Advocates Ratchet Up Pressure on Blue Shield To Increase Foundation Funding

About a dozen consumer advocate groups added their voices last week to a letter urging Blue Shield of California to increase its annual funding to the Blue Shield Foundation, as a condition of approval by the Department of Managed Health Care for its merger with Care 1stHealth Plan.

“After its approved merger with Care1st, we are puzzled why Blue Shield would think that it would be OK to get bigger but make its commitments smaller,” said Anthony Wright, executive director of Health Access California, in a written statement.

“Californians will be watching to see if Blue Shield abides by the letter and spirit of its commitments, from its charitable contributions to the quality of care it provides,” Wright said. “Blue Shield advertises itself as a nonprofit with a public service mission and should act accordingly.”

At issue is the intent of a DMHC requirement that Blue Shield invest at least $14 million a year for 10 years in the Blue Shield Foundation. The insurer already puts in an average of about $35 million a year into the foundation, and advocates said the $14 million stipulation was supposed to be in addition to that — not instead of it.

It was one of DMHC’s conditions of approval of the Care 1st merger, but the language  in the agreement doesn’t expressly say the $14 million a year should be an additional commitment. Blue Shield officials have contended that the $14 million a year is a floor for contributions, rather than a sum to be added on top of existing contributions.

The director of DMHC, Shelley Rouillard, disagreed in a Nov. 12 letter to Blue Shield:

“The DMHC required Blue Shield to commit to making substantial investments to strengthen the health care delivery system, in particular for Medi-Cal enrollees, and to support consumer assistance programs,” Rouillard wrote. “The DMHC insisted on these commitments because Blue Shield acquired Care 1st in order to participate in the Medi-Cal program, a line of business in which it had not previously operated. Through the negotiated undertakings, Blue Shield also made commitments to improve its health care quality and access.”

The intent of negotiation in approving the $1.2 billion acquisition was clear, Rouillard said. “The DMHC’s expectation in approving the transaction was that Blue Shield would increase its overall charitable contributions to improve health care delivery in California.”

Paul Markovich, president and CEO of Blue Shield, issued a written statement on Dec. 5 in answer to consumer groups’ concerns. “Historically, the Department of Managed Health Care has reviewed health plan acquisitions and required contributions of just over 2% of the purchase price to charity,” Markovich said. According to Markovich, Blue Shield committed $200 million, or about 13% of the purchase price, to improve patient care, from creating better provider directories to the $14 million a year for 10 years for the foundation.

“There are those that say the $140 million commitment was intended to supplement Blue Shield’s annual contribution to our foundation,” Markovich said. “However, that was never the case, as the language in the final agreement makes clear.”

Prior to the agreement with DMHC, Markovich said, there never was a guaranteed minimum contribution.

The letter from consumer groups to Markovich disagreed.

“We understand that you dispute the widespread and understandable expectation that the conditions imposed under the merger with Care1st requires Blue Shield to increase its foundation contributions by an additional $140 million over the next 10 years,” the letter to Markvich said.

“But even under the most benign interpretation of intentions, we are perplexed why Blue Shield’s only commitment to the foundation was to set a baseline of giving that is less than 50% of your historical norm,” the letter said. “Despite all your suggestions that such charitable investments would increase substantially, the actual commitment you claim to have made is much smaller, even as Blue Shield is getting significantly bigger.”

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