Blue Cross to buy troubled CareFirst, pay off some debts


Blue Cross and Blue Shield of Maryland has agreed to buy the CareFirst system of health-maintenance organizations in a deal that would pull the financially strapped company from under state control.

The combination of the companies, which own the two largest HMOs in the Baltimore area, is expected to be complete by mid-March, pending regulatory approval, executives of the companies said last night.

Blue Cross, the state's largest health insurer, owns Columbia-FreeState Health System, an HMO with more than 175,000 members. CareFirst, which operates three HMOs in Maryland, Virginia and Washington, has a combined membership of about 118,000.

"Initially, it's our intention to operate CareFirst on a stand-alone basis," said Carl Sardegna, chairman of Blue Cross. "To providers and subscribers, this transaction should be transparent."

Details of the planned purchase were learned last night after a late-afternoon meeting in Baltimore between executives of the two companies and regulators from Virginia and Maryland. Maryland regulators have 60 days to reach a decision on the deal.

CareFirst Inc. is parent of HealthCare Corporation of America, which owns CareFirst, Potomac Health and Physicians CareFirst in Northern Virginia, Washington and the Maryland suburbs.

The three HMOs were slapped with court orders last week freezing their assets after regulators found them to have fallen well below state net-worth requirements.

Blue Cross said its purchase agreement includes provisions to restore CareFirst's financial health and enable it to meet regulatory requirements.

The agreement outlined to regulators last night had been discussed by the two companies for several months and finally came together late Sunday after the board of CareFirst met and approved the deal, said David D. Wolf, president and chief executive officer of CareFirst.

At that board meeting, CareFirst directors also rehired Mr. Wolf in his current positions after letting him go more than a week ago.

G. Mark Chaney, the company's chief financial officer, who left with Mr. Wolf, also was rehired, Mr. Wolf said yesterday.

Mr. Wolf and Mr. Sardegna declined to disclose the purchase price for CareFirst, but Mr. Wolf did say that the company's non-physician creditors, who are owed about $43 million in mostly long-term debt, had accepted an immediate cash deal from Blue Cross to satisfy that debt. It was not clear yesterday what portion of the total debt they had agreed to accept.

Mr. Sardegna said there was no immediate intention to merge the newly acquired HMO with Columbia-FreeState.

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