Ex-CEO of CareFirst testifies

Jews denies regulators' claim that his sole focus was profit

May 10, 2008|By Paul Adams | Paul Adams,Sun reporter

CareFirst BlueCross Blue- Shield's former chief executive defended his $17.65 million retirement and severance pay yesterday, and denied accusations by regulators that his sole focus as CEO was boosting profits.

William L. Jews, who became a lightning rod for criticism after he tried to convert the state's largest health insurer to a for-profit company and sell it, made his comments on the last day of hearings in Hunt Valley into whether his pay deal is out of sync with the Blues plan's nonprofit mission.

The Maryland Insurance Administration wants to lower the payout, saying it was illegal for CareFirst to substantially link executive pay to profits instead of measures tied to promoting community health.

In 21/2 hours of testimony before Insurance Commissioner Ralph S. Tyler, Jews described how he transformed CareFirst in his 13 years as CEO from a faltering health insurer into an award-winning Blues plan with a $1 billion surplus. He was forced out, he said, after key board members told him they were under pressure from lawmakers to fire him.

Jews took issue with the MIA's claim that the cash reserves he accumulated as CEO were evidence of his focus on profits at the expense of serving underinsured customers and keeping rates down.

"I put a lot of blood, sweat and tears and time into that company," he said when asked by his attorney, Andrew J. Graham, about his departure in November 2006. "I take a lot of pride in the fact that the company had functioned well during that 131/2 years, and was competitive in the marketplace."

The hearings, which began last week and lasted five days, were reminiscent of the regulatory and legislative scrutiny Jews faced when he attempted to sell CareFirst for $1.3 billion in 2001. The deal fell apart amid outrage over its terms - including executive payouts that could have netted Jews $39 million if the sale was completed.

The controversy led to new state laws that replaced CareFirst's board of directors and locked in its nonprofit status. The 2003 law also stipulated that executive pay has to meet a "fair and reasonable" standard. The probe of Jews' retirement and severance pay marks the statute's first test.

Attorneys for CareFirst and the state will present their final arguments June 18. Once the case record is closed, Tyler will have 30 days to issue a decision.

Under questioning, Jews described how he became a hospital CEO by age 29, and how in 1993 he was recruited to take over what was then Blue Cross Blue Shield of Maryland. The $2 billion Maryland Blues plan, which was under scrutiny for mismanagement and lavish spending, had a scant $25 million reserve when Jews arrived. In his first 60 days as CEO, Jews said, his house was "wallpapered" with company documents as he tried to get a handle on its problems.

"It was basically insolvent," he said.

Jews set about reorganizing the company, and later engineered a series of mergers and other initiatives that led to the creation of CareFirst. The company's membership more than doubled and its reserve grew to $1 billion by the time of the proposed sale. Jews said maintaining a healthy reserve was important to keeping insurance rates stable and ensuring the company had enough cash for capital improvements, among other things.

But the insurance administration contends CareFirst under Jews abandoned its nonprofit mission in pursuit of a for-profit strategy that culminated in management's decision to sell itself to an out-of-state company.

Any executive compensation plan predicated on profits is illegal, attorneys for the state argue. J. Van Lear Dorsey, an attorney for the MIA, submitted documents yesterday showing Jews' pay climbed from $379,000 in 1993 to more than $3 million in 2004. His pay rose by more than $800,000 - the largest increase of his tenure in dollar terms - in the year CareFirst was trying to maximize its value and sell itself, the document shows.

CareFirst and Jews counter that outside consultants were hired to review the insurer's executive pay, finding that it was in line with other not-for-profit Blues plans. They noted that Jews' employment contract was approved by the company's reconstituted board, which after 2003 was packed with members charged with reinvigorating the insurer's nonprofit mission. Details of the contract were regularly provided to a succession of state insurance commissioners, who never raised objections, Jews said yesterday.

If they had, he said, he would have sought legal counsel and considered other options.

"Because I was relying on this to be a part of my retirement when I left CareFirst, I would have potentially sought other employment because I would not have been able to rely on it," he said.

Jews' testimony provided new insight into his departure in 2006.

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