Consumer group sues to block Blues deal Fair Care claims exclusion from debate on Md., D.C. merger

Health insurance

January 23, 1998|By Sean Somerville | Sean Somerville,SUN STAFF

Arguing that it was illegally excluded from regulatory review, a consumer group asked an appeals court yesterday to block the combination of operations of Maryland and District of Columbia Blue Cross plans.

In an appeal filed with the District of Columbia Court of Appeals, nTC the Fair Care Foundation said district insurance regulators excluded two of the organization's board members from key discussions after the agency approved the transaction Dec. 23.

The approval by the district's Department of Insurance and Securities Regulation included 27 conditions on the transaction. On Jan. 16, the department "modified its order based on private meetings with" the representatives of the two plans, the appeal says.

The suit says A. G. Newmyer III, the chairman of Fair Care's board, and J. Robert Hunter, director of insurance for the Consumer Federation of America, were the illegally excluded parties.

"The process where the lobbyists for the Blues cozied up to the regulators to modify the conditions that were imposed is unheard of," Newmyer said.

He called the appeal the first of many challenges to the Blues deal. The appeal names the Department of Insurance and Securities Regulation as a respondent and the District Blue Cross plan as a nominal respondent.

Jeff Valentine, a spokesman for Blue Cross Blue Shield of Maryland, said: "We're reviewing the court suit, and we have a policy of not commenting on pending litigation."

The regulatory approval cleared the way for the plans to combine their operations under a holding company. With $3 billion in annual revenue, the consolidated operation, called CareFirst Inc., will be the seventh-largest Blue Cross plan in the country.

Maryland and district insurance commissioners conducted hearings and commissioned consultants' studies before approving the deal. The conditions were designed to give commissioners more regulatory control and to protect charitable assets of the nonprofit insurers.

William L. Jews, who has been chief executive of the Maryland plan and is now president and chief executive officer of the holding company, had earlier said meetings and correspondence served to clarify the rules.

But John Ellison, another attorney working on the case for Fair Care, said, "The manner in which this decision came and then was 'clarified' was a bit odd and untraditional. And there were significant alterations.

"As part of the December decision, one condition was the blockage of compensation arrangements that would have resulted in significant pay to officers" of the district's Blue Cross plan, Ellison said.

Newmyer also said the original order required the new holding company to be licensed and regulated as an insurer in Maryland before the closing of the deal. "That hasn't happened," he said. "And we think it's absolutely critical."

Specifically, the appeal alleges that the process violated the district's Holding Company Systems Act and its Administrative Procedures Act.

The formation of CareFirst will have no immediate effect on the 2.3 million subscribers to the two plans and little change for most of the 5,000 employees, officials said.

During a period of six months to a year, the companies will combine their sales forces, products and medical networks. The goal is to create a company with regional reach comparable to that of its commercial competitors.

Pub Date: 1/23/98

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