YOU ARE HERE: LAT HomeCollections


Maryland May Block WellPoint Acquisition

Insurance: State passes bill requiring cash-only deal for the planned purchase of nonprofit CareFirst.


WellPoint Health Networks, Inc., one of the nation's largest health insurers, has become an industry juggernaut thanks to its aggressive acquisitions strategy. But it may have met its match in the Maryland state Legislature.

The Maryland General Assembly passed a bill Tuesday that requires a cash-only deal for the Thousand Oaks-based firm's planned $1.3-billion purchase of nonprofit CareFirst Blue Cross/Blue Shield, rather than the cash and stock plan the firm prefers.

The bill also blocks $33 million in planned bonuses for CareFirst executives, which many Maryland legislators, such as Delegate Bill Bronrott, called extreme.

There is even a "look-back" provision that allows the legislators to block the deal for up to 90 days after the state Insurance Commissioner approves it.

The bill still must be signed by Maryland Gov. Parris Glendening.

"This is a very formidable barrier," said health-care industry expert Peter Boland. "It's a very unusual political move, and I've not heard of this happening anywhere else before."

"We believe there is enough momentum against the CareFirst deal to render it practically dead," Prudential Securities Inc. analyst David Shove said in a research note.

The CareFirst deal would make WellPoint the No. 2 health insurer in the nation in terms of enrollment and help consolidate its effort to become a national company. WellPoint indicated that it may have to rethink the purchase.

WellPoint spokesman Ken Ferber said the company hadn't had a chance to study the legislation and would be doing "a careful evaluation to decide where we go from here." The company stopped short of saying the bill was an outright deal breaker, adding that its strategy to acquire or grow in California, Texas, the Midwest, mid-Atlantic and the Southeast would continue.

Maryland's reaction to the CareFirst acquisition may indicate growing resistance to for-profit conversions by health insurers, said analyst Shove, making future purchases of Blue Cross plans more expensive.

The purchase or consolidation of Blue Cross insurers in other states had been rather routine until last year, said health analyst Greg Crawford of Fox Pitt Kelton in San Francisco. But the Kansas state insurance commissioner blocked Anthem Insurance Cos. from acquiring that state's Blue Cross insurers, Crawford said, saying it wasn't good for the state.

Maryland legislators see CareFirst as their constituents' health insurer of last resort. They weren't shy about admitting they'd like to see WellPoint's takeover fail.

"Will this break the deal? I certainly hope so," said Delegate Marilyn Goldwater, chairwomanof the Joint Committee on Health Care and Delivery Systems.

Goldwater, a Democrat, added that the legislators couldn't kill the deal. "There's a process that has to be followed, but there is definitely a lot of outrage over this."

Goldwater said the major concerns were the state's losing its insurer of last resort, the need to set up a replacement insurer and the fact that it involves a California company that she said knows little about her state.

Delegate Shane Pendergrass, a Democrat and the original author of the bill, said her goal was to block the purchase. The deal "would turn our nonprofit company into a for-profit built around stockholders. The decisions would be made three time zones away, and we were told that efficiencies would be gained in the deal and that sounds like a loss of Maryland jobs," she said.

CareFirst BlueCross/BlueShield is a not-for-profit managed health-care company that provides services to more than 3.1 million enrollees in northern Virginia, Washington, Maryland and Delaware.

WellPoint has more than 12 million enrollees. WellPoint shares rose 38 cents to $67 on the New York Stock Exchange.


Bloomberg News was used in compiling this report.

Los Angeles Times Articles