New York's highest court upheld the for-profit conversion of Empire Blue Cross and Blue Shield, ending a three-year court battle over the insurer's charitable assets. In a 4-2 decision, the state Court of Appeals dismissed a lawsuit filed by the advocacy group Consumers Union that challenged the transaction as unconstitutional.
Empire completed its initial public offering and changed the name of its parent company to WellChoice in November 2002. Under a conversion plan approved by state lawmakers and regulators, 95% of the proceeds, or roughly $1 billion, was to go to the state to supplement the salaries of healthcare workers, with the remaining 5% going to create a healthcare foundation. But days later, Consumers Union won a restraining order barring state officials from spending any of the money until a judge ruled on the legality of the conversion. The group argued that salary increases were not a proper use of the funds that Empire had amassed through years of tax breaks as a not-for-profit organization and that all of the money should be put toward community health initiatives.
The money has been frozen in escrow ever since.