For Blue Cross & Blue Shield of Maryland, 1992 was a year to remember.
Its net worth plummeted 75 percent as it came within a hair of insolvency. It was investigated by a U.S. Senate committee, which found widespread examples of mismanagement. Its president and other top executives were forced out amid criticism of their high salaries and lavish perks, and the company's credibility suffered.
For its handling of these multiple catastrophes, Blue Cross won a "crisis communications" award this week. One important achievement cited in the company contest entry: Nobody got indicted.
The company's entry in the Public Relations Society of America's Maryland chapter contest provides a rare inside look at the strategies of a company mired in a scandal. It reveals a "constant battle" between lawyers and public relations people over the release of information. Adding to the turmoil, Blue Cross says, were disputes over the handling of"questionable business practices," such as the awarding of a generous compensation and retirement package to then-President Carl J. Sardegna.
According to its contest submission, Blue Cross' $600,000 public relations campaign from July to December 1992 was designed to:
* "Hold the development of the crisis to this one federal investigation and to try to minimize escalation of the crisis so there would be no criminal indictments."
* "Keep some semblance of credibility for the company and try toclose the gap between [Blue Cross] and the insurance commissioner."
* "Minimize negative impact on the company's image."
Blue Cross' entry candidly acknowledged that the campaign did not restore credibility. However, the company said it achieved the other two objectives because there were no indictments or further investigations, and because the "negative impact to the company was minimized -- the enrollment and sales figures attest to that."
Asked what role the public relations staff could have played in averting indictments, public relations chief Amy Levy said yesterday that there was never any thought that Blue Cross could stop indictments brought for past behavior. Her staff's efforts, she said, were aimed at assuring that Blue Cross complied completely with the Senate subpoena.
Ms. Levy said total Blue Cross enrollment had stabilized, as an increase in the base Blue Cross business offset losses in its four health maintenance organizations.
Financial statements filed early this year with the state insurance commissioner showed a drop of 16,000 members in Blue Cross' HMOs in 1992, representing 6 percent of the combined enrollment. Another statement showed a further loss of 5,000 members of the HMOs during this year's first quarter.
Meanwhile, Blue Cross reported operating profits of $40.8 million for 1992 -- its best year since 1984. It followed with a 160 percent jump in earnings in the first quarter of 1993.
Lawyers vs. PR staff
The Blue Cross submission noted the battle between company public relations staffers and lawyers as the crisis deepened in the wake of testimony by then-Maryland Insurance Commissioner John A. Donaho before the U.S. Senate's Permanent Subcommittee on Investigations. In effect, Mr. Donaho told the committee that Blue Cross was perilously close to insolvency because of management problems.
According to the public relations people, they recommended a policy of "disclosure before discovery"; legal advisers recommended a "close down" strategy under which no information would be disclosed until the crisis was over.
A move to disclosure
The submission said the legal advisers' strategy was followed during the period between Mr. Donaho's July testimony and a further round of Senate hearings in September. But after discovering that information was reaching the public through other channels, the company shifted to a policy of greater disclosure, the contest judges were told.
Frank Gunther, who took over as chairman last October and played a key role in the ouster of Mr. Sardegna, said yesterday that the public relations department has enthusiastically carried out that more open policy. "I have no complaints," he said.
According to Ms. Levy, the award was not an endorsement of the entire company's actions but a recognition of the public relations team's comprehensive plan of research and communication. "What came out of that company is not necessarily what we recommended."
Ms. Levy said she and her department never knowingly misled the public and immediately pulled two ads after they were criticized by Sen. Sam Nunn, D-Ga., as misleading. She said she would prefer not to speak about whether she was misled by the prior top management.
The contest judges, members of PRSA's South Carolina chapter, praised Blue Cross for its "excellent" market research and "virtually perfect" crisis management. Blue Cross provided The Sun with the summary of its telephone book-sized submission.