In whose interests?

August 25, 2002

CAREFIRST BlueCross BlueShield executives may be absolutely right in their assertions that Trigon Healthcare Inc. was a less desirable suitor than WellPoint Health Networks.

And maybe they're right that Trigon, which bid $1.3 billion to buy CareFirst and help convert it to for-profit status, would have stumbled trying to make the deal work and might have laid off Maryland workers.

But then, there's a little matter of $33.2 million in executive bonuses that came along with the WellPoint deal -- and the lack of any such payday in the Trigon offer. Are we to believe the bonus money had nothing to do with the sale decision? Is it likely -- or even possible -- that CareFirst executives were able to keep the company's interests in focus, despite the blur of cash that was headed their way?

Ultimately, Maryland Insurance Commissioner Steven B. Larsen will have to decide whether the WellPoint deal is a keeper based on issues other than the bonuses. He's supposed to ensure that WellPoint will continue CareFirst's obligation as the state's insurer of last resort, and that the price of the sale (some $1.3 billion) is sufficient. State government has poured millions into CareFirst to shore up its operations, and the sale price, to some extent, ought to reflect that added value.

But the bonuses can't be ignored. They represent a confounding potential conflict of interest for the executives -- one that's reflective of larger issues roiling throughout corporate America right now.

Too often, it seems, those at the top of a company hold personal interests that supersede or conflict with those of the business they're employed to watch after. Think Enron. Or ImClone.

When the going got tough for those companies, their executives got paid and got out -- right before unknowing employees and shareholders took it on the chin. In some cases, the courts will decide whether their behavior was merely unethical or downright illegal.

CareFirst's sale doesn't present quite the same potential for scandal, but it does raise many of the same issues. What if executives chose a buyer who will fatten their wallets but can't adequately serve Maryland's burgeoning need for low-cost insurance? What if they picked a buyer who would reward them, but whose price was shorting the state on its investment?

The problem is that there's no way to be sure of their motives. Earnest as CareFirst officials seem in their insistence that the WellPoint deal was best, the executive bonuses saddle them with a credibility gap. What Mr. Larsen must do is sort the executives' interests from the state's, and ensure the latter are being served.

He'll do that by December, and then the legislature must give the deal a thorough vetting before making a final decision. In the end, CareFirst may wind up in the best position to serve Marylanders' health care needs -- but there are 33.2 million reasons to make sure things don't ever work this way again.

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