Columbia/HCA Healthcare Corp.'s ultimately aborted attempt to buy Blue Cross and Blue Shield of Ohio in 1996 wreaked havoc on Columbia's reputation and stock price. But the for-profit healthcare company comes off smelling like a rose in a recently published report based on depositions, internal memos and other records filed in connection with policyholder lawsuits stemming from the deal.
The report, published last week in the Cleveland Plain Dealer, paints Blues executives and trustees as the villains, actively soliciting some $30 million in payouts as part of the ill-fated deal.
According to the report, the Blues officials got the idea for their windfall from Avon, Conn.-based Value Health, another potential buyer, whose attorney suggested designating the payouts as consultant's fees, stock options and other legitimate commitments.
Value Health, as it happens, was purchased by Columbia several months after state regulators killed the Ohio Blues deal in March 1997. The firm's former chief executive officer, Robert Patricelli, now head of Avon-based Women's Health USA, says he recalls discussions with the Blues about such payments, but "we ultimately felt that the proposal we were dealing with was not appropriate and would not pass regulatory scrutiny."
Columbia spokesman Jeff Prescott says he wouldn't characterize the Plain Dealer report as a vindication of his company's actions. "At the time, we were serious about the transaction and clearly interested in making it happen."
The report also stated that Columbia officials chastised the Blues for not clearly explaining the deal to policyholders, whose approval was required, and sought full disclosure of insider payments.
Also, Columbia officials were miffed at the disclosure that the son of then-Blues Chairman John "Jack" Burry Jr. worked for the firm that rendered a fairness opinion on the deal. "An atmosphere of cynicism, suspicion and collusion surrounds the BCBSO executive payoffs and the affiliation of Jack Burry's son with the accounting firm," Peter Reibold, then-chief of Columbia's Ohio division, wrote in June 1996 to Columbia executives at corporate headquarters in Nashville. "Columbia is tainted by the company it keeps."
Clouding the picture. Even at Columbia's corporate nadir in 1997, when its hospitals were being raided by the feds, executives were getting indicted and the first financial losses appeared, Outliers doubts anyone thought of holding a bake sale to help out the corporate behemoth.
But that's what the always rowdy California Nurses Association did last week to protest Columbia's plans to close inpatient services at 327-bed San Jose (Calif.) Medical Center. The protest came just a week after Columbia reported a $322 million quarterly profit.
Nurses handed out goodies and solicited donations to help keep open the services at the aging San Jose Medical, some portions of which date back to the 1920s.
Paul Estess, San Jose Medical's director of business development, says the protest was much ado about nothing. He says Columbia has been open about plans to move inpatient services from the hospital to expanded Alexian Brothers Hospital, also in San Jose, which Columbia purchased earlier this year. By 2004, Alexian will grow to about 350 beds from 204, he says.
San Jose Medical employees don't have to worry about losing their jobs, Estess adds. "We intend to hang on to all our patients and to our employees."
A Blues plan does good. With the former Ohio Blues mired in controversy, the recent actions of Horizon Blue Cross and Blue Shield of New Jersey stand out in marked contrast. The New Jersey insurer took a big financial hit in 1998 to clean up after a handful of troubled business partners.
Horizon, New Jersey's largest insurer, managed to salt away a record $321 million in reserves last year. But its contribution to the surplus was stunted by a $19 million cost arising from the bankruptcies of FPA Medical Management and PHP Healthcare Corp. Horizon funded those claim costs "to offset any impact from these bankruptcies on our subscribers and providers."
The 2.2-million-enrollee company also sustained a fiscal drain of undisclosed proportions when it terminated an outside vendor's contract to administer certain specialty claims and pulled the business back in-house. Horizon says the vendor failed to process claims on time and accurately.
Those three events explain a significant portion of the $53.2 million loss Horizon recorded on its HMO subsidiaries in 1998, says spokesman Fred Hillmann.
Quick cash. Linda Quick, president of the South Florida Hospital and Healthcare Association, has discovered that it pays to read that agate type in newspaper announcements.
She was perusing her Miami Herald on Easter Sunday when she came across a 14-page special section on unclaimed assets being held by the state. Squinting at the tiny print, Quick found the prior name of her association's for-profit subsidiary. She called the number listed for information, 1-88V-ALU-ABLE.
"We discovered that (the subsidiary) had stock in WorldCom, which bought MCI," she says. "We had 140 shares. The price on the day we found it was $93. It was $13,000 I didn't know I had."
Reading the fine print took her a week, but it has made her very popular in the hospital community. "When I got to the "D"s, there was Danbury (Conn.) Hospital. I called Dennis May, who is my counterpart (at the Connecticut Hospital Association). Now he's a hero" among state hospitals, Quick says.
Alerted to the section, Richard Thomas, the new CEO of Baskin Palmer Eye Institute in Miami, found a total of $2,400 in three places under three different names and spellings.
Quick wondered why so many large out-of-state institutions, such as Tufts Health Plan, based in Waltham, Mass., and University of California at Davis Medical Center, have unclaimed assets in Florida.