CareFirst BlueCross BlueShield's plan to convert to for-profit operation and be sold is "clearly a viable strategic option, but was not either the only option or a necessary option," a consultant to the state insurance commissioner testified yesterday.

CareFirst has generated "adequate capital, and will continue to do so," unless it wants to make a major acquisition, said Martin Alderson Smith, senior managing director of the Blackstone Group, a New York investment advisory firm.

"CareFirst agrees with the broad conclusions of the Blackstone report," David M. Funk, a lawyer for the insurer, said. However, he added, "CareFirst remains convinced merger and acquisition, in the long term, is the best strategy."

Yesterday's public hearing on CareFirst's conversion plans was the least contentious of the three held this week.

Another potential source of discord at the hearing - a discussion of CareFirst's contract dispute with Children's National Medical Center in Washington - was averted at the last minute. The insurer and the hospital agreed to extend their contract, scheduled to expire at the end of the month, for 30 days and to work toward a longer-term agreement.

What was left was a discussion by the consultants of their financial projections, with arcane items such as "the excess of depreciation and working capital over CapEx" leading to conclusions such as "net-net, the public health insurers return more capital to the markets than they issue."

Insurance Commissioner Steven B. Larsen is determining whether CareFirst's conversion and sale is in the public interest. He asked Blackstone to study CareFirst's "business case" - its explanation of the reason it decided not to continue as a regional nonprofit company.

Jonathan Koplovitz, a managing director at Blackstone, testified that CareFirst has adequate resources to continue as it is, but "if you're going to go on an aggressive acquisition strategy, you probably need to be a public company."

Joseph V. Marabito, a partner in Accenture, a consulting firm that advised CareFirst on its business options, testified, "While we used different paths, we seem to have arrived at similar conclusions."

Marabito noted that Blackstone had found "legitimate strategic and financial benefits" from having freer access to capital and from growing bigger - reasons CareFirst has said it needs to be sold to WellPoint Health Networks Inc., a for-profit California insurer.

Koplovitz warned, however, that an aggressive acquisition strategy can be risky. Health insurers such as Aetna Inc. and Cigna HealthCare have had difficulty integrating the businesses they bought, he said.

Larsen said he had sought testimony on the CareFirst-Children's National dispute to see "whether it's a coincidence that CareFirst is preparing to become a for-profit company and we have this major meltdown in relations with a major hospital."

CareFirst and Children's have been unable to agree on rates. Children's said it was losing money on CareFirst patients, and CareFirst argued that Children's charged more than other hospitals. With their contract running out, it appeared CareFirst members would have to find other doctors.

Several parents brought their children to the hearing in strollers. Carrin Brandt, of Springfield, Va., said she thought the primary fault lay with CareFirst and its chief executive officer, William L. Jews. Brandt's daughter, 18-month-old Bailey, and other children wore small signs saying, "Care denied by Mr. Jews."

But as a CareFirst consultant was in the witness chair, prepared to testify on Children's rates, CareFirst and hospital officials announced their truce. Treatment will continue at least through January, and the two sides will report back to Larsen in a month.