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Blue Cross Case

September 09, 1999
By: Sakina Dewji
State Capital Bureau

JEFFERSON CITY - Missouri's Supreme Court heard Wednesday oral arguments in the efforts by Blue Cross and Blue Shield of Missouri to make a profit.

The state's Insurance Department charges the effort misrepresents it's nonprofit purpose.

Management care and other assets developed thanks to low-tax status as a not for profit organization, were transferred from the nonprofit corporation to its for profit subsidiary, RightCHOICE Managed Care Inc. The transfer occurred in 1994 when the Kansas City branch of Blue Cross and Blue Shield split off and formed RightCHOICE.

Reorganization was necessary, Richard Ahrens, attorney representing Blue Cross told the state high court. Ahrens argued in Wednesday's hearing that the transfer was a business judgment made by the Blue Cross board that would ensure their continued ability to provide quality health care.

Blue Cross had gained the approval from the then-director of the Insurance Department, Jay Angoff. But a lower court threw out the agreement.

The state charges Blue Cross violated state law and used fraud to win Angoff's approval for the reorganization. Blue Cross denied the allegations in Wednesday's court hearing.

A nonprofit corporation may change its operation as long as it does not do business for profit or pervert it's statutory purposes, according to Missouri law.

Blue Cross lawyers maintained that the organization's assets continued to serve its health-service purposes.

But state lawyers focused on the profit-making issue.

"The assets that Blue Cross accumulated as a nonprofit corporation should not be converted to a for-profit subsidiary," said Scott Holstie, spokesman for Attorney General Jay Nixon.

The state argues that the assets of the company arose from the lower-tax rates enjoyed by non-profit organizations.

The earlier agreement by Angoff would have allowed the company to convert to profit-making by transferring a large portion of its assets to non-profit purposes.

Other organizations involved in the claim against Blue Cross include the Consumers Union of U.S., Inc., Community and Catlyst, the League of Women Voters of Missouri, the Reform Organization of Welfare and the Missouri Association of Social Welfare.

The court hearing lasted about one hour. The judges gave no indication as to when they would hand down a decision.