Sale of big health insurer strikes note of uncertainty for CareFirst

Purchase of No. 2 insurer in Md. shifts `competitive landscape' for No. 1

October 28, 2003|By M. William Salganik | M. William Salganik,SUN STAFF

The two big mergers of health insurers announced yesterday - particularly the one in which Rockville-based Mid Atlantic Medical Services Inc. (MAMSI), was snapped up by a Minnesota giant - introduced a note of uncertainty as Maryland copes with how to regulate CareFirst BlueCross BlueShield, its biggest insurer.

"The competitive landscape obviously changed pretty dramatically this morning," Jeffery W. Valentine, a spokesman for CareFirst BlueCross BlueShield, said yesterday.

The larger deal would create the country's largest health insurer, as one collector of Blue Cross companies, Anthem Inc. of Indiana, buys its rival collector, WellPoint Health Networks Inc. of California, for $16.4 billion. WellPoint had tried to buy CareFirst in a deal announced in 2001, but state regulators blocked the sale.

The smaller merger - expected to have more immediate impact in Maryland - is the acquisition of MAMSI by UnitedHealth Group of Minnesota, for $2.9 billion. MAMSI has nearly 2 million members in seven mid-Atlantic states.

According to a report for the Maryland Insurance Administration in December, CareFirst has a 43 percent market share in the state, trailed by MAMSI with 16 percent and Aetna with 13 percent.

Valentine said MAMSI's new parent brings capital and technology that "intensifies our competitive challenges." The beefed-up MAMSI, Valentine said, would make it important for Maryland-based CareFirst to maintain its business ties with the District of Columbia and Delaware Blue Cross and Blue Shield plans.

Regulators in those jurisdictions have expressed concerns over Maryland's efforts to reform CareFirst's operations -including replacing CareFirst's Maryland board members - and have ordered the company not to make any changes without their approval. The dispute raises the possibility that Delaware and D.C. Blues plans could end up going their own ways, apart from Maryland.

State officials, however, and critics who opposed CareFirst's conversion and sale, said the MAMSI-United and WellPoint-Anthem deals would not persuade them to change direction now.

"I don't think we're going to step back from a five-year moratorium [on allowing CareFirst to convert to for-profit operation] and I don't think we're going to step back from the way we select Maryland board members," said Del. John Adams Hurson, chairman of the House Health and Government Operations Committee.

He said Maryland lawmakers were "certainly willing to talk" to Delaware and D.C. officials to try to satisfy their concerns, but "threats to unravel the company are counterproductive and endanger health coverage in both D.C. and Maryland."

With many of the D.C. plan's members living in Maryland, he said, "we have every right to regulate that company."

Sen. Thomas M. Middleton, who chairs the Senate Finance Committee, said he had been left confused by CareFirst's statements that its priority was to keep the three pieces of the company together while approving an agreement that might make it easier for the Blue Cross and Blue Shield of Delaware to pull out.

"My trust level, and the credibility of CareFirst right now, is at an all-time low," Middleton said.

Vincent DeMarco, executive director of Maryland Citizens Health Initiative, a group which opposed CareFirst's plan to sell itself to WellPoint, said, "I don't see anything changing our position that they should be nonprofit." He said the report by then-insurance commissioner Steven B. Larsen blocking the deal "showed that they are strong enough to do that, and that doesn't change" with yesterday's deals.

T. Michael Preston, executive director of the state medical society, said, "I worry about CareFirst's future, not because it's small, but because they've taken their eye off the ball." He said CareFirst has a strong competitive position, with the largest market share and the largest network of physician and hospitals, but the company's management "has been worried about doing a deal rather than on doing their business."

Preston said CareFirst could learn from MAMSI how a focused company can turn itself around.

In 1998, disappointing earnings had pushed MAMSI stock below $6 a share. It had failed a review by the national HMO accreditation body, the only Maryland company to do so. And it was unpopular with care providers, according to Preston.

The company ousted its chief executive, and "a change in culture turned them around," noted Preston, as MAMSI began working collaboratively with doctors and other providers.

Profit margins soared. Dr. Mark D. Groban, MAMSI's CEO, projected yesterday that earnings in the third quarter would be double last year's. The company has earned the highest accreditation rating and top marks in Maryland's HMO report card. And the stock closed yesterday at $59.62 a share.

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