The proposed purchase of nonprofit CareFirst BlueCross BlueShield by a for-profit California firm has touched off a bitter dispute among consumer groups over a possible $ 1.3 billion windfall from the sale that could become available to them.
Since sale of CareFirst was proposed a year ago, it has received virtually no public support from social activists, who say the region's largest health insurer should remain nonprofit. CareFirst has 3.2 million subscribers, including 1.2 million in the District, Northern Virginia and Montgomery and Prince George's counties.
But in recent weeks, a counterattack has begun. Two District nonprofit groups and some members of the local clergy, two of whom who sit on the CareFirst board of directors, have contended that the firm's sale to WellPoint Health Networks of Thousand Oaks, Calif., would be a godsend for the city's poor.
"This is a golden opportunity for this community," said the Rev. Anthony Evans, associate pastor at St. Luke Baptist Church and president of the D.C. Black Church Initiative, which runs health education programs for the poor. He wants some of the funding to expand his group's work.
The $ 1.3 billion sounds like a lot of money but is not adequate compensation for the sale's disruptive effect on the region's health care system, opponents say. They warn that if regulators in the District, Maryland, Virginia and Delaware approve the transaction, health insurance rates will rise, thousands of insured people will be forced to drop coverage and the city's ability to provide charity care will be stretched to the limit.
Whenever a nonprofit group is sold to a for-profit entity, the proceeds belong to the public, and the ultimate guardian of the proceeds is selected by state and District lawmakers.
Evans testified at a public hearing that the foundation could improve services for low-income residents. In a city with abysmally low life expectancy and alarmingly high disease rates, the cash would be especially helpful when government budgets are tight, he said.
"There are many charitable institutions doing good work on preventive health and primary health, and if we are fully funded, we can do a much better job," he said.
Rolando Andrewn, executive director of the District chapter of the American Lung Association, also sees a chance to obtain new support. His group has enjoyed $ 20,000 and $ 30,000 CareFirst grants for years and was asked by the company to endorse the sale.
"We need some funds to address tobacco control, the asthma epidemic and clean air issues in the District," Andrewn said. "I have no idea how much money I could get out of it, but we certainly hope we could get at least a couple million dollars."
Bailus Walker, the chapter chairman and a public health professor at Howard University, makes no apologies for supporting the deal.
"Our primary goal now is to alter the course of this asthma epidemic," Walker said. "If we don't do something about that, then the future of the health care system really won't matter. If you've ever seen a child in respiratory distress, you know what I'm talking about."
Merger opponents are angered by the splintering in their ranks.
"There are some misguided folks who think this is going to be a good thing, and it's really a crock," said Sharon Baskerville, executive director of the D.C. Primary Care Association, an group of charity clinics. "What the District stands to gain is a drop in the bucket. . . . This is a complex, multistate deal, and those complexities would drain those big numbers down to almost nothing."
A.G. "Terry" Newmyer, chairman of the nonprofit Fair Care Foundation, said people should not be mesmerized by the $ 1.3 billion.
"The idea that we would necessarily be better off with a foundation in control of the laughable sum that has been proposed, particularly after its been divided among the four jurisdictions, has very little appeal to the consumer groups," Newmyer said.
Terry Lynch, executive director of the 39-member Downtown Cluster of Congregations, distanced his group from Evans's and said most District clergy remain leery of the promise of great riches for the poor.
CareFirst officials said the transaction is necessary to remain competitive in an industry dominated by ever larger players with more capital to invest and lower costs.
But Sam Jordan, executive director of Health Care Now and a merger opponent, said the sale is unnecessary and motivated in great part by the desire of CareFirst executives for large bonuses and severance packages after the sale. He disputes CareFirst's contention that it must become part of a larger organization to remain competitive in the health insurance marketplace.
CareFirst reported cash reserves of $ 642.2 million as of June 30.
"There is no business or health care necessity" for the sale, Jordan said, adding that if CareFirst wants to help poor people, there is no reason it cannot continue as an independent company while establishing a foundation with [some of its cash reserves] to fund grants to local health care groups.
James R. Whitley, a staff attorney at Community Catalyst, a Boston-based public interest group that tracks nonprofit conversions nationwide, said there is no assurance that the money will actually reach Evans and other activists.
"I always think it's unfortunate when I hear groups, as i did at the [recent District] forum, immediately jumping to the position of, 'Let's go and get the money,' " Whitley said. "In the end, these self-interested groups that are focusing on how much money they could get out of the deal could see nothing."
Evans testified that the cash will help to eliminate health disparities between black and white Washington.
"Us pastors are often caught in between the fact that we have very sick congregation people, we have no resources to get them help and the best thing that we can do for them is prayer," Evans testified.
"Well, God answers prayers. And we believe that this merger should go through because of the fact that it would provide enough dollars so that we can direct those individuals to creative new strategies in how to take care of themselves and how to make sure that that money is used for their best interests."
If the deal is approved next year by insurance commissioners of the four jurisdictions, the foundations would use the investment income earned on the endowment to fund grants to health organizations. Details of such a system would be up to the D.C. Council and the mayor and to legislatures in the three states.
Jack A. Meyer, an economist hired by CareFirst to report on how the money might be used, said that nonprofit conversions have become more common in the past decade but that not much reliable data are available on whether they have fulfilled promises.
Meyer said foundations could use the money to promote enrollment in Medicaid and children's medical programs, fund studies of successful methods used elsewhere to extend health insurance and expand prescription drug benefits to more poor residents, pay for training or provide limited direct services.
"We can't be 100 percent confident that this money will find its way" to promote health care for the poor, Meyer said. "On the other hand, I'm more confident that a newly formed foundation would earmark funds for this than would the political process. Foundations are arm's length from the political process. I'm optimistic, but I'd be cautiously optimistic."
If the transaction were approved, the precise amount of money that would go to foundations remains a mystery. The $ 1.3 billion offer for CareFirst by WellPoint is regarded by almost everyone, including CareFirst officials, as too low. Regulators and industry analysts expect a competing bid soon that could force WellPoint to raise its offer.
Assuming the price reaches $ 2 billion, the District in theory could receive a one-time payout of $ 800 million. City leaders could take the money or assign it to a foundation. If it takes the latter approach, a foundation could make $ 40 million a year in grants.
In the view of two CareFirst board members, the region's public interest groups should grab the money while they can because companies like CareFirst are almost certainly going to be replaced by a government-run health system in the not-too-distant future. By then, they argue, the money won't be available.
The Rev. William J. Byron, a CareFirst board member and former Georgetown University management professor who recently became a parish priest in Georgetown, does not think that the health insurance system will last much longer as is. Now is the time to collect the $ 1.3 billion on the table and do the greatest good with it, he said.
Sister Carol Keehan, a CareFirst board member and chief executive officer of Providence Hospital in Northeast, said the proposed transaction is a unique opportunity to deliver new direct services to the poor. She thinks that the money could subsidize prescription drugs for the poor and expand low-income residents' access to private medical specialists.
"This change will allow the community, most especially the underserved, to reap the benefit of the value that's been accrued in that company," she said. "My great hope is that we will in the District develop a structured foundation to receive those funds and use them for the health care needs of the poor and underserved."
"If they don't go for-profit [by selling to WellPoint], they'll stay as big and aggressive, and guess what? They'll keep the money in their own bank account," Keehan said.
The only thing that almost everyone agrees on is that money from a sale should not go the city treasury. All expressed concern that elected officials would be tempted to use it for purposes other than indigent health care, such as general budgetary problems.
In 1998, the District agreed to settle multistate tobacco litigation that promised $ 1.2 billion over 26 years amid much talk about the money being used to fund tobacco-control initiatives and pay for health programs.
The city performed complex financial maneuvers that allowed it to pay off hundreds of millions of dollars in outstanding bond debt, leaving an estimated $ 50 million to $ 60 million a year for the city budget for the next several years.
In the current budget, all of that money was used to help fund the D.C. Medicaid program. Little, if any, has funded anti-smoking efforts.
LOAD-DATE: October 24, 2002 |
