C. insurance commissioner, said subscribers could benefit from larger doctor and hospital networks and could have lower premiums because of savings from the consolidation, although the benefits are "dependent on management's ability to develop and execute a solid business plan."

The report said the plans, over the next four years, expect to gain $22.8 million in revenue from improved marketing opportunities and save $34 million in expenses, for a net gain of $56.8 million.

Lee Resnick, a principal with Deloitte & Touche, said he had not independently verified the figures, and that the consultants expected it would take longer than anticipated to realize the financial benefits.

More consumer representatives are expected to testify at another session of D.C. hearings today. The Maryland Insurance Administration has scheduled its own hearing for 9: 30 p.m. Monday at 211 East Madison St., Baltimore.

Pub Date: 11/05/97

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