The controversy over Blue Cross of California and for-profit subsidiary WellPoint Health Networks has taken a new turn.
A consumers group has disclosed that investors might be interested in all of WellPoint's assets and that the state of California believes Blue Cross could drag its feet in selling the assets and donating the profits to charity.
The news comes from Consumers' Union, which made public a confidential letter from a state official to Blue Cross. The letter indicates the Blues plan might find a buyer for WellPoint's $2 billion in assets. The subsidiary is a managed-care spinoff of Blue Cross.
In any case, the letter said, state officials want to discuss immediately selling $1 billion in WellPoint assets as soon as they are delivered to a charitable foundation Blue Cross proposes to set up.
The letter from Commissioner of Corporations Gary Mendoza was leaked to Consumers' Union, the organization said. In the document, the commissioner said investment bankers have advised the state "that it is entirely possible that there could be a strategic buyer who would be interested in acquiring all of Blue Cross' assets."
Woodland Hills-based Blue Cross recently proposed donating those assets-representing its remaining 80 million shares of WellPoint-to a charitable foundation in response to criticism from state legislators, the California Medical Foundation and consumer groups.
Critics have contended that Blue Cross used a loophole in state law to operate as a for-profit business and avoid donating its assets to charity (Sept. 19, p. 3). When a not-for-profit organization changes its status to for-profit, it's usually required to donate assets to a charitable foundation.
The commissioner's letter also said the Department of Corporations "remains concerned...about the potential conflicts of interest between WellPoint and California HealthCare Foundation"-the proposed charity's name-and wants to know what steps Blue Cross is taking to eliminate the conflicts in governance and other areas. Consumers' Union is especially concerned that the Blue Cross/WellPoint board would be the foundation's board, said Jeanne Finberg, the group's attorney.
"Though it might not be in the Blue Cross board's interest to be swallowed up" by a buyer of all of WellPoint's shares, it might be in the foundation's and the taxpayers' interest, she said.
Investors already own 20 million shares of WellPoint stock. If a buyer acquires most or all of the remaining 80 million shares, the controlling company presumably would install a new board, Ms. Finberg said.
The commissioner charges in his letter that Blue Cross' investment bankers plan only "passive marketing efforts" to sell WellPoint assets and says others have advised the department that "it is possible to sell at least $1 billion of WellPoint stock on behalf of the foundation immediately upon completion of the conveyance of (Blue Cross') assets to the foundation without adversely impacting the market value of the stock."
Blue Cross wouldn't say whether it had received an offer for the assets.
Consumers' Union said it made the letter public because a deal reached privately might not be as favorable to taxpayers as it could be, Ms. Finberg said.