Saturday, June 28, 2008

DC Sues BlueCross BlueShield Affiliate to Force Distribution of Profits

The Washington Post reports that the District of Columbia interim Attorney General has filed a lawsuit against CareFirst BlueCross BlueShield to force it to contribute at least $100 million to the local community.  The D.C. Council Committee on Public Services and Consumer Affairs also launched an investigation of CareFirst, including granting the Committee's chairman the authority to issue subpoenas.  As the article notes, CareFirst has had several previous run-ins with local and state governments, including over both executive compensation and a failed attempt to merge with a for-profit organization. 

The complaint, filed in the Superior Court of the District of Columbia, Civil Division, is against both CareFirst, Inc. and its subsidiary, Group Hospitalization and Medical Services, Inc. ("GHMSI"), which together do business as CareFirst BlueCross BlueShield in the District of Columbia.  Both organizations are nonprofits, although it does not appear from either the complaint or a Guidestar search that either organization is exempt from federal income tax.  GHMSI's federal charter states, however, that it is a "charitable and benevolent institution" according to the complaint.

The complaint alleges that CareFirst, Inc. took control of GHMSI in 1997 and since then has operated it as essentially a for-profit business, leading to a $754 million "surplus" at the end of 2007, which represented almost two-and-a-half times the total adjusted risk-based capital ratio recommended by the Blue Cross and Blue Shield Association.   The District of Columbia asserts that accumulating this, in its view, excessively large surplus is contrary to GHMSI's charter and is a breach of common law charitable trust principles that apply to GHMSI's assets.  The District is requesting that the court grant authority to both the Commissioner for the District's Department of Insurance Securities and Banking and a court-appointed Special Master to rehabilitate GHMSI and rededicate its operations and surplus to its charitable, public health mission.


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