Blues plans throughout the country seek for-profit harmony

Conversion plans heat up in the Northwest and Mid-Atlantic regions.

By Cheryl Jackson, amednews staff. Oct. 14, 2002.

There's a lot of talk about Blue Cross Blue Shield affiliates converting to for-profit status.

One of the latest pushes is coming out of the state of Washington, where Premera Blue Cross is seeking conversion from a nonprofit company.

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Region: West

The Washington Office of the Insurance Commissioner began a series of town meetings to discuss the Premera Blue Cross conversion. The four-meeting series began Sept. 30 in Seattle and concludes in Vancouver Oct. 15.

In August the Washington State Medical Assn. took a position against the conversion, saying it has seen no evidence from other states where conversion has benefited doctors, subscribers, patients or hospitals.

"We have anecdotal evidence that physicians at hospitals in states where conversions have taken place have been hurt, said Graham Short, spokesman for the Washington State Medical Assn. "We're in the process of researching that out. We're concerned that this is on the fast track."

Doctors in the state are concerned that a for-profit will lead to lower reimbursements. And they fear the plan being bought.

"It's not the next move on the chessboard. It's the move after that that is a concern," Short said.

"Premera has worked hard to build a good relationship with the physicians and the community. These are honorable businessmen and businesswomen," he said. "Our concern has focused on the downstream impact, not in their motivation."

Premera, based in Mountlake Terrace, Wash., would need approval from regulators in Alaska and Oregon, where the company also operates.

Premera says it wants to convert to for-profit status to get greater opportunities to finance growth, including the possibility of acquiring other plans.

In North Carolina

Meanwhile, physicians are providing testimony at three public hearings this month against the plans of Blue Cross and Blue Shield of North Carolina to convert to a for-profit company.

In August, the BlueCross BlueShield Assn. approved a revised North Carolina Blues conversion plan after earlier rejecting another version because it gave an independent foundation too much control over the converted company. The plan would reduce the foundation's influence.

The only North Carolina-based large plan, the Blues has a lot of the market share in the state, said Bob Seligson, executive vice president of the North Carolina Medical Society. That likely makes it attractive to a buyer from outside the state, he said.

"Capital will drive whatever happens," Seligson said. "If they get sold right after the conversion, it creates a whole new set of problems."

Seligson said his group wants to see a minimum time, about five or six years, required before a converted Blues plan could be sold.

Admittedly, he said, North Carolina doctors have had payment and authorization issues with the Blues plan, but they'd prefer to deal with a state-based insurer.

"Imagine what's going to be done with the market and physicians' ability to deal with these entities. There's going to be some unequal bargaining power in negotiations. It'll be eroded even further."

Standing firm in Maryland

In Maryland, another twist was added to the pending conversion of CareFirst Blue Cross Blue Shield.

A consultant hired by Maryland's insurance department valued the plan at more than $2.2 billion, $900 million more than the $1.3 billion WellPoint Health Networks has offered to buy CareFirst once its conversion is approved. The state's Legislature also barred bonuses to executives payable upon the WellPoint purchase, including $9 million for chief executive officer William Jews.

MedChi, the Maryland State Medical Society, is opposing the conversion of CareFirst Blue Cross Blue Shield, which covers members in Maryland, Washington, D.C., Delaware and northern Virginia, said T. Michael Preston, the society's executive director.

"We've had a longstanding policy which is predisposed to support not-for-profit health care institutions, and specifically CareFirst, because we believe that the nonprofit mission of serving the community as opposed to serving stockholders is a preferable model," he said.

And given the possibility that WellPoint might be underpaying for the Blues plan, "we want this deal off the table," Preston said. "There's no good justification in converting this company to for-profit."

He said physicians might feel differently if the plan were hard up for money.

Most Blues plans have cited a need to continue to have access to cash to remain competitive as a reason for conversion.

"There's no evidence that the company is not in a position to thrive as a not-for-profit, locally controlled enterprise," Preston said.

He also fears that WellPoint, upon entry into the market, would move to dismantle the hospital system's all-payer system, which has all hospitals getting the same rates for inpatient services. All but one of Maryland's hospitals are nonprofits.

The insurance department is expected to issue a decision on the conversion in early 2003. Maryland had public hearings last winter and spring, then public comment forums across the state. Experts are preparing a report to the insurance commissioner. More hearings will take place in December or in January 2003.