CareFirst BlueCross BlueShield reported yesterday net operating profit for 2002 of $104.4 million, before an accounting adjustment.
That is 13 percent higher than the previous year's profit of $98.7 million, but below the goal of $106 million set before the year began. After the accounting adjustment, which the company said was related to its investment portfolio, profit was $85 million.
The earnings report came two days after Maryland Insurance Commissioner Steven B. Larsen rejected CareFirst's application to convert to for-profit operation and be sold.
Although CareFirst remains a nonprofit, it reports operating profit - the amount by which its revenue exceeds its expenses. It uses the profit for financial reserves and capital projects.
The company reported revenue for last year of $6.7 billion, an increase of 13 percent over just under 6 billion in 2001. That exceeded the goal of $6.4 billion set in its financial plan.
CareFirst doesn't ordinarily disclose its financial goals, but they are included in board minutes and other documents subpoenaed and made public by Larsen in his review of CareFirst's application.
Medical costs rose at about the same rate as revenue. CareFirst was able to improve its profit by increasing membership, which grew 4 percent to 3.24 million, and by reducing administrative expenses to 8.5 percent of revenue, down from 9.2 percent in 2001.
G. Mark Chaney, executive vice president and chief financial officer, said the results for the year show CareFirst "continues to be in good financial health."
CareFirst said that $75.3 million of its profit came from its District of Columbia subsidiary and $16.2 million from its Delaware unit.
Although Maryland is home to more than 2 million of CareFirst's 3.24 million members, profit from the state was only $9.4 million.
In his report Wednesday, Larsen noted that CareFirst management attributed lagging performance in Maryland to "mandated benefits passed by the General Assembly" and "inadequate rate approvals from the Maryland Insurance Administration."
However, Larsen said, CareFirst's Maryland unit lost money on subsidizing physician groups and by setting fees too low on so-called "non-risk" business, on which CareFirst collects an administrative fee for self-insured employers.
In sum, Larsen said, CareFirst in Maryland "sustained tens of millions of dollars in losses for reasons related to management decisions and action or inaction, rather than the reasons cited publicly by management."
CareFirst said the accounting adjustment was made to conform to a financial standard known as FAS115.
Although CareFirst declined to make executives available to explain the change, Dan Sandstrom, a Burtonsville accountant and a member of the accounting and auditing standards committee of the Maryland Association of Certified Public Accountants, said the accounting rule was one that for-profit businesses follow in recording investment income.
In a related development, WellPoint Health Networks Inc., the California insurer that has been trying to buy CareFirst, said yesterday it asked Delaware and the District of Columbia regulators to suspend their review as it studies Larsen's order.
Thomas C. Geiser, executive vice president and general counsel, said the pause would allow WellPoint to decide how to proceed.
WellPoint and CareFirst have 30 days to decide whether to appeal in court Larsen's rejection of the deal.
Analysts, however, have said the deal is almost certainly dead.
"The overall tone of the rejection was strong and leaves little room for WellPoint to make another bid," Eric L. Veiel, an analyst with Deutsche Bank Securities in Baltimore, wrote in a research note. "In our opinion, the deal is very unlikely to go forward."
Lawrence Mirel, commissioner of the D.C. Department of Insurance and Securities Regulation, said yesterday that it will honor WellPoint's request.
F.L. Peter Stone, deputy insurance commissioner for Delaware, said a decision would be made next week.