CareFirst has bad day in Assembly

Senate, House pass several bills aimed at scuttling its sale

Legislation called `unfair'

Insurer says one bill amounts to state taking over its board

March 26, 2002|By Michael Dresser | Michael Dresser,SUN STAFF

The General Assembly continued its legislative barrage against CareFirst Blue- Cross BlueShield yesterday as both chambers passed a flurry of bills propelled by opposition to the insurer's quest to become a for-profit company.

The most sweeping of the bills - which passed the House - would explicitly recommit the company to its nonprofit mission if its proposed $1.3 billion acquisition by WellPoint Health Networks is disapproved by the insurance commissioner or otherwise scuttled.

The measure, supported by the House leadership, also would restructure the board and cut directors' pay.

"We've had philosophical disagreement with the CareFirst board of directors for the past six or seven years," said Del. Michael E. Busch, chairman of the House Economic Matters Committee. "Their belief is that they aren't a nonprofit. Our belief is they should be a nonprofit and perform that way."

John A. Picciotto, CareFirst's general counsel, called the bill "terribly unfair."

"We believe it's tantamount to a state takeover of CareFirst of Maryland," he said.

A second bill approved by the House would give the General Assembly the option of disapproving the acquisition if Insurance Commissioner Steven B. Larsen approves it. The measure was initially introduced as a flat prohibition of the transaction, but it was amended to allow the current review process to go forward - though under the threat of legislative nullification next session.

Picciotto said that bill is "not a big issue for us" because the insurance commissioner would likely have stayed his decision pending legislative review anyway.

A third House-passed bill seeks to throw a monkey wrench into the proposed acquisition by denying Well- Point the right to use the BlueCross and BlueShield trademarks, which the legislation reserves for nonprofit use only.

The trademarks are believed to be important assets for CareFirst, and stripping those names could force WellPoint to reconsider the transaction.

"The trademark bill is a real problem. It is a deal-killer in my view," said Picciotto, CareFirst's general counsel. He added that he believes the legislation is illegal because the trademark belongs to a national association of BlueCross plans.

All three House bills now go to the Senate.

Meanwhile, the Senate passed and sent to the House several CareFirst-related bills last night, including one that CareFirst has identified as a threat to its agreement with WellPoint. The legislation would prohibit the payment of a "breakup fee" to WellPoint in the event CareFirst calls off the transaction.

WellPoint's contract calls for it to receive a $37.5 million payment if CareFirst cancels the deal in order to accept another offer.

The bill, sponsored by Sen. Robert R. Neall, would also bar CareFirst executives from profiting from the merger.

Passage of the bills reflects the tsunami of opposition to the sale that has rolled through Annapolis since the legislative session began in January.

In the brief floor discussion of the bills yesterday, veteran Democratic Del. Leon G. Billings said he has never seen as strong a public reaction to an issue in all the years he has represented Montgomery County.

The reaction has been inflamed by the disclosure this month that CareFirst chief executive William L. Jews and other top officials would share a $33 million payout if the deal is completed.

With prospects for the conversion to for-profit status looking increasingly dim, the most important of the bills that advanced yesterday could be the one recommitting the insurer to its nonprofit mission.

The legislation, sponsored by House Speaker Casper R. Taylor Jr., is a virtual invitation for Jews to resign. The bill would reverse a course that Jews has followed for several years and would likely result in a less supportive board.

The governor would appoint the chairman. Busch, an Annapolis Democrat, said some of the new members would represent hospitals and physicians, groups that have fiercely opposed CareFirst's drift toward for-profit status.

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