INDEPENDENCE BLUE CROSS: Stealth For-Profit Conversion?
As Independence Blue Cross has expanded across the country, critics in Philadelphia -- where Independence is the area's largest health insurer -- charge that the company is stealthily changing the status of the nonprofit organization by siphoning off tax-exempt assets to a for-profit subsidiary. The Philadelphia Inquirer reported Sunday that AmeriHealth, the for-profit company wholly owned by Independence, has been accused by competitors of expanding into Florida, Texas, New Jersey, Delaware, New York, Vermont, Kentucky and the Virgin Islands by offering subsidized, lowball prices. "Community activists" claim those subsidies from Independence have served to convert "charitable, public assets to for-profit enterprises," and that Independence now "operates as a for-profit firm without having undergone the proper process" of providing "compensation to the community." Robert Sklaroff, president of the Pennsylvania Society of Internal Medicine, called the transfers "a shell game."
Follow The Money
According to state financial records, Independence transferred $358 million to AmeriHealth in December 1996, after which AmeriHealth purchased half of Keystone Health Plan East and Personal Choice for $340 million in May 1997. Officials said Independence "spent the rest in other expansion." Kerin Hearn of Blue Cross Blue Shield of Delaware said, "Obviously AmeriHealth is getting a subsidy from somewhere and, in business, subsidies can't last forever." Fred DiBona Jr., president and CEO of Independence, said, "We want to become a multiregional company that supports our social mission here as it continues to grow. I think you're going to see the majority of our book of business be managed care and in our for-profit companies, but in a way that supports the social mission."
What's The Status?
In an exchange of letters between Sklaroff and Independence Senior Vice President John Daddis, Sklaroff asked, "What level of purchase of outside business is justifiable for a nonprofit?" Daddis, noting that Independence Blue Cross has paid federal taxes since 1987, wrote that the organization "is not a 'nonprofit' organization," underlining the word "not." A spokesperson for Independence -- which is exempt from city and state taxes -- said last week, "It appears from our reading that it was a typo." DiBona "said ... Blue Cross would never convert to a for-profit company," but that it might consider selling stock in AmeriHealth "to fund the company's continued expansion." He argued that because "[n]one of the nonprofit assets would be given to for-profit concerns" and "as long as Blue Cross is the 'godfather' and the single stockholder in everything we own, we haven't made a conversion." The Inquirer reports that the Pennsylvania Attorney General's Office may not agree. Deputy AG Mary Beth O'Hara Osborne said, "They can't convert little by little by transferring their charitable assets into for-profit subsidiaries" (Goldstein, 8/23).