The conversion and settlement of Georgia Blue: are consumer groups still singing the blues?

As more Blue Cross/Blue Shield Organizations employ various means to convert to for-profit status, myriad issues arise concerning the proper treatment of assets that were accumulated during the not-for-profit years of such organizations. Moreover, state officials face pressure from all sides to assure that the conversion process is "fair." In the following Article, the author examines the conversion of Blue Cross and Blue Shield of Georgia to demonstrate the various conversion issues that arise under traditional legal principles--as well as the means by which that Blue employed newly enacted legislation to avoid many of the requirements that otherwise would have attended its conversion.     

A cure for the Blues: resolving nonprofit Blue Cross conversions

This Article analyzes the issues involved in converting nonprofit Blue Cross organizations to for-profit status. These issues have arisen in the context of litigation regarding the "reorganization" of Blue Cross and Blue Shield of Missouri ("BCBSMo"). BCBSMo had reorganized by creating and transferring a majority of its business to a new for-profit subsidiary. Missouri consumer groups and state regulators characterized the "reorganization" as a conversion requiring BCBSMo to transfer its assets to a foundation dedicated to charitable health purposes. BCBSMo, however, denied that it had any obligation to leave behind its assets in the nonprofit sector. The BCBSMo litigation raises issues common to most conversions of nonprofit healthcare organizations, particularly conversions of nonprofit Blue Cross plans. This Article provides a road map for state regulators and the public to follow in ensuring that the public interest is fully protected in such conversions.     

Blue Cross/Blue Shield-sponsored prepaid individual practice

The HMO is no longer a fledgling idea in the Blue Cross/Blue Shield System. There are 45 Blue Cross/Blue Shield Plans throughout the country which sponsor a total of 54 HMO programs with about 1,040,000 members. Among those 54 programs are staff models, group models, Individual Practice Associations (IPAs), and other structures. This analysis is confined to the Minnesota affiliate corporation, "HMO Minnesota."     

Empire and the business of health insurance.

I examine the development of privately provided insurance since World War II, giving special attention to Empire Blue Cross, and argue that the competition between employers and unions for the loyalty of workers after the passage of the Taft-Hartley Act helped diffuse private health insurance benefits already favored by federal policies. For-profit insurers did not challenge the privileged status of Blue Cross plans because they recognized the political benefits that the plans offered and because they did not wish to offend the plans' sponsors. A relatively easy and profitable business, health insurance has been greatly disturbed by the system inflation accompanying the introduction of Medicare and Medicaid programs. Now self-insurance and various managed-care schemes are major threats. The future may bring consolidation and the strengthening of pools, just the opposite of today's system fragmentation.     

Hospital utilization review: past experience, future directions

Utilization review (UR) programs seek to determine whether specific services are medically necessary and whether they are delivered at an appropriate level of intensity and cost. Although UR programs have been operating for more than 40 years, they have changed dramatically during the past two decades. Today, many health care providers, analysts, and policymakers view UR as a possible solution to hospital inpatient cost and quality problems. This paper addresses how UR has evolved, how UR is used today by different delivery mechanisms (i.e., Medicare, health maintenance organizations, preferred provider organizations, Blue Cross, and commercial insurers), the cost effects of various UR approaches, and how UR will be used in the future.     

Examining exclusionary conduct of HMOs and PPOs: a case comment on Northwest Medical Laboratories v. Blue Cross and Blue Shield of Oregon.

As the climate of the health care industry has changed to one of cost-containment and competition through the growth of HMOs and PPOs, health care providers have become the subjects of antitrust litigation. One such case, Northwest Medical Laboratories v. Blue Cross and Blue Shield of Oregon, involved a medical laboratory and a radiology center who claimed that they were victims of an illegal group boycott after defendant's pre-paid health plan denied them preferred provider status. The Oregon Court of Appeals, using the traditional antitrust analysis applied to other industries for decades, failed to consider the intricacies that exist within the health care industry. This result led to an inaccurate market share computation and an inadequate rule of reason analysis. This Comment examines the shortcomings of the Northwest Medical opinion and argues that, in applying the antitrust laws to the health care industry, courts in future cases must recognize and respect the unique features of the business of providing health care.     

What is an employee benefit plan?: ERISA preemption of "any willing provider" laws after Pegram

This note considers the implications of a recent Supreme Court decision, Pegram v. Herdrich, for preemption of state laws under the Employee Retirement Income Security Act (ERISA). Though Pegram dealt with a fiduciary liability question, and not preemption specifically, the Court in arriving at its decision laid out a definition of the word "loan"--a word that is used in both the fiduciary liability section of ERISA and the preemption section. The Court's definition focuses upon the relationship between the managed care organization and the employer that hires it. The definition, however, excludes from the meaning of "plan" the relationship between the managed care organization and the health care providers it hires. Thus, this Note argues that according to Pegram, state laws that regulate the relationship between managed care organizations and health care providers, such as "any willing provider" laws, should not be preempted by ERISA.     

New York's Blue Cross and Blue Shield, 1934-1990: the complicated politics of nonprofit regulation.

The story of New York Blue Cross is one of complex interaction with state and federal regulators and also with hospitals, the medical profession, commercial insurers, and the public, who make up the regulatory environment. Negotiation, cooperation, and adaptation among parties whose goals and assumptions were partly parallel characterize the relationships. As we can see from New York Blue Cross's origins and its role in the development and administration of certificate-of-need legislation, Medicare, insurance practice and regulation, and hospital rate setting, this story does not represent the capture of government by a special interest, nor the gradual souring of a public interest organization, nor disinterested and distant government regulation.     

Back to the future? Health benefits, organized labor, and universal health care

The umbrella of employment-based health benefits is growing increasingly threadbare. As a result, health benefits are once again a major arena of labor-management strife, and once again calls for universal health care by many labor leaders mask important differences between them over health care reform. Some labor leaders advocate a bottom-up mobilization in support of a single-payer solution that would dismantle the system of job-based benefits rooted in private insurance. Others stake their health care strategy on wooing key business leaders to be constructive partners in some kind of unspecified comprehensive reform of the health system. Organized labor faces enormous obstacles, both institutional and ideological, to forging an effective united front to fight for comprehensive, high-quality, affordable health care for all. Two entrenched features of the shadow welfare state of job-based benefits, notably the Employee Retirement Income Security Act (ERISA) of 1974 and the union-run health and welfare funds created under the Taft-Hartley Act, remain daunting barriers on the road to reform, exacerbating tensions and differences within organized labor. Moreover, a dramatic ideological schism in the labor movement about its future direction vexes its stance on health care reform. These ideological differences fuel vastly different views within organized labor about how best to confront the unraveling of job-based health benefits and the growing popularity among business leaders, insurers, and public officials of the "individual-mandate" solution, which would penalize people who do not have adequate health insurance.     

Ball Memorial Hospital: Section 2 Sherman Act analysis in the alternative health care delivery market

In 1986, the Seventh Circuit Court of Appeals in Ball Memorial Hospital v. Mutual Hospital Insurance denied an injunction sought under the antitrust laws by the plaintiffs, eighty acute care hospitals, which would have precluded Blue Cross and Blue Shield of Indiana from implementing a Preferred Provider Organization. The Ball court used a conservative economic analysis to deny the injunction and failed to consider many industry-specific factors. This Note examines these factors and challenges the Ball court's position by arguing that antitrust scrutiny of alternative health care delivery markets must go beyond the court's narrow approach.     

PPS waivers: implications for Medicare, Medicaid, and commercial insurers

This paper compares the Medicare prospective payment system (PPS) to four all-payer rate-setting systems that operated under HCFA waiver authority. The study examines the experience of Medicare, Medicaid, and commercial insurers under the two approaches. Data from several American Hospital Association surveys and from Medicaid 2082 report forms are analyzed. The paper concludes that the all-payer waiver programs have been as successful as PPS in controlling the rate of growth in Medicare costs. In addition, Medicaid programs are more successful in controlling their outlays in all-payer rate-setting environments than when they "go alone." Finally, there is no evidence to suggest that hospitals can increase charges in response to greater financial need under either PPS or the state waivers. Nevertheless, it appears that commercial insurers are better able to compete with Blue Cross plans in all-payer rate-setting states than elsewhere.     

Sharing governmental authority: Blue Cross and hospital planning in New York City.

Hospital planning in New York has been since the 1930s an intensely political process with high stakes. The leaders of Blue Cross and their allies used the hospital planning process in the city and the state as a means to extend and protect corporate authority in what they took to be the public interest. When Blue Cross was established in the 1930s, its leaders used the mechanisms of formal planning as part of their solution to pressing problems in the organization and distribution of hospital services. In the decade after World War II, Blue Cross had an immense impact on hospital planning in New York as a result of its growth and its underwriting policies. Conflicts between Blue Cross and state regulators beginning in the 1950s led to a new formulation of the politics of planning. Blue Cross became a partner with the state in regulating hospitals. The state and Blue Cross behaved as co-regulators until the 1980s. The interpretation in this paper revises the earlier accounts of health politics in New York by Law (1976) and Alford (1975).     

The Purchase of Insurance Across State Lines in the Individual Market

Proposals to allow the purchase of insurance across state lines (PASL) have gained some support in recent years. Health insurers have traditionally been allowed to sell a policy only within the state that approved and regulates that particular policy. PASL would allow insurers to sell a policy approved in one state to people residing in any state. Any federal legislation to enact PASL in an individual insurance market would have to address two main legal considerations: (1) the McCarran-Ferguson Act, which allows the states to retain their regulatory authority over insurance; and (2) a constitutional prohibition against the commandeering of state officials by the federal government. This paper outlines these obstacles and potential solutions, and concludes that as long as the legislation is thoughtfully drafted, there is no significant legal or constitutional barrier to enacting PASL. Additionally, the concepts discussed here may be relevant to any federal health reform legislation involving regulation of health insurance or the use of state officials.     

ERISA, agency costs, and the future of health care in the United States

Because so many Americans receive health insurance through their employers, the Employee Retirement Income Security Act (ERISA) of 1974 plays a dominant role in the delivery of health care in the United States. The ERISA system enables employers and insurers to save money by providing inadequate health care to employees, thereby creating incentives for these agents to act contrary to the interests of their principals. Such agency costs play a significant role in the current health care crisis and require attention when considering reform. We evaluate the two major health care reform movements by exploring the extent to which each reduces agency costs. We find that agency cost analysis clarifies the benefits, limits, and uncertainties of each approach.     

The impact of vendorship legislation and interprofessional competition in the market for social workers' services.

The results of this article suggest that, in the short run, vendorship legislation will not result in a large shift of social workers from organized settings into private practice. However, vendorship legislation appears to increase the number of social workers in private practice in areas that have not attracted as many psychiatrists. Thus, vendorship may have a favorable impact on the geographic distribution of mental health providers. Vendorship legislation may result in increases in private practice social workers in underserved areas. The results also suggest that social workers and psychiatrists compete in the market for mental health services. In counties with higher psychiatrist-to-population ratios, fees for social workers' services are lower. Further, in counties with higher psychiatrist-to-population ratios, the number of social workers in private practice decreased after vendorship. Finally, there is a large range of optimal practice size for social workers. Social workers with 20 or more clients per month can provide mental health services at the lowest average cost per client. Thus social workers operating either full-time or part-time practices with more than 20 clients per month can provide mental health services efficiently.     

Special report on health care delivery systems. Trends in the integrated delivery of health care and the corporate practice of medicine

The prospects for federal legislation preempting state corporate practice restrictions are unclear. The health care reform bill originally introduced by President Clinton contained a provision that would have preempted "any state law related to the corporate practice of medicine" insofar as it applied to the arrangements between non-fee-for-service health plans and their participating providers. H.R. 3600/S. 1757, 103d Cong., 1st Sess. 1407(b) (1993). Whether and in what form a preemption provision may survive the legislative process and see a Presidential signature remains to be seen. The particular fate of the federal legislation notwithstanding, however, health care executives can nevertheless remain confident that the legal treatment of the "corporate practice" of medicine will continue to be of vital concern as the various forms of health care organizations evolve in the ongoing struggle to deliver quality medicine at affordable prices.     

Special report on reimbursement. The safe harbor for small investment interests: where do joint ventures go from here?

There is no specific federal self-referral legislation presently proposed or in effect that statutorily prohibits providers from referring Medicare or other patients to entities in which the referrers have an investment interest, except for existing "Stark" legislation, which applies only to clinical laboratory services, effective January 1, 1992. (See Newsletter, Vol. 6, No. 1, January 1991, at 3.) Thus, health care joint ventures are not per se illegal. The publication of the Safe Harbor Regulations does nothing to change this fundamental fact, and it should not cause providers to abandon existing joint ventures, or planned ones, in a "knee-jerk" fashion, without careful analysis. Of course, there is no guarantee that expanded "Stark" legislation, or some other new self-referral legislation, will not be enacted in the future to prohibit providers from referring patients to entities in which they have an investment interest. Because of this uncertainty, all health care joint ventures should contain "unwinding" provisions to govern the rights and obligations of investors in the event that the venture is required to, or the participants voluntarily elect to, dissolve. Any new venture being contemplated should plan for dissolution, and existing ventures should undertake an internal review of their charter documents to assess whether the rights and duties of all participants upon dissolution are properly spelled out. If not, amendments should be made now, while all participants are on good terms. A failure to agree in advance upon such important issues is an invitation to discord, and possibly even litigation.