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Press Release April 22, 1998 |
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SAN FRANCISCO, CA –Blue Cross and Blue Shield of Missouri (BCBS) announced today that it has reached a preliminary agreement with state officials resolving pending litigation over its creation of a for-profit subsidiary, RightCHOICE Managed Care, Inc. The agreement with the state Attorney General and Director of Insurance states that BCBS will create a new foundation with 100 percent of the stock it holds in RightCHOICE, and state regulators will suspend litigation for 90 days while negotiations are completed.
BCBS created RightCHOICE as a for-profit subsidiary in 1994. State regulators initially approved the deal. BCBS transferred approximately 80% of its business – including all of its managed care business – to the for-profit subsidiary. Upon initial approval, RightCHOICE offered 20% of its stock in an initial public offering to private individuals, raising millions of dollars. However, local and national consumer groups subsequently questioned the deal, charging that it amounted to a de facto conversion. The Attorney General’s Office challenged BCBS, charging that the company exceeded its authority under Missouri nonprofit law in its creation of RightCHOICE.
Limited information regarding the tentative agreement states that regulators will approve the board of the new foundation. BCBS would transfer its 15 million shares of RightCHOICE stock to the foundation. However, the parties will negotiate the details during the next 90 days. It remains to be seen if the final agreement will preserve 100% of the value of assets for the new foundation, whether the mission of the foundation will serve the health care needs of the community, and whether the community will be able to participate in the formation of an independent foundation board.
Consumer groups that filed amicus briefs in the pending litigation applauded today’s ruling as a preliminary victory for health care consumers in the state of Missouri. "Today’s announcement is a victory for consumers," said Joel Ferber, attorney for Reform Organization of Welfare (ROWEL). "This settlement could result in the creation of a new, independent foundation to fund charitable health care needs across the state. Consumers all along have challenged the operation of RightCHOICE as a conversion."
"The settlement is generally good news," said Peter De Simone of Missouri Association for Social Welfare (MASW). "We will be watchful that the details are consistent with the preliminary agreement."
"Although information is limited, we are excited to learn that Blue Cross Blue Shield of Missouri has acknowledged its charitable obligations," stated Margo Hunter, staff attorney with Consumers Union, which has worked with Missouri groups on this issue and has a national project with Community Catalyst on the conversion of nonprofits into for-profit companies. "This agreement sends a signal to Blue Cross plans facing litigation in other states – own up to your obligations and end the delay in protecting charitable healthcare dollars."
This agreement is part of a national trend in Blue Cross/Blue Shield conversions to for-profit status. Plans in California, Virginia and Georgia have fully converted, and other plans across the country are in the process of converting to for-profits or merging with for-profits. Currently, Blue Cross and Blue Shield of Colorado and Empire Blue Cross and Blue Shield of New York are in the process of completing their conversions to for-profit status. In Colorado and New York, the plans acknowledged their charitable status and agreed to protect those assets from the beginning of the conversion process.
During the next 90 days, consumer and community groups said they would carefully monitor the specifics of the proposal as they are negotiated. "The devil is in the details," stated Joel Ferber, attorney for ROWEL.
Rachel Farr Fitch, representative of the Missouri Consumer Health Care WATCH Coalition stated, "We are pleased with the preliminary settlement, however the community must have a role in the formation of the board of the new foundation."
