ANNAPOLIS – CareFirst BlueCross BlueShield, the state’s largest nonprofit health insurer, may not convert to a for-profit company and therefore cannot not be sold to WellPoint Health Networks in California, Maryland Insurance Commissioner Steven B. Larsen decided Wednesday.
“The proposed acquisition of CareFirst would not be in the public interest,” Larsen said.
Several “disqualifying criteria” automatically rendered the deal not in the public interest – failure to obtain fair value for the company and violation of the anti-bonus provision, Larsen said. Whether the deal was “in the public interest” was the chief criteria used by Larsen in his decision.
In November 2001, CareFirst applied to convert to a for-profit and be sold to WellPoint for $1.37 billion.
CareFirst top executives initially would have received more than $33 million in bonuses, and the chief executive officer could have received as much as $119 million from the sale of the company. This provision prompted lawmakers to ban such windfalls in any sale.
CareFirst’s executive bonus incentives were viewed as a critical component of the transaction, they were “forced on bidders” and almost used as a “ransom” to purchase the company, Larsen said.
The commissioner said the research concluded the executive bonuses were a “central part of this whole deal,” and WellPoint believed it had to provide bonuses in order to get the deal.
Larsen concluded the CareFirst board of directors breached its duties by disregarding the nonprofit mission of the company to offer insurance at “minimum cost and expense.”
CareFirst said it was “shocked and disappointed” with the decision.
WellPoint was also disappointed. However its spokesman, Ken Ferber said, “This was a local decision and we respect that.”
“The environment in Maryland is not conducive to a conversion.”
CareFirst may appeal Larsen’s decision within 30 days and is expected to do so. The Maryland General Assembly has 90 days to review the decision and take any action it deems necessary.
“The board (of CareFirst) needs to be reconstituted and the company sent back to its original mission – providing affordable health care to Marylanders,” said Delegate John Donoghue, D-Washington, a member of the House Health and Government Operations Committee.
The decision is “a tremendous victory for the citizens of Maryland,” he said, adding that a majority of legislators agree with Larsen’s decision.
Delegate Patrick McDonough, R-Baltimore County, agreed, saying the company and the board needs to be reformed.
“Bill Jews has to go and the board needs to be restructured,” McDonough said.
“The ball is in the legislators’ court now,” said Henry P. Fawell, the governor’s spokesperson. “The governor looks forward to reading the decision. He continues to be concerned about the uninsured.”
“The commissioner answered our hopes by rejecting this proposal. Now it’s time for lawmakers to make it permanent,” said Glenn Schneider, deputy director of Maryland Citizens’ Health Initiative. Larsen has given lawmakers ample opportunity to reform the board, he added.
Since CareFirst filed its application to convert to a for-profit, the Maryland Insurance Administration has conducted an intense, thorough, 14-month analysis of what the conversion and sale would mean for Marylanders, Larsen said. This analysis has included a year of public hearings, expert reports and depositions by CareFirst and WellPoint executives.