Planned acquisition by Blue Shield needs scrutiny

Late last year Blue Shield announced a deal to acquire Care1st, a California-based health plan with over 500,000 members. In announcing the deal, Blue Shield refused to disclose how much it had agreed to pay for Care1st or other terms of the deal. Today, I sent the the letter below to the California Department of Managed Care, which must approve the transaction, to request immediate disclosure of the deal terms and a public hearing on the proposed acquisition.

To: Shelley Rouillard, Director, California Department of Managed Care:

I am writing regarding Blue Shield of California’s proposed acquisition of Care1st to request that the department (1) require Blue Shield to immediately disclose to the public the terms of the deal and (2) hold a public hearing on the proposed acquisition well before taking action on it.

Several aspects of the planned transaction cast doubt on, or at least raise questions about, whether it would serve the public interest.

First and foremost is the lack of public disclosure. In announcing the deal, Blue Shield and Care1st insisted on keeping its terms secret, including how much Blue Shield has agreed to pay for Care1st.  Without knowing the price, it is impossible for the public to know whether it is fair—and that matters greatly because the funds that Blue Shield proposes to spend are nonprofit assets belonging to the community.

If the price Blue Shield has agreed to pay is excessive, then completion of the deal would result in community assets being used improperly to enrich private parties—the present owners of Care1st. The refusal of Blue Shield and Care1st to publicly disclose the terms suggests that this could well be the case.

Even if the price agreed to by Blue Shield were a reasonable reflection of Care1st’s market value, the transaction would still disserve the public if the proposed expenditure of community assets did not result in a commensurate increase in the community benefit provided by Blue Shield. Given the recent revocation of Blue Shield’s tax exemption, presumably for failing to provide sufficient community benefit, it seems highly doubtful that the acquisition would produce any significant increase in benefit to the community.

Another important question raised is, what benefit would come to consumers by transferring control of Care1st to Blue Shield? Care1st’s dominant business is serving Medi-Cal enrollees. Blue Shield has no experience or expertise with this highly specialized line of coverage. Transferring control of Care1st to Blue Shield would clearly entail some risk to Medi-Cal enrollees.

Given these and other issues of critical public importance raised by the proposed acquisition, the public deserves full and immediate disclosure of the transaction and a public hearing in which key issues relating to the deal’s impact on the community can be aired. 

Thank you very much for your consideration.


Michael Johnson