CareFirst Inc. and its chief executive, William L. Jews, put more than a year of political brinkmanship behind them Friday.
The Washington area's largest health insurer was allowed to keep its BlueCross BlueShield license after two weeks of bruising and tense negotiations with Maryland, the District and the national Blue Cross association over the shape of a new Maryland reform law.
But the battles of the past year may be only a precursor to still others, especially for Jews, who faces more state oversight and a potentially hostile new faction on his board as he fights to stay ahead of competitors in the marketplace for managed health care.
Beginning Jan. 1, the 21-member CareFirst BlueCross BlueShield board will have five new members, appointed by a new state committee assembled by reform-minded Maryland political leaders.
The committee is the product of a recent Maryland law that seeks greater oversight of CareFirst, which state officials say has strayed from its nonprofit mission. The CareFirst board authorized millions of dollars in illegal bonuses and other incentives to company executives as part of a recent plan to sell itself to a for-profit company, state officials said.
There have also been frequent complaints from doctors about their everyday relations with the Owings Mills, Md.-based company that insures 3.2 million members in Maryland, the District, Northern Virginia and Delaware.
CareFirst's effort to privatize unleashed a year of accumulated ill will from consumer advocates and doctors.
"Their provider relations activity is pathetic," said T. Michael Preston, executive director of the Maryland State Medical Society, which opposed CareFirst's privatization. "You know, doctors and their staffs complain bitterly about simple stuff like being unable to get questions answered and sitting on the phone, on hold forever."
Questions remain whether the new board members can materially change how CareFirst operates. CareFirst, which also has been barred by the new law from becoming a for-profit company for five years, says a makeover isn't needed.
"But I'll tell you one thing: These are going to be five of the bravest people you've ever seen in your life," said W. Minor Carter, a lobbyist for Maryland Cares, a coalition of hospitals, doctors, seniors, labor unions and others that pushed for the reform law. "Because when they go into the board room, everyone there is going to know they are there to reform a place that clearly doesn't want to be reformed."
The state-appointed board members will also be in sharp minority. "Five new members leave sixteen members in place . . . an overwhelming majority," Jane Hellawell, who represents the League of Women Voters of Maryland to Maryland Cares, wrote in an e-mail. "Can five newly appointed . . . members have much influence on the other sixteen? Seems unlikely."
Preston said: "Five new critical voices is good news. Any new critical voices on that board is going to be good news."
"Our view is that any deal or accommodation can be made with the national association and CareFirst as long as there is a regime change," Carter said.
The Maryland law doesn't name names but its major target appears to be Jews, who has headed CareFirst operations for a decade.
Jews said in an interview last week that he has no plans to look for a new job. "I've put 10 years of blood, sweat and tears into making this company what it is, along with a lot of other people," he said. "I don't walk away from any kind of challenge."
He added, "Why are we questioning a company that is . . . growing, is financially solvent, is adding [insurance] products and doing the things we think our customers want us to do?"
The law Gov. Robert L. Ehrlich Jr. (R) signed last month sought to ultimately revamp the entire CareFirst board -- even the nine members who represent CareFirst subsidiaries outside Maryland.
But last Friday, Maryland officials agreed to a scaled-back oversight plan that empowers the state committee to appoint five members to the CareFirst board on Jan. 1 and requires the board to elect seven more members by July 1, 2004. Two nonvoting members, appointed by the House speaker and Senate president, will also join the board.
State officials said the compromise was necessary after the national Blue Cross Blue Shield Association terminated CareFirst's Blue Cross license last month, saying each of its 43 licensees must remain independent of state control.
Without a Blue Cross license, many CareFirst members would have lost access to BlueCross doctors and hospitals outside the region.
Blue Cross says its brand names are "among the world's most trusted and respected," and association officials say their main job is to protect those brands.
In some respects, the brouhaha that ended Friday illustrates how relations between CareFirst and state officials have been strained since the insurer announced plans in November 2001 to sell itself to a California-based for-profit insurer, WellPoint Health Networks Inc. Proceeds from the $ 1.3 billion deal were to be passed on to health care foundations in this region.
The deal was subject to regulatory approval because CareFirst, as a nonprofit insurer, had received tax breaks and other financial benefits from the jurisdictions it is based in: Maryland, the District and Delaware. CareFirst's D.C.-based operation also serves members in Maryland and Northern Virginia.
Maryland's insurance commissioner at the time, Steven B. Larsen, headed an investigation to determine if the sale was in the state's best interest. In March of this year he concluded in a report that it was not, in part because CareFirst's board had authorized $ 120 million in bonuses and other incentives to top executives, including Jews.
In April, lawmakers passed the reform bill that, if signed by Ehrlich, would revamp how CareFirst's board is elected and how much senior executives are paid. It also would forbid the company from turning public for five years.
CareFirst and Blue Cross association officials warned lawmakers that the bill would strip CareFirst of the corporate-governance independence that Blue Cross requires of its licensees. The bill was passed by the General Assembly that month.
Jews met with Ehrlich, an old friend and golfing partner, who had power to veto the bill.
"I had an opportunity to talk about the impact of this bill on the company and my belief that the law, as passed, was not in the best interests of CareFirst and the customers in Maryland and the regions that we served," Jews said.
Ehrlich signed the bill May 22, and he criticized some of CareFirst's lobbying efforts. "I was extremely disappointed," Jews said.
The day Ehrlich signed the bill into law, the Blue Cross association filed a lawsuit in federal court in Chicago, seeking a court order to restrain CareFirst from using the Blue Cross trademark.
On May 23, CareFirst responded with a lawsuit in federal court in Baltimore, alleging that the new law was unconstitutional, in part because provisions concerning the board and compensation would affect the D.C. and Delaware plans as well.
That morning, Maryland District Judge J. Frederick Motz met with lawyers from the association and the state, led by Attorney General J. Joseph Curran Jr. Motz ordered the sides to try to resolve the matter by June 4.
CareFirst was not invited to participate in the initial negotiations because the licensing issue with the association was the state's "major thrust," Curran said. Other matters could be discussed later, he added. CareFirst lawyers were briefed, though, on the progress of the negotiations.
A tentative agreement between the state and association was crafted on the evening of June 3 -- hours before Motz's deadline.
The 11-page "final consent decree" called for five new CareFirst board members to be appointed by the state by Jan. 1 and seven more members to be named by the board by July 1.
A "confidential draft" of the document had blank spaces for the signatures of Motz, Maryland's governor, attorney general, insurance commissioner, House speaker and Senate president, and representatives of CareFirst and its affiliates in the District and Delaware.
The deal wasn't done yet. The next day, the parties hoped to announce an agreement. But CareFirst balked.
More talks were scheduled, this time with CareFirst lawyers and representatives of D.C. insurance commissioner Lawrence H. Mirel. The District had already ordered CareFirst not to comply with the Maryland law because its provisions also affected the D.C. plans.
On Friday, Mirel joined the negotiations in Baltimore and gave Jews written approval to agree to a proposal that would scale back some parts of the law.
The final agreement, signed by Judge Motz, gives Maryland's insurance commissioner the right to challenge new executive-compensation guidelines drawn up by CareFirst. Under the law, the commissioner could have regulated the compensation. |
