CareFirst BlueCross BlueShield, the Washington area's largest health insurer, is the target of a federal criminal investigation that appears to center on the company's attempt to sell itself to a California-based carrier, according to sources familiar with the probe.
In a 15-page subpoena dated Aug. 1 and addressed to CareFirst's "custodian of records," a federal grand jury in Baltimore requested dozens of documents going back several years, sources close to CareFirst said.
The investigation appears to flow out of a 300-page report released March 5 by Maryland's previous insurance commissioner, Steven B. Larsen.
The report alleged that, in 2001, CareFirst sought to sell itself to WellPoint Health Networks Inc. for $ 1.37 billion in an effort to enrich its top officials, including chief executive William L. Jews and Executive Vice President David D. Wolf. The report also accused a personal lawyer of Jews', Isaac M. Neuberger, of conflicts of interest: Neuberger worked for CareFirst as well.
CareFirst, in a statement yesterday, said it did not break any laws.
"CareFirst is cooperating with the U.S. Attorney's Office for the District of Maryland in response to a subpoena for documents and records," the statement said. "A fair and reasonable examination of the requested material will clearly demonstrate that CareFirst's actions have [been] lawful."
The CareFirst subpoena was one of several issued in the case by the U.S. attorney's office in Baltimore.
WellPoint said it received a subpoena requesting "various documents relating to the CareFirst transaction." The insurer said it will "respond to the request and cooperate fully."
Indiana-based Anthem Blue Cross and Blue Shield also said it was subpoenaed. Last year, Anthem acquired Richmond-based Trigon Healthcare Inc., which had also sought to buy CareFirst. Larsen's report raised questions about the fairness of an "auction" that resulted in CareFirst accepting the WellPoint offer over Trigon's.
A source close to CareFirst said Neuberger's law firm also received a subpoena. Neuberger did not respond yesterday to a call and e-mail to his office in Baltimore.
A subpoena was also delivered to the Maryland Insurance Administration (MIA), which held extensive hearings on CareFirst's proposed sale and ultimately rejected the deal. MIA's principal counsel, Kathleen A. Birrane, declined to discuss the subpoena.
A source who has seen a copy of one subpoena said federal prosecutors appear to have "gone through the Larsen report" and used it as a guide to evidence of potential wrongdoing.
One area of concern to state lawmakers and health care advocacy groups has been the salaries and bonuses paid to CareFirst's top executives in recent years.
Jews earned $ 2.8 million in salary and bonuses last year, according to company data. Wolf was the second-highest-paid CareFirst executive, collecting $ 936,927. Top CareFirst executives would have received tens of million dollars in additional bonuses if the WellPoint deal had been approved.
Terry Newmyer, who heads the Fair Care Foundation, an advocacy group, called the federal probe "an overdue step toward uncovering the truth" about "the unprecedented compensation schemes."
In May, Maryland Gov. Robert L. Ehrlich Jr. (R) signed a law that gave the state greater oversight of CareFirst.
Then, in July, Maryland's new insurance commissioner, Alfred W. Redmer Jr., announced plans to fine CareFirst and three top leaders for actions that allegedly violated state laws regulating not-for-profit businesses.
Redmer, in a 50-page report, accused CareFirst, Jews, Wolf and Chairman Daniel J. Altobello of turning the not-for-profit insurer into a for-profit company that sought to reward executives with multimillion-dollar salaries and bonuses.
Jews and Wolf allegedly made "willful misrepresentations" to their own board members to secure bonuses for themselves during negotiations over the sale of the company, the report said.
Jews allegedly made a "willful misrepresentation" during testimony before MIA officials by denying that Neuberger, a lawyer retained by CareFirst, was also his private lawyer, the report said.
The report also alleged that CareFirst failed to abide by its corporate mission in Maryland because as a not-for-profit insurer it is required to offer coverage at the most reasonable rates, under sound fiscal management.
CareFirst pledged last month to fight these allegations.
Yesterday, Redmer said he would defer civil action against the three CareFirst executives in light of the federal investigation. |
