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Wisconsin State Journal (Madison, WI) - Sunday, May 26, 1991
Author: Scott Lautenschlager Business reporter

Four years later, the state Department of Health and Social Services accepted $150,000 to settle Blue Cross' liaolhty fonne 1981-85 ReJiad. --' State records and interviews with more than 20 state and corporate officials show the state-Blue Cross relationship to be filled with contention, fruitless bargaining over debts, tremendous impasses and questionable decision-making. All raise questions about the handling of millions of dollars in taxpayers' money. Among them:

Why are state officials still working on a problem that was made a "very high priority" by then-DHSS Secretary Donald Percy in 1979?


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DHSS said last month that it intended to give the contract to EDS Federal Corp . the current processer, based on its bid of $39.8 million for three years. Blue Cross and another bidder appealed because their bids were lower by millions of dollars. The contract award, however, is based 40 percent on cost and 60 percent on technical factors, and EDS came out on top in the latter category. DHSS denied the appeal last week. Cullen, a regional vice resident for BI ross based in Evansville said his involve ,5e emen was Imited to reviewing and approving the proposed agreement that bad been negotiated by subordinate.

"I had no idea at the time this thing was settled I would be workin for Blue Cross" id Cull who was state Senate majority eaer IC egislator from Janesville before being appointed DHSS


Thomas He resident of Blue id he hired Cullen des ite h's lack of experience in the insurance uSlness because he is a good gOlf-course salesman." . Hefty described Blue Cross as "a good Wisconsin company" that agreed to a "good deal" for the state when the Medicaid settlement was reached in 1988. The dispute, which dragged on for most of the 1980s, had to do with "third-party liability" in the Medicaid



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program. The law makes Medicaid, also called Medical Assistance, the "payer of last resort." This means the program is legally bound to collect reimbursement from "third parties" such as insurance companies when Medicaid pays for services while other insurance is in force. The state collected $3.8 million from all third parties through these efforts in fiscal 1990, according to Kevin Piper, head of the Bureau of Health Care Financing in DHSS. A second subject of lengthy and ongoing dispute is the "parental liability issue." Since 1981, insurance companies have been required to cover care of minors in state institutions up to the full extent of their policies. Parents, on the other hand, are liable only for $6 a day when one of their children is in a state center for the mentally ill or developmentally disabled. When parents of minors in those institutions have a policy with a private insurer, the insurance company is liable to cover services just as if the child were in a regular hospital, according to state attomeys. But Blue Cross has refused to do this from the beginning, with its attorneys reading the law differently and saying the company must pay only the parental liability of $6 a day.

gl::lss recently renewed efforts to collect Blue Cross' debt in the parental-liability could be asmuch as $2.86 million.

issue which the state say~

-r:!)iswas another matter related to Blue Cross that state officials recogni~ed asa significant probl~m years ago - at least as early as 1983 when DHSS sought legal help fro stice Department - but never .... resove . J:ate...o.ffi.cials lame Blue Cross for many of the problems, saying it was uncooperative to the point of heing b obstructioni~ " heir osition I think was to stonewall" on the third-party liability issue, said Torphy, who was deputy secretary of DHSS in the midnd now works in .. ., iori. Ken Mel a'lghlin, who worked in the DHSS Collections Bureau from 1970 to 1990, said, "Blue Cross.Q[Id Blue Shield was always a battleground from year one." "In all claims they were difficult to deal with," he said. "They would find more cockamamie excuses" for not . paying. But DHSS officials have come in for strong criticism as well. In a 1985 report, the Legislative Audit Bureau castigated DHSS for lack of assertiveness, saying, "The department should have been more aggressive in its enforcement of Blue Cross' obligation to adjudicate claims."


Former and current employees of DHSS say corporate influence and political patronage help explain the state's problems with Blue Cross, which once was the largest health insurer in Wisconsin but had severe problems in the 1980s and lost market share. pr. J~ffre .Kunz, VIIhowas de u. secreta of DHSS for most of 1 7, said the department's handling of the third-party lia I I issue raised questions in his mind about the integrity of the governmental process. "Blue Cross owed millions of dollars and had not been strongly pressed to pay that back," said Kunz, who ~as fired by Secretary Cullen in late 1987. Cullen says Kunz wa ni etent administrator. Kunz who now heads a medi~ clinic in Monona, says he was KicK~ecause he was too independent for Cullen.) It is "very curious" that Cullen was hired by "the very company we let off the hook," Kunz said. At issue is



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whether a bi business "can usd olitical muscle to ren process In a way at an individual or small business ~'

on obli he said:

tate ... and control the

McLaughlin, who was coordinator of collections for DHSS when he retired last year, said the state bureaucracy has been severely weakened by the spread of political patronage. "A lot of the problem comes out of the fact that we now have practically every management position ... filled by political appointments," he said. A case in point, according to McLaughlin, was Patricia Goodrich, who went from being a state representative in the Assembly to head of DHSS's Division of Management Services in 1987. Cullen appointed her to take charge of resolving the dispute with Blue Cross over the Medicaid reimbursements, and she was mainly responsible for negotiating the 1988 settlement. Goodrich, who eventually was promoted to deputy secretary and secretary of DHSS, "may have been way under-qualified for any job she had in the department," McLaughlin said. A similar opinion of Goodrich was offered by Stephen Sanborn, a DHSS personnel specialist who once headed the Collections Bureau, which is in the Division of Management Services. "I think she was over her head in a few issues," including the third-party liability matter, he said. Sanborn credited Goodrich for being "a good people person." But he added, "It's helpful to have somebody that's knowledgeable in the services provided. PR (public relations) is not the only thing." Sanborn said expertise is especially important in an agency like the Division of Management Services, which administers finances, provides data processing services and conducts management analysis. Goodrich, who was replaced as DHSS secretary early this year, said taxpayers were well served by her handling of the third-party liability problem" in the fact it was finally solved" by the 1988 settlement. She acknowledged that "perhaps, the taxpayer was not well served" by her lack of experience in DHSS affairs when she negotiated the agreement. "I was just trying to get it settled," she said. "I hate to see loose ends."

ow amount, feeling


Torphy said in a recent interview that he could not remember the specifics of the 1984 negotiations. He said the biggest roadblock was settling on past claims, for which Blue Cross was reluctant to assume responsibility, as opposed to agreeing on how to process future claims. Torphy admitted: "We didn't have great records." During his involvement with the Blue Cross issues, Torphy said, "there was no political pressure one way or the other." But he added, "~learly,Tom Hefty (who served asa deputy.state ins.urance commissioner before going to work for Blue Cross) is an influentiat person and so are people on the Blue Cross boa~' . Hefty said DHSS simply didn't have the dOCIJmentation to prove that BI~l.eCross owed several miHion dollars to Medicaid under the third-party liability provision. "The state ne e could, iven their limited information" he said. "It could be that Blue Cross owed more money, it may be that Blue Cross owed less money" than the $150,000 actua y paid ~settle all claims fQr the 1981-85 period, Hefty added. . --State Auditor Dale Cattanach, who heaped criticism on DHSS in the 1985 legislative audit report, expressed a similar viewpoint recently. "Given the time that had elapsed from the audit in 1985 until the agreement was reached, I think the taxpayers were served as well as could be expected," Cattanach said.



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But state officials were aware that a serious problem was developing as early as 1979. In December 1979, DHSS Secretary Percy said in a letter to Blue Cross executives: "We have no alternative other than to give these issues a very high priority." According to Piper, head of the Bureau of Health Care Financing, it wasn't until last December that problems in computerized data exchange were solved to the point where the state was filing current claims with Blue Cross regularly. (In addition to the $150,000 settlement for the 1981-85 period, the 1988 settlement set terms for paying claims from 1986 on.) But problems with billings for certain drug costs remain unresolved, and DHSS staff continues working on them, as do the department's attorneys. Regardless of what transpired in the past, DHSS Legal Counsel Edward Marion said the department intends to be as aggressive as necessary to collect money owed by Blue Cross. "This is not going to drag out any more," he said. Caption: WSJ graphic/Laura Shield and state. L. Sparks Source: State records Timeline of events between Blue Cross/Blue

Edition: ALL Section: Front Page:1A Index Terms: INSURANCE BUSINESS STATE Record Number: 9105260083 Copyright (c) 1991 Wisconsin State Journal