Lawmakers frowning on for-profit conversions

State legislation has WellPoint rethinking its bid for the Maryland Blues plan. Opponents claim the deal will eventually fail.

By Myrle Croasdale, amednews staff. May 6, 2002.

Consolidation among health insurers may not have ended, but it could be slowing.

Blue Cross and Blue Shield of Kansas failed to win permission to convert to for-profit status and merge with Anthem. Maryland's CareFirst BlueCross BlueShield is also facing growing pains.

Maryland's Legislature recently voted on a slew of proposed bills aimed at discouraging CareFirst's proposed $1.3 billion sale to WellPoint Health Networks. The result: The deal must be made entirely in cash, instead of the original cash/stock package.

Another change is that CareFirst must prove its sale will be beneficial to the public; traditionally, the state's insurance commissioner would have to show that it is not beneficial.

CareFirst has indicated that it will continue to pursue its conversion to for-profit status. However, WellPoint has not yet announced a decision on whether it is willing to proceed with the deal.

"No decision made yet, and there's no time table on when that decision will be made," said Ken Ferber, spokesman for WellPoint.

Meanwhile, analysts are watching for Trigon Healthcare, a major Blues carrier in Virginia, one of CareFirst's markets, to return as a bidder. Trigon had made a bid earlier, ultimately losing out to WellPoint.

For the time being, Maryland's insurance commissioner will review the business aspects of the proposal and a decision is anticipated by early 2003.

Michael Preston, executive director of the Maryland State Medical Society, said he expects the deal will fail.

"We strongly believe that there's no business justification for the deal. Unless some very compelling evidence is generated to substantiate the business end of the deal, on a practical note, it's dead," he said.

Preston said MedChi was for a healthy CareFirst, but didn't believe that meant it had to become a for-profit company.

"There are other not-for-profit enterprises that can strike that balance successfully. Johns Hopkins hospital is a multibillion not-for-profit enterprise. I think if this deal fails the board needs to look at its mission and needs to think hard about whether it has the right management team," he said.

The American Medical Association also came out against the CareFirst conversion.