The bosses at Blue Cross and Blue Shield of Ohio thought they were ready for the big time when they decided to sell their plan to mighty Columbia/HCA Healthcare Corp., the nation's largest for-profit hospital company. But as details of the deal surface, it's increasingly evident that plan executives were so anxious to do the deal-or so busy looking out for their own interests-that they didn't adequately protect the plan and its policyholders.
Like Blues conversions in other states, this attempt, characterized as a joint venture, raises serious concerns for everyone involved in the delivery and financing of healthcare.
The deal is a bonanza for top Blues officials, who stand to make $19 million in consulting contracts and noncompete agreements. In addition, the Ohio plan's president and chief operating officer will become CEO of a new Columbia unit, hardly a prescription for a hard-nosed bargaining stance.
The $299.5 million purchase price appears to be a nifty bargain for Columbia. Because Columbia wins control of the $233 million in reserves, its outlays are reduced. If the plan is overfunded, Columbia could simply appropriate some of the cash, thereby lowering the effective price by a like amount. The issue may become clearer now that the Blues has made public the results of a fairness opinion the company conducted prior to the sale agreement.
Adding to the concern is an analysis by Donaldson, Lufkin & Jenrette showing that Columbia is paying only about $200 per enrollee, about one-third the average for similar transactions.
Plan executives failed to protect policyholders through appropriate business safeguards. Last week the board of the national Blue Cross and Blue Shield Association warned the Ohio plan that it will lose the Blues trademark if it proceeds to sell its assets to Columbia. Columbia was prepared for such a loss-it wrote into the deal a provision that it would pay
$50 million less if the trademark were lost. But Ohio Blues officials failed to anticipate such an occurrence, even though the agreed-upon penalty amounts to one-sixth of the purchase price.
To resolve the controversy surrounding the deal, plan executives must take adequate steps to assure the public that this transaction is fair. They have made a start by releasing the outside valuation of the plan to the public. But state officials may want to require the plan to consider other bids to establish whether others would be willing to pay a higher price. In addition, the parties to the deal should consider funding a foundation to repay the public for its contributions to the growth of the plan.