A physician-backed special-interest group in North Carolina has found itself embroiled in a nasty legal battle for exposing what it calls corporate excesses by the state's largest health insurer.
Blue Cross and Blue Shield of North Carolina slammed ProCare with a lawsuit last month after the coalition of doctors, pharmacists and consumers published internal company documents detailing how the not-for-profit insurer spent nearly $500,000 on the U.S. Open golf tournament at the Pinehurst (N.C.) Resort in June.
Raleigh-based ProCare, formed in 2002 to fight the Blues' now-shelved bid to convert to for-profit status, said it posted the information on its Web site to ignite a public debate about the insurer's corporate spending and profits. The group is pushing for legislation to tighten regulation of the insurer.
But the Blues alleges ProCare violated several state laws by conspiring with an unknown company employee to illegally obtain and publish confidential business information stored on the insurer's computers. Its lawsuit, filed in Wake County Superior Court, claims the leak resulted in $10,000 in "indeterminate" yet "irreparable" harm to the Blues' market position, and that the insurer is entitled to collect triple that amount in damages.
The legal battle is simply the latest example of mounting tensions between not-for-profit insurers -- which say they face pressure to remain competitive in an increasingly for-profit world -- and critics who accuse the not-for-profits of shirking their charitable missions. The nation's Blues plans, in particular, have caught heat for posting record profits in recent years while boosting premiums and paying often-lavish salaries and perks.
"The whole tenor of the times is toward greater transparency," said Betsy Stoll, director of development and health policy at Community Catalyst, a consumer advocacy group. "With healthcare costs increasing and more people going uninsured, the public is demanding that nonprofits -- both hospitals and health plans -- be more accountable in their financial dealings."
The documents published by ProCare show how the Blues spent $487,178 to set up a hospitality suite in the Pinehurst clubhouse, secure accommodations for top executives and guests, buy about 100 tickets to the event and provide rounds of golf for two foursomes daily.
The insurer also leased a $1,000-per-day home for the week from a former lobbyist for Blue Cross of Northeastern Pennsylvania, according to the documents.
The Blues defended its U.S. Open sponsorship as a smart business move that both promoted the company and supported the state's economy.
But officials claim ProCare's unauthorized disclosures have put the 3.2 million-member insurer at a competitive disadvantage in its local market, where it must compete with national, for-profit rivals for customers, provider contracts and employees.
"We're not thin-skinned about criticism . . . but there's more at stake here than ProCare's noise level," said Blues' spokeswoman Gayle Tuttle, adding that the company is fully taxed despite scrapping its bid to go for-profit in 2003. "The bottom line is that we're a business. Our competitors, which are much larger and better-funded, go to great lengths to keep their business practices confidential. It's our responsibility to do the same."
Blues officials said they believe ProCare possesses additional documents that it plans to leak. They want the group to cease disseminating the information, return it and reveal how and from whom the documents were obtained. "This is theft, pure and simple, and we want it to stop," Tuttle said.
For its part, ProCare denies it stole anything. Political strategist and ProCare frontman Gary Pearce, who is named in the suit as one of three individual defendants, said the group received copies of the documents in an unsolicited fax from an anonymous source.
A SLAPP suit?
Pearce claims the lawsuit is simply an attempt to harass the group's members into relinquishing their right to free speech. ProCare has vowed to fight. "Our lawyer has called it a classic SLAPP suit -- a strategic lawsuit against public participation," Pearce said. "It's a clear attempt to intimidate and silence critics."
Nationwide, not-for-profit health plans have been fending off mounting public outrage over reports of excessive executive perks, ballooning cash reserves and soaring premiums.
Last year, for instance, Blue Cross and Blue Shield of Rhode Island was forced to oust its chief executive officer and hire a crisis-management firm after acknowledging it had granted -- and forgiven -- a $600,000 loan to help the CEO pay for a divorce and new home. The insurer also had treated executives and directors to weekend trips to oceanfront resorts on Cape Cod.
Pennsylvania's four Blues plans quieted critics in February by agreeing to donate $1 billion over six years to fund health programs for the state's poor.
The deal was struck with the governor amid a two-year investigation into allegations that the plans were hoarding massive cash surpluses. Regulators later determined the reserves, which totaled $4 billion last year, were not excessive.
In North Carolina, regulators have been questioning the Blues' profits and spending for years. Criticism peaked in 2003 when the company's net income jumped 129% to $196 million and its profit margin hit 6.2%. That year, the company's cash reserves topped $797 million, at least twice what regulators said it needed to be deemed financially healthy. Its president and CEO, Robert Greczyn, saw his total annual compensation nearly double to $2.1 million.
The North Carolina Blues responded by rolling back the size of its premium increases last year, an effort that trimmed its 2004 net income to $156 million and its profit margin to 4.6%.
Still, state lawmakers this year introduced three bills designed to crack down on the Blues, including one that would have let regulators factor in profits when deciding whether to approve the Blues' premium increases and another that would have seized $250 million of the insurer's reserves to fund coverage for the uninsured. All three bills failed before a legislative deadline in June, but supporters have been working to keep the issue alive.
ProCare officials have stepped up their public attacks, peppering lawmakers, providers and reporters with e-mails about the insurer's business practices. In one, they revealed that during the past two years the insurer had tripled its annual marketing and advertising budget to $32 million while halving to $10 million the amount it gives to the charitable foundation it endows.
Tuttle said the Blues' charitable giving still far exceeds that of any of its competitors. (The insurer's two main rivals are Cigna Corp. and UnitedHealth Group, both publicly traded companies.) "Advertising is a completely separate matter driven by our business needs," she added.
ProCare also launched a local radio spot this month that takes the Blues plan to task for using premiums to send 275 of its top brokers and sales agents to the Caribbean island of St. Kitts in February as a reward for their performance in 2004. The group estimated the four-day trip cost at least $600,000.
Tuttle noted that such incentives are commonly offered in many sales-oriented industries and are "completely unrelated" to the company's rates. "Premium increases are driven by rising healthcare costs," she said.
Tuttle also questioned ProCare's candor and motives, arguing that the group refuses to release details about its membership or who sits on its board despite claiming to be supported by the state's physicians.
Ironically, Pearce, a past adviser to former North Carolina Gov. Jim Hunt, was hired as a consultant by the Blues in 1996. At the time, the insurer was drafting a bill that would set the rules for any future for-profit conversion. (In 1998, Hunt signed into law a compromise measure that requires the Blues to transfer all its assets into a charitable trust if it ever converts. The law allows the insurer to derive up to 40% of its total revenue from for-profit operations before being required to change status.)
The Blues abruptly terminated Pearce's contract in 1998 when his services were no longer needed. "Maybe that has something to do with the ill will he has toward Blue Cross," Tuttle said.
Pearce disputed the notion. "All you can blame me for is naivete," he said. "I went in thinking the company would be something like the Red Cross but left thinking they were more like an Enron."
He added that ProCare lists its board members in public documents filed regularly with the Internal Revenue Service but keeps the names of its provider members confidential to prevent retaliation by the Blues. According to Pearce, ProCare has about 2,000 members, including physicians spanning 40 different specialties.
"What we all want, very simply, is for Blue Cross to operate like a true nonprofit, not like a for-profit in nonprofit clothes," he said.
This story originally was published in the Aug. 15 issue of Modern Healthcare.