Press Release September 3, 1998	Contact: Lisa McGiffert or Rafael Ayuso (512) 477-4431 Consumers Union's Southwest Regional Office

Illinois Blues scandal could have repercussions in Texas

AUSTIN. TX – Consumers Union is asking Insurance Commissioner Elton Bomer to weigh the impact of recent federal indictments and fines levied against Blue Cross Blue Shield of Illinois before approving a proposed merger with Blue Cross Blue Shield of Texas.

In a letter to Bomer, Reggie James, director of the Southwest Regional Office of Consumers Union, urged the commissioner to seek additional information from the Illinois Blues to determine whether the merger is in the best interest of the estimated 1.9 million Texas Blues policyholders.

“We believe these recent developments warrant close scrutiny of the proposed merger and its implications for Texas policyholders,” James said. “We are confident you are as concerned about these latest developments as we are and will carefully evaluate the implication for Texas policyholders.”

Blue Cross Blue Shield of Illinois agreed to pay a record $144 million in criminal and civil penalties in July after pleading guilty to federal felony charges for making false statements over a period of several years regarding its processing of Medicare claims. The Illinois company withdrew from administering the Medicare program in Illinois when faced with possible termination of the contract by the federal government.

Blue Cross Blue Shield of Illinois has been administering the Texas Blues plans through a management contract for the past two years. Specifically, James expressed concern that there may be insufficient auditing practices in place in Texas, possibly opening the door for problems such as the ones the Illinois Blues was cited for occurring in their Texas operations. He questioned whether the management of government contracts in Illinois could indicate similar problems handling private insurance products in Texas, as well as the Texas government contract..

Texas law directs the insurance commissioner to approve a merger transaction unless it is deemed to be “unfair, prejudicial, hazardous, or unreasonable to policyholders of the insurer and not in the public interest.” Also, the commissioner may deny an application if “the competence, trustworthiness, experience, and integrity of those persons who would control the operation of the domestic insurer are such that it would not be in the interest of policyholders of the domestic insurer and of the public to permit the merger or acquisition of control.”

According to news accounts, federal officials have indicated the Illinois Blues would have to implement a “rigorous anti-fraud program” to win another Medicare contract and that there is no guarantee they will award them a new contract. The Texas Medicare contract, as well as the Medicare contract for other states, has been handled by the Texas Blues for many years.

James asked Bomer to look into the Texas Medicare contract to see if it is in jeopardy now that the contract is technically under the management of Blue Cross Blue Shield of Illinois. He questioned whether the fine paid by the Illinois company, or the potential loss of the Texas contract, could adversely affect Texas Medicare patients or Texas private insurance policyholders.

In August, Consumers Union asked the Texas Department of Insurance for any additional documents related to the Illinois indictments filed with the insurance commissioner as part of the merger application. TDI said no such information had been submitted by the Illinois Blues nor sought by Bomer.

The merger has both legal and administrative hurdles to clear before being finalized. In February, state District Judge Joseph Hart cleared the way for the Blues’ merger to occur, pending a final order being entered. That final order has yet to be approved. Attorney fees has been a main point of contention between the Texas Attorney General and the Texas and Illinois Blues. Once a final order is rendered, the Attorney General has 30 days to file an appeal.