Maryland Insurance Commissioner Steven Larsen rejected the $1.37 billion sale and for-profit conversion of CareFirst, Owings Mills, Md., after months of debate on the value of the 3.2 million-member Blue Cross and Blue Shield plan. The matter now goes to the Maryland General Assembly, which can overturn Larsen's decision. Regulators in Delaware and the District of Columbia also have jurisdiction over the deal. Larsen said several statutory criteria automatically made the sale of CareFirst to WellPoint Health Networks, Thousand Oaks, Calif., against the public's interest, but he also had other problems with the deal, particularly the behavior of CareFirst's board. The board accepted a bid well below CareFirst's value, Larsen said, while negotiating a $119 million severance package for management as part of the deal. Larsen said the board ignored or was unaware of warnings that parts of the deal were inappropriate, including advice from its own lawyers that the severance package was problematic.
This week, a study by the D.C. Appleseed Center for Law and Justice, Washington, put CareFirst's value at $2.27 billion, nearly $1 billion more than the offer accepted from WellPoint. The latest valuation is substantially higher than those reached previously by New York investment banks Blackstone Group and Cain Bros., which estimated the Blues plan's value at $1.45 billion to $1.75 billion. -- by Tony Fong and Laura B. Benko