The rapid consolidation of Blues plans has hit a few roadblocks, but several large, for-profit acquiring companies remain determined to get bigger despite a legislative setback in Maryland and an adverse regulatory ruling that has gone to court in Kansas.
"Blues consolidations sometimes take many months and, in fact, many years," says Michael Smith, CFO of Anthem Blue Cross and Blue Shield, a publicly traded Indianapolis firm that insures 7.8 million people in eight states.
Indeed, WellPoint Health Networks, Thousand Oaks, Calif., fought nearly four years to take over Blue Cross and Blue Shield of Georgia.
And it intends to persevere despite a setback last month, when Maryland lawmakers enacted a series of measures designed to kill WellPoint's proposed $1.3 billion acquisition of CareFirst BlueCross BlueShield.
"The philosophy of the House (of Delegates) was we ought to block the deal," says Delegate Michael Busch, who spearheaded the legislation.
The Maryland General Assembly approved bills that require any CareFirst suitor to pay the entire takeover sum in cash and give lawmakers 90 days to review the deal if and when it is approved by the state insurance commissioner. Gov. Parris Glendening signed the measure into law.
When the merger was announced last November, CareFirst, a not-for-profit Blues licensee in Maryland, Delaware and the District of Columbia, had agreed to accept up to $850 million in WellPoint stock. The $1.3 billion sum was to be divided among 3.1 million CareFirst enrollees as part of a conversion to for-profit status.
WellPoint spokesperson Ken Ferber concedes the Maryland law "materially changes the contract we have with CareFirst."
Tom Carroll, a healthcare analyst with Baltimore-based brokerage firm Legg Mason Wood Walker, says the cash requirement was dubbed a deal-breaker by the media.
But, he says, "I don't think that that's the case because WellPoint has a lot of cash."
Indeed, WellPoint had nearly $5 billion in cash and marketable securities at the end of 2001, according to regulatory filings.
The Maryland law also tightens the standard regulators must use to determine whether the WellPoint takeover is in the public interest. Another section outlaws the $33 million in bonus payments WellPoint had offered top CareFirst executives.
"It's a non-profit entity," Busch says. "They want to take on the persona of a corporation. We're a voice for the owners of CareFirst, which are the citizens of Maryland."
Meanwhile, Blue Cross and Blue Shield of Kansas is challenging a Feb. 11 regulatory denial of its planned $321 million acquisition by Anthem. A pretrial hearing is set for May 14 in Shawnee County District Court in Wichita.
Kansas Insurance Commissioner Kathleen Sebelius ruled the Kansas Blues' proposed demutualization--part of the acquisition process--was illegal and would lead to higher health insurance premiums in the state. Anthem executive Smith says Sebelius is trying to advance her gubernatorial campaign. "It has been said that her order read more like a campaign speech than a finding of fact," he says.
A spokesperson for Sebelius says the commissioner "stands firmly behind her decision."
Regardless of the Kansas outcome, Smith says consolidation is not coming to an end. Blues plans in North Carolina, New Jersey and New York also have announced plans to switch to for-profit status, making them potential takeover targets.
Smith says public debate will center on affordability, not an insurer's corporate status. "I don't see a pushback on the profit or not-for-profit (issue)."
A wild card is Richmond, Va.-based Trigon Blue Cross Blue Shield, which had made unsuccessful bids for both CareFirst and the Georgia Blues.
Trigon spokesperson Brooke Taylor says, "Like everyone else in our region, we're watching the proceedings in Maryland with interest."