Records Sought on Failed WellPoint Deal
WellPoint Health Networks Inc., the Thousand Oaks-based parent of Blue Cross of California, said Thursday that it received a federal subpoena seeking records about its failed $1.4-billion bid to buy CareFirst Inc., a large nonprofit Blue Cross plan on the East Coast.
WellPoint, California’s largest health insurer, said in a filing with the Securities and Exchange Commission that the U.S. attorney’s office in Maryland was looking for various documents related to the CareFirst transaction, but did not elaborate.
“WellPoint intends to respond to the request and cooperate fully with the U.S. attorney,” company spokesman Ken Ferber said. “WellPoint has no reason to believe it is the target of the proceedings.”
In March, Maryland Insurance Commissioner Steven Larson rejected the planned purchase of CareFirst, based in Owings Mills, Md., saying that the deal was not in the public interest and that the price was too low.
State regulators had to approve WellPoint’s acquisition because CareFirst is a nonprofit.
In rejecting the proposed sale, Larsen pointed to CareFirst and its board. Their auction “was flawed and did not produce fair market value,” he said, adding that the company agreed to payment packages for CareFirst executives that totaled nearly $120 million and ran afoul of state laws.
Some legislators and advocacy groups had opposed the sale on grounds that a purchase of CareFirst, which supplies insurance to many low-income people, might make insurance too expensive for them.
Like other health insurers, WellPoint has sought to add members through acquisitions and has expanded into various states including Georgia and Missouri. In June, WellPoint announced a bid to buy Milwaukee-based Cobalt Corp., with 800,000 members; that deal is awaiting regulatory approval.
For its second quarter ended in June, WellPoint reported 31% growth in profit, besting Wall Street’s expectations. But WellPoint also said its membership declined by 73,000 from the previous quarter. Although that was a fraction of its membership of more than 13 million nationwide, it was the first drop in at least the last 10 quarters, according to WellPoint reports.
WellPoint said the sluggish economy and steep insurance premium hikes appeared to be finally catching up with the company and the managed-care industry.
Still, WellPoint has been among the strongest performers in the industry and analysts expect it to continue to grow at a healthy rate. In the latest quarter, WellPoint boosted profit by cutting expenses and spending a slightly smaller part of its premium revenue for medical care.
The subpoena news Thursday came after the market closed.
WellPoint shares rose $1.22 to $79.54 on the New York Stock Exchange.
