The Blue Cross and Blue Shield Association filed a lawsuit against CareFirst Blue Cross and Blue Shield last week to prevent it from using the Blues name and logo after Maryland Gov. Robert Ehrlich signed legislation giving control of CareFirst to the state.
It's only the second time that the national Blues has filed a court action to oust a plan in defense of its cherished brand image, which helped reap soaring profits for its member plans last year (See related story, this page).
The Blues also is asking for $68 million in termination fees from CareFirst to cover the cost of finding a new franchise holder.
In response last week, the Maryland attorney general's office filed for an injunction to stop the Blues association from terminating its licensing agreement with CareFirst, Owings Mills, Md. The request was moved to federal court.
CareFirst also filed suit in Baltimore challenging the state's takeover of the company.
A federal judge in Maryland issued an 11-day stay on all pending litigation between the three parties May 23. During this period CareFirst will retain its license with the Blues association, and all parties may try to seek a solution.
In announcing the lawsuit, filed in federal court in Chicago, Paul Brown, vice president and deputy general counsel for the Blues, said that once Maryland took control, CareFirst lost the right to its Blues affiliation. CareFirst will no longer have access to the Blues system, including its national provider network.
CareFirst is the latest example of heightened state oversight of not-for-profits. In Minnesota, Medica health plan is fighting to end supervision by that state's attorney general (See related story, p. 14).
In a written statement, CareFirst said it was "extremely disappointed." Previously, the Blues association and CareFirst executives warned that the legislation would result in the loss of the Blues license. "Signing the legislation would put CareFirst in an impossible position," Daniel Altobello, chairman of the CareFirst board, wrote in a letter to Ehrlich.
Insurance commissioners in Delaware and Washington, where CareFirst also operates, opposed the legislation. The Blues association said it might restore the Blues marks if those plans disaffiliate from CareFirst.
The state takeover stemmed from CareFirst's aborted November 2001 agreement to be purchased by WellPoint Health Networks, Thousand Oaks, Calif., which would have converted CareFirst to a for-profit plan. The deal contained a controversial $119 million severance package for top executives, which was later replaced with retention bonuses.
Maryland Insurance Commissioner Steven Larsen rejected the sale in March saying it violated state law requiring conversions to benefit the public. Larsen also criticized CareFirst's board for lack of oversight. Under pressure from Democratic legislative leaders, Ehrlich, a Republican, signed legislation that would replace 10 of the 21 members of CareFirst's board of directors and create a new oversight body to monitor CareFirst. It also forbids the health plan from converting to for-profit status for five years.