Federal prosecutors have launched an investigation into CareFirst's failed attempt to convert to for-profit status and merge with Blues plan consolidator WellPoint Health Networks, Thousand Oaks, Calif. CareFirst, Owings Mills, Md., confirmed published reports that it received a subpoena from a federal grand jury in Baltimore, requesting that it turn over extensive records pertaining to the now-derailed $1.37 billion transaction. What specific violations of federal law are suspected is still unknown. CareFirst has denied any wrongdoing. Both WellPoint and the Maryland Insurance Administration, which reviewed and eventually rejected the proposed conversion and sale, acknowledged that they too have received subpoenas regarding CareFirst, but neither would comment on the nature of the investigation.
The federal probe follows the release last month of a scathing report in which state Insurance Commissioner Alfred Redmer Jr. accused CareFirst President and CEO William Jews and two other company officials of numerous indiscretions, including corporate mismanagement and attempts to personally profit from CareFirst's proposed conversion and sale. Redmer had planned to bring civil charges against the officials; but in a statement, he said he would defer taking action in light of the federal investigation. Former state Insurance Commissioner Steven Larsen rejected the $1.37 billion transaction in March, alleging that a lavish bonus package for CareFirst executives -- in which Jews stood to receive up to $39.4 million -- was a key factor in the 3.2 million-member insurer's decision in November 2001 to select WellPoint over other bidders. -- by Laura B. Benko