CareFirst changing tack

Proposal: A dose of legislative opposition gives the health provider reason to rethink its approach to the proposed sale.

April 12, 2002|By M. William Salganik | M. William Salganik,SUN STAFF

Trying to reverse a tide of opposition to its planned acquisition, CareFirst BlueCross Blue- Shield will stress the benefits for the public rather than its business needs, William L. Jews, CareFirst's president and chief executive officer, said yesterday.

An agreement to sell CareFirst for $1.3 billion to WellPoint Health Networks of California encountered a political storm in the General Assembly that threatened to scuttle the deal altogether. The company, which had not anticipated a tough review in the legislature, hurt its cause, according to legislators and others.

"I don't know who was plotting their strategy, but ... everything they did was wrong," said Minor Carter, a lobbyist who represented Maryland Cares!, a coalition of groups opposed to CareFirst's efforts to sell and convert to for-profit operation.

"We've got a textbook case here of how not to sell a conversion to a state legislature," said House Speaker Casper R. Taylor Jr., a powerful voice in shaping health policy in Annapolis. "It was abominably handled."

Now, Jews said, CareFirst will try to focus discussions on the benefits of the deal and on how Maryland can best provide affordable health coverage. During an interview, he repeatedly spoke of the tens of millions of dollars the sale would generate for Maryland's health needs.

While it will shift the emphasis of its message, Jews said, CareFirst doesn't plan a drastic change in how it delivers that message. It will continue to talk to legislators, send representatives to community meetings and present its case to regulators, he said.

After polling focus groups and public relations consultants, however, Jews continued, CareFirst doesn't plan a "mass campaign" to win public support or look for more involvement from WellPoint.

Just before the final gavel came down Monday, the General Assembly approved measures attaching more conditions to the proposed sale but stopped short of blocking it altogether. WellPoint says it is still studying the legislative actions, particularly a requirement that the deal be in cash rather than a mix of cash and stock, before deciding whether to proceed. Jews, however, said yesterday that CareFirst would move forward in trying to sell the deal.

He did not say CareFirst had made serious errors in tactics, arguing that many of CareFirst's actions leading to this legislative session were constrained by law or circumstances. "What we have to do better is not having this transaction be the lightning rod," he said. What is needed is "a systemic look at health care as to access, as to financing, as to quality of care," that would include a discussion of CareFirst's role in that future, Jews said.

Much of the opposition focused on management bonuses. A filing with the state insurance administration last month disclosed that CareFirst executives would collect $33.2 million - including $9.1 million for Jews - if the sale were completed.

The bonuses were "the biggest poke in the eye" to the legislature, said Clifford A. Hewitt, an analyst for Legg Mason Wood Walker in Baltimore who follows WellPoint. Their reaction was reflected in the vote in the House of Delegates on a bill to ban the bonuses - 137-0.

Also, the bonuses made it easy for critics to question the motivation of CareFirst's management. "You have a quasi-public entity locked into a sale by managers who may not be acting in the public interest but in their own interest," said Carl Schramm, a health economist who wrote a report critical of the conversion.

"The merger incentives were jaw-dropping numbers," said Insurance Commissioner Steven B. Larsen, who has maintained neutrality on the deal, because he will review it, but watched the legislative process closely. "The fact that the management and board didn't anticipate the reaction - or anticipated it and chose to go ahead anyway - reflects the complete disconnect between management and the board and what the public sentiment is."

Jews defended the bonuses yesterday, saying, "If there's anything I'd like you to really get and understand, it's this: None of us entered into this transaction believing that money for us, individually, was a factor."

He said CareFirst's directors approved the bonus plan to hold key managers through the transition. CareFirst's leaders realized there would be political fallout, he said. "Did we think about that? Absolutely. But if, in fact, you do the wrong thing, have you not disserved the Maryland citizens?"

Legislative skepticism toward CareFirst began long before the bonus plan became public. While CareFirst had been viewed as an "insurer of last resort," it pulled out over the past few years of the Medicare HMO program for seniors and the state's Medicaid program for the poor. "Their behavior in recent years has done a lot to their public relations," Taylor said.

Jews said CareFirst left those markets because the rates it was paid made it impossible for the company to pay doctors adequately and remain solvent.

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