Wednesday, March 9, 2011

Massachusetts Blue Cross Suspends Directors’ Pay in View of Mounting Scrutiny

In Insurer’s board suspends own pay, the Boston Globe reports that Blue Cross Blue Shield of Massachusetts board members voted to suspend their collective five-figure annual directors’ payments and to begin discussions with the office of Massachusetts Attorney General Martha Coakley and community leaders about the nonprofit’s status as a public charity.  Blue Cross chief executive Andrew Dreyfus is quoted as acknowledging the board compensation issue as a "great distraction," and as opining that "it was important that [the board] make a statement" following public outcry over the board fees and an $11 million payout of former CEO Cleve L. Killingsworth upon his departure.  Attorney General Coakely is reportedly calling on the state’s three other nonprofit health insurers — Harvard Pilgrim Health Care, Tufts Health Plan, and Fallon Community Health Plan — likewise to end the practice of compensating directors.
The story further reports that the Massachusetts Attorney General’s office has recently begun to investigate the Blue’s practices in 2005, when its board approved the  Killingsworth employment contract giving rise to his severance package.  Attorney General Coakley reportedly said that, while her office would participate in the nonprofit’s internal review of its legal status, "any decisions about changes would be left up to the insurer’s board:"

"They have two choices right now," she said. "They can stay organized as a not-for-profit, but I would hope that their directors would stay non-compensated indefinitely. Or if they decide they want to be organized as a for-profit, they’re going to have to get a statutory change" because the insurer was set up by state law.

CEO Dreyfus is reported to have dismissed the option of abandoning the nonprofit organization form for Blue Cross:

He suggested two other possible outcomes: It could remain a nonprofit, but drop its designation as a public charity, which now puts it in the same category as organizations that accept donations, such as museums. Blue Cross also could become a member-owned mutual insurance company. In either case, he said, the board would have to determine whether to resume paying directors under a new legal structure.


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