ANNAPOLIS – The last chance for experts to weigh in on CareFirst BlueCross BlueShield’s conversion to a for-profit company will begin Tuesday, when the final round of hearings on the matter are scheduled to begin.
A variety of sources are expected to testify on the propriety of CareFirst’s conversion and planned sale to WellPoint Health Networks Inc. of California.
Insurance Commissioner Steven B. Larsen will collect the testimony and hundreds of pages of documents, much of them released last week, and then make a decision, expected Feb. 20.
WellPoint is offering $1.37 billion for CareFirst. Both companies’ representatives will be at the hearings to address the most recent expert reports.
“We are in broad agreement,” said Ken Ferber, WellPoint spokesman, when asked to comment on those reports.
“We’re looking forward to the opportunity to addressing everything in detail at the hearings,” Ferber added.
The four new expert reports – Draft Foundation, Draft Fairness Analysis I & II, Draft Due Diligence and The Effect of HMO Conversions to For-Profit Status – were compiled by independent consultants at the request of the commissioner.
The due diligence and fairness analysis reports appeared to be the most critical of CareFirst, its conversion process and the impact of the conversion on Marylanders.
The due diligence report, while acknowledging the efforts made by CareFirst directors during the process of deciding to convert and sell the company, determined they have come up short.
The report, drafted by Roger Brown & Associates, concluded that, “While the (CareFirst) directors have not breached any fiduciary duty, they have nevertheless not acted with due diligence . . . in deciding to change the corporate structure of CareFirst.”
The report continues, “The auction CareFirst conducted was also defective,” referring to the sale of the company to the highest bidder.
The report criticized the advice of Robert W. Smith, Jr., of Piper Rudnick LLP, CareFirst’s corporate counsel, as “incorrect.”
“CareFirst’s reliance on Piper’s advice was reasonable initially, but unreasonable once CareFirst received cash offers,” the report said. Piper had recommended any transaction involving CareFirst be a stock-for-stock transaction.
WellPoint has since agreed to pay all cash for the acquisition, complying with a bill passed in the 2002 legislative session.
The draft fairness report, prepared by Delmarva Foundation for Medical Care, rated the impact of the proposed conversion and sale of CareFirst on Maryland.
Delmarva gave a “negative” or “slightly negative” rating to five of 12 categories used to measure the impact of conversion – provider contracting, provider reimbursement and networks, provider opinion, complaint indices, and medical loss ratios. The remaining six categories received a “neutral” rating with one “inconclusive.”
Delmarva concluded that, “The immediate impact of proposed conversion to Maryland stakeholders would be neutral to moderately negative.”
CareFirst decided not to comment on the expert reports until the hearings.
In the week leading up to the hearings, the companies have tried to assuage opponents.
CareFirst amended its application to convert to a for-profit company, upping its sale price and rescinding an incentive plan that would have paid top executives more than $100 million in bonuses, two major points of contention in the deal.