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Press Release May 14, 1998 |
Contact: Joel Ferber, Legal Services of E. Missouri |
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SAN FRANCISCO, CA and ST. LOUIS, MO – In letters to state regulators, local and national consumer groups outlined specific criteria for the Missouri Attorney General, the Commissioner of Insurance, and the Governor to consider during the 90-day negotiation period with Blue Cross and Blue Shield of Missouri (BCBSMo). The parties announced on April 22 a tentative agreement, which, if finalized, will end pending litigation over BCBSMo’s 1994 reorganization that resulted in a change from nonprofit to for-profit status. While consumer groups applauded Blue Cross’ recent acknowledgment of its charitable obligations, they also expressed concern that the tentative settlement may shortchange the public in a number of ways.
Consumers Union, Community Catalyst, Reform Organization of Welfare, and Missouri Association for Social Welfare have been working for the past three years to ensure that BCBSMo lives up to its charitable obligations. Their letters raise the following areas of concern:
Valuation
Any foundation created as a result of the settlement must receive the full, fair market value of BCBSMo. However, it appears that only a portion of BCBSMo’s value will be preserved in a foundation – the rest of the nonprofit assets will be transferred to the for-profit. The tentative settlement agreement will give the foundation the 15 million shares BCBSMo owns in RightCHOICE. Each of the consumer groups maintain that an independent valuation is critical to ensure that the public is compensated fully for the value of the nonprofit.
"[T]he public should have received the value of Blue Cross at the time it converted to for-profit status, which would have been substantially higher than the figure that is now being discussed," wrote Joel Ferber and Ann Lever, attorneys for Reform Organization of Welfare (ROWEL). "Surely, Blue Cross has value in addition to [the] RightCHOICE stock that it now controls."
BCBS of Missouri also gave money to private individuals in violation of nonprofit law. Those dollars should be returned to the public. For example, BCBSMo executive Roy Heimberger received more than one quarter of a million nonprofit dollars as a bonus for conducting the initial public offering of RightCHOICE. "By creating RightCHOICE, BCBSMo allowed its executives to reap windfalls from nonprofit assets that should have been preserved for the benefit of Missourians," said Consumers Union and Community Catalyst.
Foundation: Mission, Governance and Structure
The new foundation must be one that is independent, established with a mission to improve the health of Missourians, and structured with the highest level of community accountability possible. The purpose of the new foundation must be dedicated to serving or promoting the health needs of the underserved and vulnerable populations in Missouri. Efforts must be made to prevent the foundation from being influenced by either BCBSMo or RightCHOICE. A public process must be established to involve the community in the board selection and board membership. BCBSMo should not be able to automatically appoint board members to the foundation. All potential board members should go through the same public process before being appointed.
"The foundation board should reflect the diversity of the community," wrote Joel Ferber and Ann Lever. "It is absolutely critical that the board represent the interests of consumers and the community at large, rather than simply health care providers."
The foundation should be structured in a manner that provides the greatest protections for the public in terms of limitations on its business activities, including prohibitions against private inurement; requirements to file detailed tax returns; prohibitions against self-dealing; prohibitions on grants for lobbying; limitations on the ability of the foundation to make grants to for-profit organizations; and prohibitions on certain types of loans.
"Without the above restrictions, charitable health dollars could be abused or used for the benefit of private individuals. The private foundation prohibitions ensure that the foundation remains responsive to the needs of the community it was created to serve," wrote Consumers Union and Community Catalyst.
Protections for the Foundation’s Investments
Regulators must be diligent to ensure that stock agreements and registration rights agreements between the foundation and RightCHOICE are carefully tailored to incorporate important foundation protections. "We urge [regulators] to ensure that safeguards are developed in the voting trust and registration agreements of the foundation in order to protect its ability to make sound, advantageous business decisions as it divests stock," wrote Consumers Union and Community Catalyst.
Keeping Consumers Involved
Finally, consumer groups urged regulators to encourage and engage the community’s participation during the negotiation phase. As stated by Roland Meinert, Ph.D., President of Missouri Association for Social Welfare, "unless there had been vigorous efforts on the part of Missouri consumer groups like MASW, … this opportunity to improve health care services would not have occurred… [W]e think that it is critical that you maintain public confidence that the negotiations are proceeding clearly in the public interest. Open and regular consultations with consumer groups will help."
