Momentous week for CareFirst

Assembly weighs bills that would kill effort to sell insurer

Mood is `hostile'

Company also faces regulatory deadline that could halt deal

April 02, 2002|By Michael Dresser | Michael Dresser,SUN STAFF

This could be the decisive week for the future of CareFirst BlueCross BlueShield and its proposed conversion to for-profit status.

The company's proposed $1.3 billion acquisition by WellPoint Health Networks Inc. faces perils from both legislators and a key Maryland regulator. Without a few breaks, the deal could be in tatters by the end of the week.

There is little doubt that the Maryland General Assembly is poised to drive a stake through the heart of the $1.3 billion deal. The only question is whether it will be the silver one that makes sure the notion of conversion stays dead.

Del. Kumar Barve, a Montgomery County Democrat, described the sentiment in Annapolis as "hostile" toward the transaction.

"Nobody thinks this is a good idea, and basically everybody thinks it's a big payday for the executives," Barve said - referring to the $33 million incentive package top CareFirst officers will get if the merger is approved.

The Senate gave final approval to legislation yesterday that would shift the burden of proving that the acquisition is in the public interest to CareFirst.

The legislation, which the insurer did not oppose, has been expected to pass since the opening day of the session. It now goes to Gov. Parris N. Glendening, who is expected to sign it.

If CareFirst could limit the legislative response to the transaction to that deal and a few fiery speeches, Chief Executive Officer William L. Jews could declare the session a victory of sorts.

House Economic Matters Committee Chairman Michael E. Busch, the General Assembly's leading critic of conversion, says that isn't going to happen.

"I don't think CareFirst is coming out of here with a win. I think CareFirst is battered up against the ropes," the Annapolis Democrat said.

The Economic Matters committee will hear three CareFirst-related bills today - all proposed by Sen. Robert R. Neall, the Senate's chief critic of the deal. Busch said the prospects for the bills - one of which CareFirst has described as a potential "deal-breaker" - are excellent in the House.

The "deal-breaker" bill would, among other things, instruct the insurance commissioner to reject any deal that includes incentive payments to CareFirst officers - a measure that takes aim at the $33 million for executives if the merger goes through.

CareFirst's slim hopes of limiting the damage are pinned on Sen. Thomas L. Bromwell, chairman of the Senate Finance Committee. Bromwell has repeatedly proclaimed that he is not a supporter of conversion, but he has been the General Assembly's leading proponent of the notion that the decision should be left up to Insurance Commissioner Steven B. Larsen.

The Finance Committee will hold hearings tomorrow on five bills the House passed in response to the WellPoint deal. Four seek to block the deal in various ways and the fifth seeks to return CareFirst to what House leaders see as its nonprofit "mission." That bill, sponsored by Busch and House Speaker Casper R. Taylor Jr., is seen as a repudiation of the current board and a virtual invitation for Jews to leave.

Jews is expected to appear before the Senate Finance Committee tomorrow to oppose the legislation. He will not appear before the more hostile House Economic Matters Committee today.

Jeffrey W. Valentine, a spokesman for the insurer, said CareFirst executives would offer a vigorous defense of the proposed transaction.

"You keep what is good about what [CareFirst] now offers," he said. "You add new products and services, and on top of that you add $1.3 billion to three jurisdictions [Maryland, Delaware and the District of Columbia] to address unmet health needs."

Bromwell has not tipped his hand on his opinions of the House bills, but has indicated that he is reluctant to pile on the beleaguered insurer. Opposition to the transaction is running high among senators, too, however, and Bromwell might not be able to exercise his usual iron control of the committee.

The Baltimore County Democrat could not be reached yesterday afternoon to comment.

One sign of CareFirst's nervousness came in an internal e-mail memo by Jews circulated to employees last week. The memo warned that one of the bills passed by the House could prevent the insurer from providing any benefits other than salary to its employees.

"This is an example of the punitive overreaching actions legislators have taken against CareFirst in their apparent effort to kill our transaction," Jews wrote.

Del. Dan Morhaim, sponsor of legislation to prevent officers and directors of CareFirst from profiting from the merger, called the message a "gross scare tactic." The Baltimore County Democrat said the term "salary," as used in his bill, includes such benefits.

James P. Day, a CareFirst spokesman, said his company's lawyers disagreed with Morhaim's interpretation of the bill.

Legislative action might be the least of CareFirst's worries this week.

Larsen, the insurance commissioner, said yesterday that his Thursday deadline for CareFirst to secure favorable action by the District of Columbia insurance commissioner on the merger of two of its HMOs is a firm one. The commissioner had earlier set a deadline of March 1, which CareFirst was unable to meet.

Larsen has warned CareFirst that he would pull the plug on the conversion if his conditions are unmet on the merger of its FreeState HMO into a new Washington-based HMO. He said yesterday that if he does stop the process, it would not be restarted.

Valentine said CareFirst is "concerned any time when one of the regulators is not happy." He said he hoped Larsen and the Washington commissioner would reach an agreement on the issue.

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