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District Sues CareFirst, Says Provider Must Donate Millions

By Nikita Stewart
Washington Post Staff Writer
Wednesday, June 25, 2008

The District government hit the region's largest health insurance provider on two fronts yesterday, launching a subpoena-powered investigation and a lawsuit that asserts the nonprofit organization is obligated to donate millions to the community.

For a decade, authorities in the District and Maryland have criticized CareFirst BlueCross BlueShield for hoarding its annual surpluses despite its federal charter as a "charitable and benevolent institution."

During the past year, animosity between District officials and the insurance provider intensified because CareFirst did not participate in a universal health care program that was counting on it for an annual $5 million contribution. Most important, officials said, CareFirst posted a $754 million surplus in 2007 and did not spread the wealth to needy District residents. Yesterday, interim Attorney General Peter Nickles announced the filing of the lawsuit just hours after the D.C. Council Committee on Public Services and Consumer Affairs voted unanimously to begin an investigation and to give chairman Mary M. Cheh (D-Ward 3) the authority to issue subpoenas.

"They are required to put $100 million into the community," Nickles said. "But instead of providing charitable institution to the community, they have been putting money into surpluses and paying large executive salaries. We're basically asking for a reshaping of the entire CareFirst organization in D.C."

The lawsuit mounts pressure on CareFirst, already at odds with Maryland. Earlier this year, the Maryland Insurance Administration investigated an $18 million severance package given to former CareFirst chief executive William L. Jews. In 2003, a commissioner thwarted CareFirst's plans for a lucrative merger with a for-profit organization.

Council member Cheh said yesterday that she warned Chester "Chet" Burrell, chief executive of Owings Mills-based CareFirst, on Monday of the committee's pending vote as a courtesy.

Of the subpoena power, she noted, "I just wanted to be armed."

The provider issued a statement conveying disappointment in the council's action: "Given CareFirst's compliance with regulatory reporting requirements in the District, taking such a confrontational stance seems excessive and wasteful, especially since, if asked, CareFirst would supply any requested information."

The statement also addressed CareFirst's benevolence: "Last year alone, CareFirst contributed more than $32 million to benefit communities in D.C., Northern Virginia and Maryland, including direct support to over 300 charitable organizations and causes to improve the health of the communities in which we operate."

But critics have argued that the insurance provider should be doing much more.

Council member David A. Catania (I-At Large), chairman of the Committee on Health, said he tried to work with CareFirst when he was setting up the city's version of universal health care. "All of the patience that has been given has been kind of exhausted," Catania said.

Now the provider is faced with an unusual two-pronged approach by the city government, in which the executive and legislative branches often find themselves on opposite sides. In this case, they are a united front.

The DC Appleseed Center for Law and Justice, a public advocacy group, issued a report in 2004 that concluded CareFirst would be "capable" of contributing $100 million annually by 2008.

"If we're right, the payoff to the public is going to be worthwhile," Appleseed executive director Walter Smith said.

Staff writer David Nakamura contributed to this report.

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