The decision that sealed the fate of Maryland's largest health insurer has cast new doubt on the future of other Blue Cross and Blue Shield plans seeking similar for-profit conversions.
After weeks of intense negotiations, the myriad parties involved in determining CareFirst's future finally agreed this month on a plan to reform the Owings Mills, Md.-based insurer-a move that restored the company's Blues license but also drew the curtain on its hopes of merging with for-profit WellPoint Health Networks.
The settlement, approved June 6 by a federal judge in Baltimore, grants insurance regulators limited authority to review CareFirst's executive pay and outlines provisions to overhaul the company's board of directors, both main goals of a Maryland law passed in May to reform the much-scrutinized insurer. But perhaps most important, the deal locks in CareFirst's not-for-profit status for five years, a precedent that some industry observers said could ultimately throw a wrench into other state Blues plans' conversion efforts.
"The CareFirst decision sends a loud message to other states," said Laurie Sobel, staff lawyer for Consumers Union in San Francisco. "Maryland took a step back and asked, `Is this (conversion) in the public's best interest?' The answer proved to be no. Hopefully, that will prompt other states to ask similar questions."
Leaders of ProCare, a Raleigh, N.C.-based coalition of healthcare providers formed last year to oppose the planned conversion of Blue Cross and Blue Shield of North Carolina, say they are already laying the groundwork for a reform bill similar to the one passed in Maryland. "Venturing into the legislative arena may be the way to go," said ProCare co-Chairman Mike James, a pharmacist.
The Maryland decision also has heartened officials at the Washington State Hospital Association, which filed a lawsuit in January to block the proposed conversion of Premera Blue Cross, Mountlake Terrace, Wash. (Jan. 27, p. 10). "Now there's mounting evidence from other states that these conversions have negative consequences and should be denied," said Cassie Sauer, the association's director of advocacy. "This may be the beginning of a trend."
Some 14 Blues plans nationwide have switched to for-profit status since 1994, when the national Blue Cross and Blue Shield Association first allowed them to do so. But in recent years, these conversion efforts have faced increasing opposition from critics who contend the transactions would jeopardize local healthcare.
So far, only one other state has managed to derail a Blues conversion, at least temporarily. In February 2002, Kansas' then-Insurance Commissioner Kathleen Sebelius rejected a request by the state's Blues plan to convert to for-profit status as part of its proposed sale to Anthem, Indianapolis. The insurers appealed to the state Supreme Court in March 2003. A decision is expected this summer.
The growing outcry is largely the result of the Blues' improved financial picture, said Nomita Ganguly, staff lawyer for Community Catalyst, a Boston-based consumer advocacy group. In previous years, money-losing Blues plans sought to convert primarily to save themselves from potential bankruptcy. But now, with Blues plans posting record profits (May 26, p. 10), consumers, regulators and legislators have begun to question whether for-profit conversions are still necessary.
Calls to overhaul CareFirst began in 2001, shortly after the insurer announced its plan to merge with WellPoint, Thousand Oaks, Calif., for $1.37 billion. After a lengthy review, Maryland's then-Insurance Commissioner Steven Larsen rejected the deal in March, criticizing CareFirst for failing to negotiate a fair price for the company and approving what he called excessive and "illegal" bonuses for its top executives.