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Disagreement Over Charity Contributions Simmers in Blue Shield’s Care1st Deal

The moral of the story about a disagreement over what Blue Shield of California is expected to do in return for approval to enter the Medi-Cal managed care market appears to be “pay close attention to how things are worded.”

Consumer advocates and state officials thought the agreement this fall approving Blue Shield’s plan to buy Care1st Health Plan called for the insurer to increase its charitable contributions by $14 million a year for 10 years. However, neither the word “increase” nor language indicating that idea were included in the agreement. The text calls for Blue Shield to contribute “not less than $14 million a year.”

Blue Shield, which typically contributes more than $30 million a year to its charitable foundation, intends to abide by the agreement and not dip below $14 million. But neither does it plan to increase its charitable giving as part of this agreement, according to company officials.

“The ink’s not even dry a month after the deal was worked out and Blue Shield is weaseling out of what they said they’d do,” said Anthony Wright, executive director of Health Access California. “This violates the spirit and the expectation that everybody had during the negotiations. We shouldn’t let Blue Shield get away with this.”

It appears the issue has reached a standstill. State officials expressed their concern in a letter to Blue Shield. Blue Shield officials acknowledged receiving the letter but don’t intend to reply.

“As far as we’re concerned there is no disagreement and there is no attempt to weasel out of anything,” said Steve Shivinsky, vice president of Blue Shield of California. “We are honoring the agreement that we negotiated,” Shivinsky said.

Intent vs. Specifics of Language

In last month’s deal giving state approval for Blue Shield’s $1.2 billion acquisition of multistate Medicaid insurer Care1st, the Department of Managed Health Care stipulated in part of the document known as Undertaking 21 that:

“For 10 years following the close of this transaction, Blue Shield agrees to make annual contributions of not less than $14 million per year to the Blue Shield Foundation (or another charitable organization approved by the Department dedicated to charitable purposes, whose mission includes but is not limited to expanding access to care for uninsured persons, including undocumented individuals).”

DMHC Director Shelley Rouillard, in a letter to Blue Shield this month, wrote:

“Although reasonable people may disagree about the meaning of the language in Undertaking 21 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. This intent was expressed during the negotiations process …”

Rouillard ends the letter with:

“The DMHC will leave it to Blue Shield to determine its ultimate overall contribution to the Blue Shield Foundation, as long as it contributes a minimum of $14 million per year for the next ten years as explicitly provided in the Undertakings.

The Undertakings were negotiated in good faith and I expect Blue Shield will honor them and its nonprofit mission, ‘to ensure all Californians have access to high quality health care at an affordable price.'”

Business Practices Under Scrutiny

Blue Shield of California continues to operate as a not-for-profit although its tax exemption was revoked last year by the California Franchise Tax Board.

The company’s business practices are under increasing scrutiny on several fronts, including:

  • Executive compensation;
  • Rate hikes:
  • Poor patient ratings; and
  • “Extraordinarily high surpluses” of $4.2 billion, according to Franchise Tax Board auditors.

Blue Shield of California CEO Paul Markovich last month said the company would divulge more information about executive pay and work to improve patient ratings.

Blue Shield of California, with about 3.4 million members, is the state’s third-largest health insurer behind not-for-profit Kaiser Permanente and for-profit Anthem. Blue Shield, which employs about 5,000 people, reported $13.6 billion in revenue last year.

A former executive at Blue Shield, Michael Johnson, is waging a high-profile campaign to get the company to become for-profit and repay Californians for years of tax exemptions. At his website, visitors are greeted with “Blue Shield of California owes the public billions of dollars. Tell them to give it back.”

Blue Shield officials said there is “no appetite” for following the example of its cousin, Blue Cross of California (now part of Anthem), which two decades ago made the switch from not-for-profit to for-profit. State officials said Blue Cross must repay $3 billion to Californians for the years of tax exemptions. The money was used in 1996 to create two foundations — The California Endowment and California HealthCare Foundation, which publishes California Healthline.

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