D.C. deal may derail CareFirst

Sale to WellPoint is threatened by failure to give data

Requirement is unmet

Md. insurance chief gives insurer until Thursday to comply

March 29, 2002|By Michael Dresser | Michael Dresser,SUN STAFF

The proposed conversion of CareFirst BlueCross Blue- Shield to a for-profit company could be derailed because of the company's failure to meet a deadline in a merger case, the Maryland insurance commissioner said yesterday.

Commissioner Steven B. Larsen confirmed that he sent a letter to the insurer early this week giving it until Thursday to abide by the terms of his order approving the merger of its Maryland-based FreeState health maintenance organization into its new Washington-based BlueChoice HMO.

If it does not, Larsen said, "it would certainly mean the end of the conversion proceedings."

CareFirst must take the warning seriously because Larsen is the Maryland official charged with deciding whether CareFirst's proposed conversion and sale to WellPoint Health Networks Inc. is in the public interest. The insurance commissioner's hearing process has been going on for about a month.

The merger issue is an arcane matter that is nevertheless important because it could affect the way Maryland, the District of Columbia and Delaware split the $1.3 billion sale price if the WellPoint transaction is approved.

If Maryland disapproves the conversion, it could also affect how the assets are split if CareFirst decides to go ahead with the sale of its Washington unit - something company officials have said they would consider. (CareFirst has yet to say if a similar sale is being considered for its Delaware unit.)

The CareFirst acquisition has run into major opposition in the Maryland General Assembly, where legislators have proposed bill after bill intended to scuttle the deal. Even in the absence of politics, this new wrangle illustrates the complexity of winning approval of a transaction involving regulators in three jurisdictions.

John Picciotto, CareFirst's general counsel, predicted that the HMO merger matter would be resolved. He said the insurer has not been dragging its feet but has been caught between the conflicting concerns of the insurance commissioners of Maryland and the District of Columbia.

"I feel confident that the commissioners will meet the April 4 deadline," he said.

Larsen said he approved the FreeState-BlueChoice merger in late December on condition that CareFirst convey majority ownership in the Washington HMO to its Maryland subsidiary. He said that at the time he set a March 1 deadline for CareFirst to secure the District of Columbia's agreement to the merger on terms imposed by Maryland.

Larsen said CareFirst has yet to comply. "This issue has been bubbling for over two months and I haven't seen any signs of resolving it to our satisfaction," he said.

Asked what would happen if merger issue can't be resolved in time, Larsen said: "I can only described that scenario as a train wreck." In a worst-case scenario, the matter could end up in court, he said.

Larry Mirel, the District of Columbia's insurance commissioner, said CareFirst didn't deliver the detailed information he requested until yesterday. He said it would be difficult to reach any decision by next Thursday and added that it is likely he will approve the merger on different terms than Larsen's.

Mirel questioned the linkage between the WellPoint deal and the merger.

"I don't see what it has to do with the conversion," he said. "That's why I'm not clear what the hurry is."

Larsen said the merger case is related to the conversion because his job is to see that all of Maryland's assets are accounted for before any conversion can be approved. In this case, each Marylander insured by FreeState and transferred to BlueChoice represents a state asset, he said.

"Essentially you can't just shift the assets out of an insurance company without getting something in return," he said.

In this case, that something is CareFirst's percentage of ownership of the Washington HMO, which Larsen puts at 64 percent.

Mirel said he's not prepared to accept that number without documentation from CareFirst. He said the insurer initially provided his office with a one-page description of its assets - a disclosure he rejected as inadequate. Since then, he and CareFirst have been going back and forth about what information is needed, he said.

The Washington regulator said the 64-36 split was based on a 1997 "snapshot" - a figure he believes may be out of date.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.