Policyholders and consumer advocates are set to defend their interests in a deal to sell assets of Blue Cross and Blue Shield of Ohio to Columbia/HCA Healthcare Corp.
The sale was announced March 29, but paperwork related to the deal isn't expected to be filed with the Ohio Department of Insurance for about 30 days (April 1, p. 3). The department's approval is needed to complete the deal.
Last week, a class-action lawsuit was filed on behalf of the Blues' policyholders seeking to compel the plan to disclose details of the sale, including how much money will go to Blues executives and contractors.
Meanwhile, the insurance department said it will conduct public hearings.
Consumer groups are raising questions, including whether the Blues should fund a charitable foundation to compensate the public for tax breaks it enjoyed before 1987. The insurer said it would oppose any such measure.
"Given the history of Blue Cross in Ohio, we know that there will have to be a fight to protect policyholders and to get any compensation for unmet healthcare needs in the community," said Shari Weir, consumer issues director for Ohio Citizen Action, a consumer group.
Cleveland-based Universal Health Care Action Network, which advocates universal coverage, also will scrutinize the deal. Its national coordinator, Diane Lardie, said among other concerns, the $299.5 million purchase price is "probably way too low."
The class-action suit, filed in the Cuyahoga County (Ohio) Court of Common Pleas, seeks a "judicial declaration of policyholder rights" in connection with the sale. The policyholders are represented by former U.S. Sen. Howard Metzenbaum (D-Ohio).
The suit charges that the sale will deprive policyholders of the Blues' "substantial surplus in reserves" and provide "excessive payouts" to Blues officials.
Blues spokesman William Silverman called the suit premature and misguided. "These kinds of hipshot headline grabbers are to be expected," he said.
Silverman said the $299.5 million will continue to serve as reserves for the Blues plan after Columbia acquires it, which means policyholder protection will double. Current Blues reserves of $223 million will be transferred to Columbia's new insurance company.
Silverman called the plaintiffs' assertion that John Burry Jr., the Blues' chairman and chief executive officer, could receive up to $25 million in consulting fees "absurd."
Columbia has agreed to compensate five employees or companies that work for the Blues, Silverman said, either by retaining them for future work or signing noncompete agreements. Those amounts will be disclosed publicly, Silverman said.
The five are Burry; general counsel Jerome Rogers; President Kent Clapp, who will serve as CEO of the new Columbia insurance company; Cleveland attorney Kenneth F. Seminatore; and Silverman's Cleveland-based public relations and advertising firm, which has represented the Blues for 17 years.
Several Blues plans have faced scrutiny as they convert their operations to for-profit status. Unlike some plans, the Ohio Blues pays taxes. It has done so since 1987, when it became a mutual company, owned by its policyholders.
The plan contends it owes nothing to the public because it has paid taxes for nine years. Before that, it was the only plan in the state that did not reject applicants on the basis of poor health, Silverman said.
"We don't owe a cent. And we intend to document that when it becomes, if it becomes, an issue," he said.
But consumer advocates say the Blues could be compelled to funnel proceeds to a charity for the years when it was tax-exempt. They point to Virginia's Trigon Blue Cross and Blue Shield, a mutual plan that lost its tax-exempt status in 1988. This year, Trigon agreed to pay $175 million to a state education fund as it converts to a for-profit corporation.
Columbia President and CEO Richard Scott, who traveled to Columbus, Ohio, last week to speak at the Ohio Hospital Association's annual convention, said he was unaware of the legal wrangling.
Scott told a crowd of 500 that "the market is going to change really fast." He said Columbia will build a statewide network in Ohio that could resemble its operation in Florida, where 95% of residents are within 15 minutes of a Columbia hospital.
Scott offered few specifics on how his company will achieve that goal.