Groups sue to block New York Blues' for-profit conversion

Consumers Union and other organizations are upset that funds from the Empire conversion will go for hospital pay hikes, not for more health coverage.

By Julie A. Jacob, amednews staff. Sept. 16, 2002.

In another case of groups trying to stem the tide of Blues plans seeking for-profit status, Consumers Union and four other organizations have filed a lawsuit in New York seeking to block the conversion of nonprofit Empire Blue Cross Blue Shield.

Consumers Union, the other groups and plaintiffs representing Empire members charge that it is illegal for 95% of Empire's $1 billion in charitable assets to go toward wage increases for unionized hospital employees and just 5% for a charitable fund to improve access to health care.

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Region: Northeast

"The New York Legislature's approval of this secret Blue Cross deal was not only outrageous; we believe it was unconstitutional," said Mark Scherzer, the attorney for the organizations filing the lawsuit.

"The state cannot simply take $1 billion of charitable assets that were dedicated to increasing New Yorkers' access to health care and divert those funds for other purposes," Scherzer added.

The lawsuit charges that the legislation directing most of Empire's assets to pay raises for hospital employees violates the state constitution, interferes with the contract between Empire and its members and is a breach of fiduciary duty.

When Empire announced plans to convert in 1997, the company originally planned for all assets to be placed in a charitable foundation to improve health care in the state.

95% of assets would go for employee pay hikes, 5% for a charitable fund.

But in response to opposition to the conversion from unionized hospital workers, the New York state Legislature passed legislation in January earmarking the 95% to 5% breakdown of where the assets should go. In other states where Blues plans have converted to for-profits, such as California, Maine and New Hampshire, all of the company's assets have been placed in a charitable foundation.

Efforts to convert the Blues in Kansas, Maryland and North Carolina, have been slowed by regulators or the Blue Cross Blue Shield Assn., which grants plans the Blues trademark, although concerns have centered around the question of whether a Blues plan should be for-profit or who would control the corporation.

A statement released by Empire's public relations department said the legislation passed in January "requires that the public asset go to the Tobacco Control and Insurance Initiative pools, which fund a wide variety of programs designed to expand access to affordable health care. ... Using the public asset to support and expand these programs ... is consistent with Empire's original mission."

The lawsuit was filed Aug. 21 in the Supreme Court of the State of New York by Consumers Union, the New York chapter of the National Multiple Sclerosis Society, Disabled in Action of Metropolitan New York, the New York Statewide Senior Action Council and four Empire members.

Empire has 4.7 million members in eastern New York state.

ADDITIONAL INFORMATION:

Blues barricades

Lately, Blue Cross Blue Shield plans trying to convert to for-profit status are running into roadblocks.

New York: Consumer groups sue to block Empire Blue Cross Blue Shield's conversion, based on the fact that 95% of the plan's charitable assets will be used toward pay increases for hospital employees.
Kansas: The Dept. of Insurance in February blocks a conversion by Blue Cross and Blue Shield of Kansas, which sought to demutualize so it could be acquired by Anthem, which owns Blues plans in nine states. In June, a Kansas court overturns that decision and sends the conversion application back to the insurance department.
North Carolina: In August, the Blue Cross Blue Shield Assn. threatens to disallow Blue Cross Blue Shield of North Carolina use of the name if its for-profit conversion goes through. The association says the Blues' corporate setup, in which a plan-controlled foundation directly or indirectly controls all company stock, violates its rule on limiting the percentage of shares any owner can control.