CareFirst won't appeal deal rejection

Insurer rules out court bid to overturn Larsen ruling

Wants role legally defined

Assembly bills are aiming to change board's makeup

March 20, 2003|By M. William Salganik | M. William Salganik,SUN STAFF

CareFirst BlueCross BlueShield announced yesterday that it wouldn't launch a court appeal of a ruling blocking its plan to convert to for-profit operation and would support legislative efforts to write the company's nonprofit mission into law.

The decision not to appeal shifts the focus to legislative efforts to reform CareFirst, but those remained in flux yesterday:

With virtually the entire Senate signed on as co-sponsors, a bill to reform CareFirst's board was introduced yesterday - similar to a House reform package introduced last week, but with several key differences.

Another Senate bill introduced yesterday, sponsored by members of the finance committee, would create a House-Senate investigative committee to study whether CareFirst's board violated any laws and whether new legislation is needed.

The House Health and Government Operations Committee held a hearing on its version of reform legislation yesterday but indicated that it is still open to changes in the bill.

The sponsor of the House reform bill, Del. Shane Pendergrass, described the legislation as "a work in progress," and said the committee will work with the Senate and the state insurance commissioner and attorney general to refine the legislation.

After the House hearing, Insurance Commissioner Steven B. Larsen noted that "things are happening on the fly right now," with no clear consensus on the details of CareFirst reform.

During the hearing he told lawmakers, "If you do nothing else, I ask you to reform the board of CareFirst."

The flurry of reform bills follows Larsen's rejection of CareFirst's attempt to convert to a for-profit company in a bid to sell itself to WellPoint Health Networks Inc.

In rejecting CareFirst's application, Larsen said the health insurer's board had failed to consider the nonprofit mission in its charter, and had acted improperly in approving multimillion-dollar bonus packages for executives that hinged on the sale to WellPoint.

In a lengthy report, he also criticized CareFirst for already behaving like a for-profit insurer by, for example, canceling its Medicare and Medicaid HMO plans.

The decision by CareFirst not to appeal Larsen's decision is essentially an acknowledgement that the CareFirst-WellPoint deal is dead.

John A. Picciotto, the insurer's general counsel and executive vice president, said after the hearing that a review of the CareFirst-WellPoint application in Delaware and the District of Columbia, where the company also operates, is officially on hold.

No final decision

Ken Ferber, a WellPoint spokesman, said the sale contract specifies that it is up to WellPoint to make the final decision on whether to appeal, and that decision hasn't been made.

Picciotto conceded, however, that he thought it was unlikely there would be an effort to move the WellPoint deal forward. The insurer had 30 days from Larsen's March 5 ruling to appeal.

The House and Senate bills would accelerate the turnover in CareFirst's 21-member board but offer different specifics on board terms and how new members would be named.

Larsen also has submitted draft amendments to both houses that contain a third set of specifics.

Picciotto said yesterday that CareFirst had sent the House bill and Larsen's amendments to the national Blue Cross and Blue Shield Association. He said the association found that the proposals, which would call for some board members to be named by the governor and/or legislature, did not violate its rules.

The association's rules had previously been seen as a potential roadblock to changing the board.

Both House and Senate bills would spell out CareFirst's duties as a nonprofit and make the board responsible for carrying them out.

Picciotto said CareFirst would support this in concept, and that current and future board members and management would benefit from a clarification of expectations. CareFirst might be suggesting some amendments in this area, he said, but "nothing major."

The Senate bill departs from the House version in that it does not call for an oversight committee to monitor CareFirst's behavior.

Del. John Adams Hurson, chairman of the house health panel, said that naming new board members alone was not sufficient to guarantee that CareFirst would behave as the legislature wanted.

`A bunch of sheriffs'

He also termed the investigation called for in the Senate bill "appointing a bunch of sheriffs and Deputy Dawgs."

Pegeen Townsend, a lobbyist for the Maryland Hospital Association, which had opposed the CareFirst conversion and sale, said of the proposals, "these bills are a fine step in the right direction and go a long way to getting Blue Cross back to its nonprofit mission."

Joseph A. Schwartz III, a lobbyist for MedChi, the state medical society, said he was afraid legislators would not take aggressive enough action and would allow CareFirst's board to reform itself. He said MedChi was looking for "pink slips for everybody on the board."

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