Blues' sale goes down to wire

Assembly decision on CareFirst is likely Monday, its last day

April 06, 2002|By Michael Dresser | Michael Dresser,SUN STAFF

The General Assembly moved toward a confrontation over the proposed sale of CareFirst BlueCross Blue- Shield last night as a Senate committee killed most of the "deal-breaker" bills sent to it by the House.

The Senate Finance Committee instead crafted its own comprehensive CareFirst bill to rival the House's own omnibus bill, which passed yesterday.

The moves by the two chambers set the stage for what is likely to be a down-to-the-wire decision Monday - the last day of the 90-day legislative session.

The Senate bill comes to the floor today, where staunch opponents of the acquisition could try to ambush it with amendments.

As passed by the committee, the legislation largely leaves decision-making power over the proposed $1.3 billion sale to WellPoint Health Networks Inc. in the hands of Insurance Commissioner Steven B. Larsen.

"We should not be the ones killing this deal - at least not this year," said Senate Finance Committee Chairman Thomas L. Bromwell. The Baltimore County Democrat noted that, under both bills, the Assembly would have the opportunity to kill the acquisition next year if Larsen were to allow it.

By unanimously passing a bill more favorable to CareFirst, Bromwell and his committee are taking a considerable political risk.

The proposed conversion of the 65-year-old nonprofit to for-profit status has been met with a storm of protest - especially after the disclosure that top CareFirst executives stand to gain $33 million in conversion bonuses if the transaction is completed.

Both the House and Senate versions of the bill include provisions barring such compensation.

The House bill, crafted largely by House Economic Matters Committee Chairman Michael E. Busch, takes a radically different approach than the Senate bill. Instead of leaving the insurance commissioner with broad discretion, it virtually instructs Larsen to turn it down.

Unlike the Senate bill, the House bill contains two provisions CareFirst executives have described to lawmakers as potential "deal-breakers."

One would require any acquisition to be an all-cash deal, preventing WellPoint from carrying through its plans to acquire CareFirst with $450 million cash and $850 million in WellPoint stock.

WellPoint has been more equivocal about whether the provision would sink the deal.

David C. Colby, WellPoint's chief financial officer, said this week that it was possible in theory for WellPoint to sell the newly created stock directly into the market and give cash to the foundations set up by Maryland, Delaware and the District of Columbia to receive the proceeds of any conversion.

However, Colby said, the cash-stock split was "an important component of the deal that we negotiated with the CareFirst board," and that any substantial changes would reopen the entire agreement to include more protections for the California buyer.

The other provision CareFirst has called a deal-killer would preclude WellPoint from collecting a $37.5 million breakup fee from CareFirst if the insurer breaks off the WellPoint deal in favor of a higher offer.

The Senate bill essentially leaves it up to Larsen to determine whether accepting stock or allowing the breakup fee are in the public interest - with a requirement that any such fee must be paid by the rival bidder separately from the purchase price.

The House-Senate conference Monday could turn into a classic game of last-day legislative "chicken" - with two powerful chairmen taking their negotiations right up to the midnight deadline.

Busch, an Annapolis Democrat, enters the talks holding a hammer over Bromwell. In a rare strategic slip, the Senate chairman let a bill go to the House last month that contains one of the so-called "killer" provisions - the breakup fee ban.

If Bromwell digs in his heels, Busch has the option of taking it to the House floor unamended - where it would surely pass and be sent to the governor to be signed into law. That bill, crafted by Sen. Robert R. Neall, an Anne Arundel Democrat, also would bar the executive conversion bonuses.

Before it put together its CareFirst bill, the Senate dropped a broad "nonprofit reform" bill that would have overhauled the insurer's board. Senators said the bill, which would have restated CareFirst's nonprofit "mission," was so poorly drafted it couldn't be salvaged.

Sun staff writer M. William Salganik contributed to this article.

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