Source: thedcline.org
The legal battle fought by Walter Smith and his organization DC Appleseed Center for Law and Justice to ensure a regional nonprofit corporate giant, CareFirst BlueCross BlueShield, contributes its fair share to improving the quality of health care for vulnerable District residents ensued through four mayors, three DC Council chairpersons and seven insurance commissioners. It came to an end last week. I’m not sure we should sing hallelujah just yet.
Mayor Muriel Bowser and CareFirst announced a $95 million settlement in the case. The official press release gave the impression that the resolution was the sole work of the executive. Moreover, Brian D. Pieninck, president and CEO of CareFirst, sounded as if his company was always interested in spending its money to serve vulnerable residents. “This is just the latest investment as part of CareFirst’s ongoing commitment to improving health while increasing accessibility, affordability and quality of care for all those who live, work and play in the communities and neighborhoods we serve across Washington, D.C., Maryland and Northern Virginia,” he said.
CareFirst came kicking and screaming. Bowser certainly helped seal the deal.
None of that would have happened without Smith and his team — which included pro bono professionals from Covington & Burling LLP, Harkins Cunningham LLP and Mathematica. They did the heavy lifting with more than a decade of legal work and multiple appearances before the DC Court of Appeals that forced the settlement.
“Since we now have an agreement with them, we are trying now to join hands,” Smith told me in an extended interview over the weekend. “I want us to mutually celebrate with the mayor, with CareFirst, with the insurance commissioner, with the foundations that we have now all agreed that under the statute they really do need to be contributing this money to address health care needs.”
He’s being magnanimous. At various points, everyone — the mayors, the insurance commissioners, the DC attorney general, even some DC Council members — wanted Smith to go away: Just settle the thing already. He wasn’t willing to leave with an empty wallet, however, understanding the health care disparities in the city’s communities of color.
Smith may have become a member of the Kumbaya chorus. I haven’t.
His decision to fight is an example of what the District could have done when MedStar Health threatened to stop providing services to DC’s contracted managed care organizations by Nov. 21 if its affiliate MedStar Family Choice didn’t receive a contract. Instead of standing up to such bullying behavior, the DC Council whimpered off into a corner. Then, outmaneuvered by the mayor, legislators approved what is essentially a sole source contract for MedStar, violating a ruling by the DC Contract Appeals Board.
Too bad Smith wasn’t available for the bout. He was already engaged.
Let’s go to the clips: In 2004, Appleseed issued a report, calling out CareFirst and its affiliate, Group Hospitalization and Medical Services Inc. (GHMSI), which based on its federal charter operates primarily in the District on behalf of its parent company, for hoarding millions of dollars in profits. By law, nonprofits are supposed to invest in communities — not silk-suit-wearing executives.
Lawrence H. Mirel, then-head of the DC Department of Insurance, Securities and Banking (DISB), reacted to Appleseed’s report by holding a hearing. Back then, CareFirst had an estimated surplus of $500 million. Afterward, Mirel concluded the company “really should be spending more on community health care needs and he expected them to do so,” recalled Smith. “They said that they would do so. They didn’t.”
In late 2006, Smith reached out to Mary Cheh even before she took office as the new Ward 3 DC Council member. “To show how committed and unbelievably dogged Walter Smith is, he visited me at my office at George Washington University and told me about the CareFirst surplus. I said, ‘Sign me up,’” Cheh told me earlier this week.
After assuming her seat, she invited all the relevant parties to her council office, encouraging them to work out an agreement. Smith said he and CareFirst met twice more: “They would agree to nothing.”
He circled back to Cheh, urging her to introduce legislation that would charge the insurance commissioner with determining whether there was any excess surplus and require spending “the maximum feasible amount of their surplus on community health needs consistent with financial soundness and efficiency,” said Smith. The resulting law remains in effect and requires regular reporting by CareFirst.
Smith said that CareFirst hired the firm Milliman, “a very well-known actuary expert, to determine whether or not they were in compliance with the law. Milliman developed a rather elaborate statistical model” that suggested they were. Unintimidated, Smith and his powerhouse posse hired “an actuarial expert of our own.”
While DISB held the legally required hearing on the matter in 2009, the commissioner didn’t rule until October 2010. “She determined that there was no excess surplus,” said Smith.
What?!
“I was stunned,” said Cheh, offering that DISB was slow to provide evaluations. “It was almost crazy in the assessments of what the surplus was.”
That’s what “happens when an agency is captured by the industry it is supposed to regulate,” added Cheh.
Unsurprisingly, Smith headed to the DC Court of Appeals. It took two years but the judges reversed the commissioner, said Smith. Still hoarding, CareFirst subsequently appealed the court’s ruling.
Smith is smiling as he tells me the story; I am, too. Who doesn’t like a David and Goliath narrative?
“There is this massive company, and then there’s Walter and his nonprofit,” said Cheh, who filed an amicus brief in the case.
In 2014, the case went back to the DISB, where the new commissioner in charge by then held a public hearing and determined that CareFirst’s excess surplus was only $51 million — far below Smith’s calculations.
The commissioner reasoned that since CareFirst operated in Maryland, Virginia and DC, he needed to compute how much was allocable to DC. “He decided that was only 21% of the excess surplus,” said Smith.
“We thought that his determination — both with regard to how much excess surplus there was and how much should be attributed to DC — was wrong,” said Smith, who was personally arguing the cases before the Court of Appeals.
Yet another DISB ruling was issued in August 2019. It didn’t satisfy anyone; both CareFirst and DC Appleseed filed appeals.
“[CareFirst] continued to argue there was no excess surplus. We continued to argue it was a lot more than the commissioner was finding,” continued Smith. “They lost all of their arguments on appeal; we won nearly all of our arguments. So again, the Court of Appeals reversed [the decision] and sent [the matter] back to the commissioner.”
By January 2020, there was yet another insurance commissioner, Karima Woods. She filed a brief in court supporting Appleseed. Then, she did nothing. Smith went back to court, asking the judges to order her to act, which it did.
Smith was persuaded, however, that Woods might slow dance the case as her predecessors had done. “So, we proposed mediation and urged the commissioner to order the parties to mediate, which she did.”
Richard Levy, a former DC judge, performed a sort of “shuttle mediation,” going back-and-forth between the two parties. Smith proposed a $95 million settlement. You can bet CareFirst offered far less.
That’s when Smith called Bowser. He told her that CareFirst owed “a whole lot more than $95 million” but that it “would take us five years to win eventually.”
He made this proposal: “If we can do this for $95 million, if we can do it promptly, if we can be sure that the money is going to be administered through the local foundations, I don’t want this money controlled by [CareFirst]; I want this money to be spent by people who are expert in what the health needs are in the city and [who] will use it to address the needs of the underserved in the city and to address the health disparities in this city.
“If we can get that done, we are prepared to settle,” said Smith.
The mayor said, “Great. Let me see if I can get that done,” according to Smith. “She called the CEO. I think if I’d called him, he might not have agreed. So, that’s why I give her at least some of the credit for the ending of this thing.”
The agreement with CareFirst was in March. Why the delay in the announcement?
“When the Court of Appeals sent the case back to the commissioner, the only way to end the case without her having to write a decision was for there to be a consent order that the parties agreed to. This often happens in litigation,” explained Smith.
“The signatories to the consent order are CareFirst and the insurance commissioner. We don’t sign the consent order, but one of the conditions is that Appleseed had to agree to the terms and agree not to appeal, which we did,” continued Smith.
It also required the approval of Maryland and Virginia.
Smith told the mayor that was unnecessary since the case only involved DC’s share of the surplus. “We’re talking about GHMSI, which is the affiliate of CareFirst. It’s not all of CareFirst.” What’s more, GHMSI’s federal charter “gives DC ultimate authority over the company.”
Bowser, trying to play nice, wanted approval from Virginia and Maryland. She got it.
Now she, Smith and representatives of the Greater Washington Community Foundation are contemplating how to spend the $95 million. “This is a lot of money. We’re now in a position to fund a clinic or to issue a multiyear grant,” said Smith, adding that the consent order allows the city to spend down those funds over the next five years. “It gives you time to think carefully and wisely about how to spend the money in the most cost-efficient way possible to get the best health outcomes.”
Rest assured, the resolution to the legal fight doesn’t mean CareFirst has ended its hoarding. The $95 million was a settlement based on the surplus calculated in 2011.
It’s now 2021, and Cheh said the company is required to provide an accounting of the current surplus. By Smith’s estimates it now may be as much as $1.5 billion.
Meanwhile, CareFirst is one of the Medicaid managed care contractors eating big chunks of taxpayer money. Does that really make sense? Who will take up the next phase of this fight?