Probe Targets Insurer's Contracts

By Keith L. Alexander
Washington Post Staff Writer
Thursday, October 18, 2007

The D.C. attorney general's office has launched an investigation into the business practices of CareFirst Inc., the region's largest private insurance provider, authorities confirmed yesterday.

D.C. Attorney General Linda Singer is examining whether CareFirst has gained an unfair competitive advantage through the structuring of its contracts with providers. On Tuesday, Singer's office filed papers in D.C. Superior Court asking a judge to order one of CareFirst's competitors, the Kaiser Foundation Health Plan, to turn over materials about rates that could assist in the probe. That filing made the investigation public.

Singer's office is examining the rates CareFirst pays to physicians and health-care providers on behalf of its policyholders. At issue is whether CareFirst is making improper use of what is known as a "most favored nation" clause in its dealings with health-care providers in the District. Such a clause would guarantee that CareFirst automatically gets any lower rates that the providers negotiate with CareFirst's competitors.

Singer said the practice may undercut competing insurance companies from being able to enter the market and offer lower rates.

"This is an issue that goes to the heart of what consumers pay for health care and giving them choice of providers," she said. "This is the kind of practice that CareFirst may find in its interest, but it makes consumers lose and it reduces competition in the market, which is always bad for consumers."

The city's court filing noted, "The existence of an investigation in itself does not indicate that the Attorney General has determined that a violation has occurred."

CareFirst spokesman Jeff Valentine said that his company has been working with the attorney general's office for more than a year and that CareFirst's contracts help keep policyholders' costs low.

"We remain confident that our cost-containment programs do not violate any applicable laws," Valentine said. "Our members shouldn't have to pay more for an office visit than members of another health plan."

With its network, CareFirst Blue Cross Blue Shield, CareFirst serves more than 1.2 million residents in the District, Northern Virginia and Prince George's and Montgomery counties, Valentine said.

Kaiser spokeswoman Amy Goodwin said the company has been cooperating with the attorney general's requests during the investigation. Kaiser has 20 days to respond to the filing.

Insurance costs have been a major issue for Singer since her days as executive director of the DC Appleseed Center for Law and Justice, a public advocacy group. According to an Appleseed report, CareFirst received about $1.3 billion in revenue from premiums paid by D.C. customers in 2003.

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