What we have here is a failure to communicate. The Department of Managed Health Care (DMHC) says Blue Shield is obligated to contribute $14 million a year for 10 years to charities that provide health care as part of a deal to let it gobble up Care1st Health Plan for $1.2 billion in October.
Blue Shield says the agency is mistaken. “We are honoring the agreement that was negotiated with the state,” company spokesman Steve Shivinsky told the Los Angeles Times.
This is the problem. Undertaking 21 (c) (pdf) of that agreement says: “For ten 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.”
Apparently that paragraph is more ambiguous than it seems, because the Times said DMHC Director Shelley Rouillard told them that while she thought Blue Shield should pay the money, “reasonable people may disagree about the meaning of the language.”
What they disagree about is whether the $14 million a year was supposed to be in addition to Blue Shield’s already substantial annual contribution to the foundation, which is more than twice that, depending on financial factors.
DMHC said it’s obvious the money is additional or it wouldn’t be mentioned in the agreement. Blue Shield said that is an assumption, not a fact baldly stated in the agreement’s language. The company says $14 million was mentioned as a floor for its overall contributions.
That interpretation may negate the part of that Undertaking which states: “Blue Shield agrees to file an annual report with the Department on the total amount of such contributions and the organizations to which they were made.” They can back out of the payment if the company incurs a net loss of the year.
“The agency and the public got snookered,” Anthony Wright, executive director of Health Access, concluded. “It’s outrageous, and we shouldn’t allow Blue Shield to weasel out of this.”
He had written Rouillard (pdf) a couple weeks ago asking if she heard what he heard―that Blue Shield said it wasn’t going to pay the money.
“We find it stunning and disheartening that Blue Shield is backtracking on one of the key conditions of the acquisition, just weeks after the deal was approved by DMHC,” Wright wrote in the letter.
Blue Shield won permission to buy Care1st Health Plan amid a rancorous debate with the state over its not-for-profit status. The state didn’t think Blue Shield acted like a not-for-profit―hoarding billions of dollars and paying huge executive salaries―and California’s Franchise Tax Board removed its state tax exempt status in August 2014, although that wasn’t widely known until the Times revealed it in March.
–Ken Broder
To Learn More:
Nonprofit Blue Shield Accused of Backing Out of $140-Million Charity Pledge (by Chad Terhune, Los Angeles Times)
DMHC Approves Blue Shield's Acquisition of Care1st Health Plan (California Healthline)
State Regulators Approve Blue Shield's Bid to Buy Care1st (by Kathy Robertson, Sacramento Business Journal)
Small Window Opens on Secret Audit and Revocation of Blue Shield Not-for-Profit Status (by Ken Broder, AllGov California)