Health Systems’ Hasan Accuses WellPoint of Fraud in Deal

In a toughly worded letter, Health Systems International Chairman Malik M. Hasan has accused WellPoint Health Networks and its majority shareholder of “fraudulent inducement” in connection with WellPoint’s proposed $1.6-billion acquisition of Health Systems.

The five-page letter, part of a required Securities and Exchange Commission filing, marks a new level of antagonism in a once-friendly merger between two of California’s largest managed health care firms.

Hasan alleges in the Nov. 24 letter that WellPoint and its 80%-owner, Blue Cross of California, “fraudulently represented” to Hasan that he would have responsibility for future mergers and acquisitions in the new firm, to be called UniCare Health Systems.

Blue Cross Chairman Leonard Schaeffer has “engaged in a course of conduct designed to eliminate the duties allocated to Dr. Hasan” and shift those duties to himself, Hasan alleges.

Hasan also charges that WellPoint and Blue Cross have “fraudulently” misrepresented the number of members in certain health plans, concealed difficulties that WellPoint was having obtaining certification from a national health care accrediting agency and reneged on a new employment agreement with Hasan.

Hasan further charges that WellPoint and Blue Cross failed to disclose a bonus program for senior executives of UniCare that would have provided them with stock options exceeding $40 million, by one estimate.

WellPoint spokesman John Cygul called the letter “grossly inaccurate and groundless.” While WellPoint still wants to go forward with the deal, he said, the letter does “cast a pall over whether [Health Systems] wants to proceed on good faith.”

David Olson, a Health Systems spokesman, said WellPoint for two weeks has rebuffed Health Systems’ requests for a meeting of special board committees of the three firms.

“What does that say about good faith?” he said.