Blue Cross and Blue Shield of Ohio executives have characterized the plan's proposed deal with Columbia/HCA Healthcare Corp. as a harmless "joint venture." Last week, the state of Ohio disagreed in a big way.
After 10 months of review, the Ohio department of insurance said it intends to reject the proposed sale of Ohio Blues assets to the national hospital chain, saying it's unfair to policyholders and the public.
The Cleveland-based insurer has 30 days to request a hearing before the department renders an order against the deal.
The insurer, which became embroiled in an internal power struggle last week, said it regretted the decision and would be in discussions with the department and Columbia to determine what its next steps would be.
Columbia spokeswoman Eve Hutcherson said the hospital company was "still trying to get our arms around the situation.
"We'd like to complete a transaction, but at this point it certainly does not appear to be possible under the current structure," she said.
Meanwhile, a local coalition of consumer and labor groups applauded the state's decision but blamed regulators for dragging their feet.
The coalition said the insurance department had enough information to reject the deal last October and that key documents were kept secret.
"Blue Cross is self-destructing at an unprecedented rate," said Cathy Levine, state issues coordinator of the Northeast Ohio Coalition for National Health Care.
In a written decision, Ohio insurance department Director Harold Duryee said the deal would violate state law by converting the Blues from a mutual insurer owned by policyholders to a stock company without compensating policyholders.
The department also objected to the $299.5 million sale price and $3.1 million in severance payments to Blues trustees who approved the deal last year. It said other potential buyers should have been sought.
In a statement, Ohio Blues Chairman John Burry Jr. said the company disagreed with the department's conclusion that the price is too low. He said the company's own financial experts said the price was fair, and "it is our understanding that the price was in the range established by the department's own experts."
Meanwhile, consumer groups and attorneys representing policyholders suggested the state take control of the Ohio Blues. The plan lost $95 million in 1996, including $24.5 million in costs tied to the Columbia deal, and its reserves dropped below minimum required levels.
Earlier in the week, Burry announced the firing of three top executives: President Kent W. Clapp, Chief Financial Officer Ronald H. Rafal and Executive Vice President Robert N. Trombly.
But Clapp and Trombly remained on the board of directors, and later joined with fellow trustee Thomas Farson to fire Burry and the company's longtime law firm.
Burry and the three executives who were fired initially asked separate courts to uphold their actions. Burry won the initial round, with a Cuyahoga Court of Common Pleas judge keeping him in charge for now.
Joshua Cohen, a Cleveland attorney representing several Blues policyholders opposed to the Blues-Columbia deal, said he was happy with the insurance department decision, but added, "It's just a shame it took so long because, in the interim, the powers that be at Blue Cross have taken a company that was an asset to this region and put it in financial peril."
The year-old agreement between Columbia and the Ohio Blues was to expire at the end of 1996, but the parties agreed to extend it until the end of this month.