Opposition to CareFirst Becoming a For-Profit Corporation
DC Appleseed spent a decade working to compel Group Hospitalization and Medical Services, Inc. (GHMSI), a subsidiary of CareFirst, to fulfill the charitable obligation of its charter. Finally, in November of 2021, CareFirst agreed to launch a $95 million Health Equity Fund that will address health disparities in DC.
In 2001, CareFirst filed applications for conversion to a for-profit company in DC, Maryland, and Delaware, the three jurisdictions where it operates in 2001. The applications sought permission to sell the company for $1.3 billion to a California-based for-profit company. As soon as the applications were filed, DC Appleseed commissioned valuation studies of CareFirst. These studies revealed that the value of CareFirst was approximately $2.25 billion—almost a billion dollars more than the selling price agreed to by CareFirst management. This meant that the proposed conversion would deprive the public of a billion dollars that could be devoted to area healthcare needs. Appleseed submitted the valuation studies to the insurance commissioners in all three jurisdictions.
Conversion proceedings began first in Maryland before the Maryland Insurance Commissioner in the spring of 2002. A year later, the Commissioner issued a decision denying the conversion on the grounds of the selling price being too low.
CareFirst then ended its efforts to become a for-profit company, and DC Appleseed turned to the unresolved question of whether CareFirst was fulfilling the charitable obligation in its charter. We undertook a research effort to determine what the DC-based portion of CareFirst’s spending should be to meet its obligation as a charitable organization and better serve the public interest in the National Capital area. According to our consultation with health policy, legal, and data experts in 2003, CareFirst should have been be spending over $50 million per year on community activities, even though its 2004 budget for these activities was approximately $1 million.
Objection to CareFirst not Fulfilling Charter Obligations
Since 2003, Appleseed continued to pursue the issue of CareFirst living up to its charitable obligation in numerous ways. We testified before the DC Council and advocated for the Medical Insurance Empowerment Act which requires CareFirst to reinvest its surplus in community health activities. We then advocated for its enforcement, including two petitions to the DC Court of Appeals. Finally, as a result of the Court’s order in November of 2021, three DC nonprofit organizations are investing $ 95 million in critically needed community health programs.
Advocacy and Litigation Finally Bring Success
Pro Bono Partners:
Covington & Burling LLP
Harkins Cunningham LLP
The Health Equity Fund, made possible by the CareFirst settlement, will help reduce health disparities.