Maryland Gov. Robert L. Ehrlich (R) yesterday signed into law a bill to reorganize CareFirst BlueCross BlueShield, prompting a legal battle that could have profound implications for the region's largest health insurer.
The national Blue Cross and Blue Shield Association said it sued in U.S. District Court in Chicago to prevent CareFirst from using its trademark.
In Maryland, soon after signing the bill, Ehrlich directed the state attorney general to seek a temporary restraining order to prevent the association from terminating CareFirst's license to operate as a Blue Cross-Blue Shield company. A hearing will be held in U.S. District Court in Baltimore today.
Should the national Blue Cross association prevent CareFirst from using its trademark, it would have to license another company to create a network of doctors and hospitals to serve federal workers, something association Vice President Paul Brown said it would do quickly. Other CareFirst subscribers could no longer tap into the association's worldwide network of providers should they find themselves in need of health care outside the region.
CareFirst has about 3.2 million subscribers in Maryland, the District, Delaware and Virginia. Nearly 600,000 federal employees use CareFirst's provider network.
Association officials said Blue Cross would provide a transition period. A spokesman for CareFirst, which lobbied Ehrlich to veto the bill because of the association's concerns, said the company is now exploring legal options of its own. The company's vow to "vigorously defend" its right to continue to use the trademark could include filing a lawsuit against the state over the new law.
In light of the latest developments, D.C. and Delaware insurance regulators are considering breaking up the company that would pull its subscribers out from underneath the CareFirst umbrella. "I'm very alarmed," said D.C. Insurance Commissioner Lawrence H. Mirel, who ordered CareFirst not to comply with the new law without his permission.
Maryland Insurance Commissioner Steven B. Larsen said the matter will be worked out in court. "Nothing is going to happen overnight," he said. "The company is still there, people still have coverage, and it still has a provider network."
At issue in the legal battle is a provision that would by December replace 10 members of CareFirst's 21-member board with members chosen by a nominating commission appointed by the governor and legislative leaders.
The national association considers the board reorganization to be a state takeover that violates rules aimed at ensuring that affiliated insurance companies remain independent and free from political influence.
Maryland officials dispute that interpretation and are willing to put the question to a legal test. Ehrlich said he was particularly concerned by the association's failure to clearly state its concerns while the General Assembly was in session.
"The dire picture the association painted really gave me pause," Ehrlich said. "This is a far different tone than we felt and received during the course of the session." But after taking a "second and third look" at the legal issues, "we are very confident that we're on sound legal ground," he said.
The legislation was drafted after Larsen rejected a deal to sell the nonprofit CareFirst to a publicly traded firm in California. Larsen concluded that CareFirst's board had shirked its fiduciary responsibility in agreeing to sell the company at too low a price while giving as much as $ 119 million to a few key executives.
The new law prohibits the sale of the company for five years, restricts executive compensation packages and gives regulators more authority to ensure that the heavily tax-subsidized company is true to its nonprofit mission.
It was overwhelmingly passed by the General Assembly, backed by doctors, hospitals and consumer groups. Yesterday, the legislature's Democratic leaders praised Ehrlich for standing up to CareFirst and the association.
"I salute the governor for taking this bold step to protect health care in the state of Maryland," said Senate President Thomas V. Mike Miller Jr.
Staff writers Stephen Barr and Lori Montgomery contributed to this report. |
