Blues officer got severance of $2.8 million Glasscock's deal under old contract is called excessive

Consumer groups angry

Package is defended by health insurer, Commissioner Larsen

Health care

May 19, 1998|By M. William Salganik | M. William Salganik,SUN STAFF Reporter Sean Somerville contributed to this article.

Larry C. Glasscock, chief executive of the District of Columbia Blue Cross plan, walked away with a $2.8 million severance package when his company joined with Blue Cross Blue Shield of Maryland.

The payout to Glasscock was part of a $13 million one-time charge reported yesterday by the two Blue Cross plans in their quarterly reports.

Glasscock left in March to become senior executive vice president and chief operating officer of Anthem Inc., an Indiana insurer that runs Blue Cross plans in four states.

Although he left voluntarily, "his contract had a change-of-control clause" that made him eligible for severance, said G. Mark Chaney, chief financial officer of CareFirst Inc., the new holding company that controls the Maryland and D.C. Blue Cross plans.

Critics said yesterday that the severance was excessive for a nonprofit organization, but Blue Cross officials and Maryland Insurance Commissioner Steven B. Larsen said it was in line with what other Blue Cross plans offer chief executives.

Chaney said half the $13 million in charges was severance, while the rest was paid to lawyers, accountants, consultants and others who worked on planning the consolidation and winning regulatory approval for it.

In all, 26 executives received $6.5 million in severance pay, benefits and "out-placement service," said Linda Wilfong, a CareFirst spokeswoman. After subtracting Glasscock's payment, the other executives averaged about $150,000.

CareFirst came into being in January. William L. Jews, chief executive officer of Maryland Blue Cross, became chief executive of the new holding company and Glasscock became chief operating officer of CareFirst and president of the two Blue Cross plans. He left to join Anthem on March 27.

"That's problematic, for the officer of a charity to receive such a large severance package," said Kathleen C. Collins, staff attorney for Community Catalyst, a Boston consumer group.

In testimony at regulatory hearings in Maryland and the District of Columbia, she called on the insurance commissioners to protect charitable assets as the plans combined.

She knew of only one Blue Cross severance package that was more generous than Glasscock's. The package involved a Blue Cross plan in Ohio that was being sold to a for-profit insurer. As part of the deal -- which eventually was thwarted -- a group of executives were to have received $19 million in consulting and other fees.

A. G. Newmyer III, chairman of the Washington Fair Care Foundation, criticized the Maryland package:

'Took charitable assets'

"Glasscock had testified about his role in the new company's management. But instead of running things, he took the charitable assets and ran. On his way out of town, he should stop by under-funded clinics throughout the area and see how his golden parachute might be better spent on health care."

Newmyer's group has sued Blue Cross in the District of Columbia, charging Glasscock and the directors of the D.C. plan improperly transferred charitable assets to the control of the Maryland plan. A hearing is set for next month.

Glasscock could not be reached for comment. Patty Coyle, an Anthem spokeswoman, said he was traveling and was not available for an interview.

John A. Picciotto, executive vice president and general counsel of CareFirst, defended the payment.

"The payment to Mr. Glasscock was made pursuant to a valid pre-existing employment contract" he said, and was "fair and competitive when compared with other, similar Blue plans."

Larsen, the insurance commissioner, said he was satisfied that the payment was in order.

"The Blues provided us with an analysis from Sibson & Co., a national benefits consultant, comparing potential severance packages that some of the officers of the company could receive, with comparable packages from Blues firms across the country," he said.

Aside from comparability with other Blue Cross plans, Larsen said he was concerned with making sure that Glasscock and others did not receive special benefits stemming from the Maryland-D.C. deal.

Glasscock's severance had been set before the business consolidation, he said. "We concluded there was no special enhancement of the severance package," he said.

Chaney said the $13 million charge in the quarter that ended March 31 -- two-thirds to the Maryland Blue Cross plan and one-third to the D.C. plan -- largely completed the restructuring costs.

The plans had also taken $4.5 million in charges in the fourth quarter of 1997. The total cost, now about $17.5 million, was less than the $20 million the plans estimated during hearings, he said.

Also, he said, the combination has started to produce savings: About $1 million is expected this year from combining functions such as auditing and legal representation.

$4.4 million profit

After the charges, the Maryland plan reported a $4.4 million profit for the quarter. Before the one-time charges, profit was $10.7 million. In the first quarter of 1997, profit was $4.5 million.

The D.C. plan recorded a $1 million loss after the charges, and a $3.2 million profit before the charges. In the same quarter a year ago, profit was $5.8 million.

Revenue was up substantially for both plans. The Maryland plan collected $599 million, up 15.6 percent from $518 million in the first quarter of 1997. The D.C. plan had revenue of $348 million, up 11.5 percent from $312 million in the corresponding period last year.

Pub Date: 5/19/98

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