Blue Shield, DMHC at Odds Over Terms of Recent Acquisition Deal

State officials say that Blue Shield of California is attempting to back out of a $140 million charitable pledge under a recent acquisition deal, but the not-for-profit insurer says it is honoring the terms of the agreement, the Los Angeles Times reports (Terhune, Los Angeles Times, 11/17).

Background

In October, Blue Shield won state approval to acquire Care1st Health Plan, a multi-state Medicaid insurer, for $1.2 billion.

Under the agreement, Blue Shield will permanently forfeit its not-for-profit tax exemption.

As part of the deal, the California Department of Managed Health Care also required Blue Shield to:

• Invest $200 million to strengthen care delivery, including $140 million for the Blue Shield Foundation or other DMHC-approved organizations;
• Improve access to care under Medi-Cal, the state's Medicaid program; and
• Provide consumers with assistance (California Healthline, 10/9).

Unclear Terms

According to the Times, state officials said they believed Blue Shield had agreed to donate $14 million annually over 10 years, in addition to its regular contributions.

DMHC Director Shelley Rouillard in a letter to the insurer said her "expectation in approving the transaction was that Blue Shield would increase its overall charitable contributions to improve health care delivery in California. This intent was expressed during the negotiations process."

However, Blue Shield said the terms of the agreement call for a minimum donation of $14 million annually, noting that it is not required to pay more than its regular annual foundation contributions of about $35 million.

Blue Shield spokesperson Steve Shivinsky said, "We are honoring the agreement that was negotiated with the state." He added that Rouillard's letter "makes clear what we agreed to. The $14 million a year was set as the floor."

Consumer Advocates Criticize Blue Shield

Consumer advocates have voiced significant concern over the issue, the Times reports.

Anthony Wright -- executive director of Health Access, which raised the donation issue with regulators -- said, "It's unfortunate the agency and the public got snookered out of $140 million for our safety net," adding, "It's outrageous, and we shouldn't allow Blue Shield to weasel out of this" (Los Angeles Times, 11/17).