Acknowledging that the public's confidence in Blue Cross and Blue Shield of Maryland has been shaken, the insurer's board of directors removed Carl J. Sardegna last night as its chairman and replaced him with retired businessman Frank A. Gunther.
Mr. Sardegna, who has served as the board's chairman since 1987, will remain president and chief executive officer of the company and a member of the board, a statement from the company said last night.
The 18-member board also created a special committee to review the Blues' operations and policies to ensure that Maryland's largest health insurer was carrying out its responsibility to the public.
"We have great confidence in Mr. Sardegna," said Mr. Gunther, 60, the new chairman of the board, which oversees company policy but does not manage day-to-day operations.
"We're questioning ourselves to see if we have done as much as we should have done. With this criticism, you have to re-evaluate and see maybe [if] we should have worked a little bit harder."
The board's action follows a series of troubling revelations about the company's operations and financial health under the six-year stewardship of Mr. Sardegna, who is 55.
Two weeks ago, congressional investigators issued a 169-page report that questioned the soundness of the company's financial condition, detailed lavish spending by executives and criticized management practices under Mr. Sardegna.
The 2 1/2 -month investigation, by the U.S. Senate Permanent Subcommittee on Investigations, found a history of poor customer service, a reluctance to inform regulators of its activities and serious failings at several for-profit subsidiaries created during Mr. Sardegna's tenure.
The committee's findings were revealed during a two-day hearing in Washington last month at which Mr. Sardegna, company officials, state regulators and subscribers testified.
Yesterday, the Blues' board convened in a special session, its first meeting since the Senate hearings. After three hours, the board issued a short statement, announcing the replacement of its chairman.
John A. Donaho, the state insurance commissioner whose concerns about the Blues' financial condition led to the Senate investigation, said last night: "It's a positive step for the board to examine its responsibilities and its relationship to the executive officers."
In discussing the board's actions, Mr. Gunther, a respected businessman and veteran of the Blues board, referred to the criticism heaped on the company in the past several weeks and a concern over a possible loss of public confidence in the insurer, which serves 1.4 million.
"We're really going to do a self-evaluation to make sure we have done everything we can do to serve the public because our responsibility is to the public," said Mr. Gunther, the former owner of his family's business, Albert Gunther Inc., a hardware supplier. "We will work very diligently and come back with changes we want to take place as quickly as possible."
The board, which includes politically well-connected corporate executives, health care professionals and community leaders, is a self-perpetuating board that meets monthly. Board members receive $17,600 a year in compensation.
Mr. Gunther declined to discuss specific issues raised by the congressional investigation. "All those matters will be discussed within this committee or the full board," said Mr. Gunther. The special review committee includes board members M. Thomas Goedeke, the former Howard county school superintendent, Mary "Mitzi" Perdue, a columnist with The Salisbury Times, Barry Bosworth, an economist with the Brookings Institution, and William A. Beasman, former head of the Bank of Baltimore.