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Regence Group Drops Controversial Deal — Consumer Groups Relieved

August 15, 2001

Consumer Groups Relieved, Urge State to Take Steps to Protect Oregon Healthcare Dollars

The Regence Group, which operates nonprofit Blue Cross and Blue Shield plans in Oregon, Washington, Idaho, and Utah, announced today that it is abandoning plans to affiliate with the Healthcare Service Corporation (HCSC), a mutual insurance company. The controversial affiliation proposal had drawn criticism from community advocates because it would have transferred control of the Regence plans to the Chicago-based HCSC. As a result, millions of dollars in assets built up over many years in the nonprofit Blue Cross and Blue Shield plans of each state potentially could have been jeopardized.
“We are pleased that The Regence Group has decided to withdraw the affiliation proposal because it would have put at risk millions of healthcare dollars that belong to the citizens of Oregon, Washington, Idaho, and Utah,” said Scott Benbow, Staff Attorney at Consumers Union. “We need to remain vigilant to protect these important healthcare assets so they may continue to serve the community.”
When the proposed affiliation was first announced last year, community advocates warned that similar transactions in other states have made it difficult for regulators to protect the charitable assets of nonprofit Blue Cross insurers when the health plans later converted to for-profit corporations. These assets are supposed to remain dedicated to serving the public if the nonprofit converts to a for-profit entity.
Under the proposed affiliation, the companies intended to create an operating company that would provide administrative services for both companies. The Regence Group, HCSC, and the operating company would have had interlocking boards of directors, all of which would have been controlled by a majority of HCSC directors. Community advocates warned that this arrangement would have resulted in a change of control in favor of HCSC. This concern was echoed by regulators in each of the Regence Group states in a letter to the insurance companies earlier this year.
But even though HCSC would have essentially taken over The Regence Group, it was not offering to pay for the acquisition. By contrast, HCSC paid $20 million to acquire the Blue Cross and Blue Shield plan in New Mexico. The proceeds from the sale of the nonprofit New Mexico plan are being turned over to a new public health foundation dedicated to serving citizens of the state. Public hearings to examine the impact of The Regence Group – HCSC affiliation proposal had been scheduled by regulators in Oregon and Washington for late August and early September.
“Regulators in Oregon and Washington deserve credit for taking community concerns seriously and for beginning a thorough examination of this proposal ,” said Benbow. “This experience underscores the need for state regulators to carefully scrutinize these transactions and for lawmakers to consider whether state law can be strengthened to better protect the assets of our nonprofit healthcare institutions,” he said.
Consumer groups plan to continue monitoring future proposed affiliations with The Regence Group that may affect consumers and charitable assets.

Consumers Union West Coast Office
(415) 431-6747