Controversy swirls about Blue Cross foundation plan.

Speakers display deep divisions of opinion at hearing

Blue Cross of California's proposal to donate more than $2 billion of its assets to a new non-profit foundation that would promote health care, and have virtually its entire board of directors oversee foundation management, brought a mixed reaction at a Dec. 9 public comment session held by the state Department of Corporations.

"Even the appearance of impropriety and the appearance of conflict should be avoided. The only way the public can have confidence regarding accountability is to have a new, independent board chosen," said Jeanne Finberg, an attorney for Consumers Union, the non-profit organization that publishes the product evaluation magazine Consumer Reports.

"When you put a board in charge of running an HMO in charge of a foundation, it's not the same view (as the people whom it would be serving)," she said, and the foundation thus might have "a (health care) industry bias."

Finberg, along with more than 30 other witnesses -- many of them consumer or political activists, members of the clergy or health care executives -- testified at the day-long hearing held at the DOC's Mid-Wilshire headquarters. While a few showed support for Blue Cross' plan, many questioned the Woodland Hills-based health plan's devotion to the health of citizens of the state.

"We want to be fully sensitive to the public's interest," DOC Commissioner Gary Mendoza said at the start of the highly unusual hearing. (The DOC rarely allows public comment prior to taking action.) "It's useful to hear the public's views, and the department has put itself in a listening mode."

The DOC has indicated it will issue a final ruling on Blue Cross' proposal by early 1995. Blue Cross spokesman Larry Bryant said a decision could be made before the end of this month.

Blue Cross has been under pressure from state regulators to put many of its assets into a charitable foundation after last year creating a new for-profit subsidiary, Wellpoint Health Networks Inc. Wellpoint is publicly held, but Blue Cross owns about 80 percent of its shares.

Short shrift?

While such conversions have become commonplace since managed care health plans have become big business in California, opponents contend the Wellpoint conversion allows Blue Cross to give short shrift to its ongoing charitable obligation to the public.

Under state law, tax-exempt non-profit health plans that convert to for-profit status must compensate the public for the years they built up assets while paying no taxes.

In response, Blue Cross last September proposed separating all of its charitable and business activities, forming a non-profit entity called the California HealthCare Foundation.

The foundation would be funded by 80 million shares of Wellpoint stock owned by Blue Cross. The shares, based on New York Stock Exchange trading last week, are worth about $2.3 billion.

As a result, Blue Cross of California would cease to exist as a corporate entity. Wellpoint would administer all its existing health plans, along with those affiliated with Blue Cross.

California HealthCare's mission would be to run or supplement various non-profit health programs, heavily aimed at children and senior citizens.

Blue Cross of California's current board of 18 directors would become the initial board of directors for California HealthCare. Wellpoint is governed by a separate board.

However, Leonard Schaeffer, Blue Cross and Wellpoint's chairman and CEO, has decided not to serve on the California HealthCare board because of time constraints, it was announced at the hearing.

Schaeffer is the only person to hold seats on both the Blue Cross and Wellpoint boards.

While the almost intact transfer of the Blue Cross board brought the most criticism from those testifying at the hearing, other issues were also raised.

Eric Rose, an aide to Los Angeles City Councilwoman Laura Chick, who represents the 3rd Council District in the west San Fernando Valley, read a prepared statement on Chick's behalf.

"I have read the plan -- it's a good one," Chick's statement said. But she also expressed concern about preserving some 500 jobs at Blue Cross' Woodland Hills headquarters.

James DiChirico of the Asian-Pacific Community Fund, a health care coalition, said that "Blue Cross does not understand the needs of California's Asian community," and urged more cultural diversity on California HealthCare's board.

But Dioncinio Morales of the Mexican-American Opportunity Foundation, a community outreach group based in East Los Angeles, expressed cautious optimism. He called the Blue Cross plan "kind of innovative."