Depositions Unmask the Blue Cross Deal

By Woody Jenkins, Editor, Central City News – Baton Rouge

In August 2023, Baton Rouge attorney Henry “Tut” Kinney filed suit to stop the proposed sale of Blue Cross of Louisiana to Elevance, the nation’s largest health insurer. On Thursday, Feb. 8, 2024, Kinney deposed Blue Cross CEO Dr. Steve Udvarhelyi and Tim Barfield, the acting president of Accelerate, the new foundation that would receive $3.2 billion resulting from sale. The depositions, made under oath, revealed important facts about the deal, which the public would not otherwise know. Here are some of the revelations:

Deposition of Dr. Udvahelyi

CEO of Blue Cross

•In August 2023, Attorney General and governor candidate Jeff Landry hosted a meeting in Lafayette that resulted in negotiating parts of the Blue Cross deal. Present were Jeff Landry, Insurance Commissioner-elect Tim Temple, Blue Cross CEO Steve Udvarhelyi, Tim Barfield of the Accelerate foundation, Blair Todd of Elevance, and Assistant Atty. Gen. Angelique Friel.

According to Udvarhelyi’s testimony, some details of the deal were hammered out in the meeting. 

During the course of his testimony, Dr. Udvarhelyi said the meeting in Lafayette was only one of several meetings or phone calls that involved one or more of those who had attended the Lafayette meeting.

Ex Parte Communications. 

ANALYSIS: Perhaps the most serious problem with the meeting is that Insurance Commissioner Tim Temple is charged with sitting as a judge and deciding whether to approve the Blue Cross sale.

His attendance at the Lafayette meeting, as well as participation in other meetings and conversations with Blue Cross, Elevance, or Accelerate could be considered ex parte contacts, which are improper.  An ex parte meeting occurs when a judge meets with one of the parties without the other parties’ knowledge or right to be present.

Negotiating Session. 

However, being at the Lafayette meeting is far more serious than a mere ex parte communication.  If Dr. Udvarhelyi’s testimony is accurate, Temple was present during negotiations on the deal. If true, it would be impossible for a commissioner to sit in judgment over a plan he helped negotiate, because it goes to the question of his impartiality.

Other Meetings with Temple

•In the deposition, Dr. Udvarhelyi said he met with Insurance Commissioner Tim Temple at least twice, once with Jeff Landry during the Lafayette meeting and another time.  Then he changed that to a “handful” of in-person and telephone meetings.

•Dr. Udvarhelyi said he had been to Tim Temple’s house at least once and maybe twice in the past year. They are neighbors, he said.

•Dr. Udvarhelyi said he was aware of at least one meeting where Tim Temple and a representative of Elevance were present.

Rates, Services, Doctors

•In his deposition, Dr. Udvarhelyi testified Blue Cross members and policy holders have no guarantees on rates or services after the end of their current contracts, which are for one year.

• As to whether policyholders would be able to keep their doctors and hospitals over the next five years, Dr. Udvarhelyi  testified, “I can’t tell you what doctors and hospitals will do.”

One Owner instead of 92,000

•Instead of 92,000 member-owners of Blue Cross of Louisiana, the new Blue Cross would have one stockholder, Louisiana Health Services, Inc., a subsidiary of Elevance, Dr. Udvarhelyi said.

Governor’s Appointee

•Dr. Udvarhelyi said he did not know exactly when the proposal to add the governor’s designee to the Accelerate Board was proposed or agreed to. However, the reason was to combat criticism that there would be no public oversight of the foundation’s activities, he said.

Deposition of Tim Barfield

Acting President of Accelerate

•Under questioning by attorney Tut Kinney, Tim Barfield, a member of the Blue Cross Board and acting president of the Accelerate foundation, said Jeff Landry met three or four times with him about the foundation. He said he also had a number of other meetings with the governor over the phone.

•Barfield said that Dr. Udvarhelyi, the CEO of Blue Cross, met a number of times with Insurance 

Commissioner Tim Temple.  Afterwards, Dr. Udvarhelyi always said the Insurance Commissioner assured him he would give “fair consideration” or “very fair consideration” to the deal.  However, he said he never heard that Temple said he would approve the deal.

$20 Million Spent on Deal

•Tim Barfield testified Blue Cross is spending $20 million on the proposed de-mutualization and sale to Elevance. This includes an extensive advertising campaign on radio, TV, and online to promote a ‘Yes’ vote from Blue Cross members.

No Secret Ballot, 

Votes Monitored as Cast

•Barfield also said that the Board of Blue Cross has been keeping up with the members’ votes on the deal, thereby indicating the secret ballot was not being protected.  

Blue Cross Is Losing

“I understand it’s close,” Barfield said.  When asked if Blue Cross was losing, there was this interchange:

KINNEY: Is it passing or not!

BARFIELD: Well, first of all, there’s no vote.  It’s just proxies. Secondly, I understand that if these were the only proxies we got and nobody changed them, we would probably lose.

KINNEY: Probably lose is what you said?

BARFIELD: Yes. But it’s close.

Unfavorable Vote Totals

Triggered More Advertising

Kinney told the Central City News that Blue Cross’ poor showing in the voting coincides with the company’s increased advertising in the media.  

A virtual barrage of radio, TV, and online advertising has been placed by Blue Cross as its executives have realized the vote is losing, Kinney said. “They are trying to pick up as many votes as they can before time runs out, but they may have topped out,” he said.

Has Blue Cross Done Its

Due Diligence on Elevance?

•During the deposition, Kinney asked Barfield if the Board of Blue Cross had done its due diligence with regards to Elevance. He especially asked if the Board knew about suits and fines against Elevance for violating the rights of policy holders across the nation. Barfield answered, “There was a general discussion about how they do business and things like that, but my recollection was that it was comparable to what we see in the industry.”

KINNEY: Was the Board aware that Elevance has been assessed fines in excess of $1 billion since 2000?

BARFIELD: I don’t recall we talked about $1 billion.

KINNEY: Did you talk about $223 million worth of fines in one year in California against Elevance?

BARFIELD: I don’t remember talking specifically about that, no.

Elevance Is Accused of Fraud

By U.S. Dept. of Justice

KINNEY: Were you made aware of the fraud trial that the United States Department of Justice has brought against Elevance in the Southern District of New York?

BARFIELD: So just in general, the litigation and claims were just what you expect in the industry.

KINNEY: Does it cause you any concern that there’s a pending U.S. Department of Justice fraud trial against Elevance that’s pending?

BARFIELD: I think we’re always concerned that we’re picking the right partner, yes.

KINNEY: Did you ask what the exposure was of Elevance out of that lawsuit?  Did the Board ask that?  Did you ask that?

BARFIELD: I did not ask that. I can’t recall the entire discussion. Other Board members could have.

KINNEY: You do remember being made aware of this particular lawsuit, correct?

BARFIELD: I remember talking about it generally. I don’t remember the particular lawsuit as much as generally the overall state of their business.

KINNEY: You understand what the word exposure is in a lawsuit litigation, what’s your exposure?

BARFIELD: I do.

KINNEY: Do you know what the exposure of Elevance is in this fraud lawsuit that’s brought by the U.S. Department of Justice? Shouldn’t you know that?

BARFIELD: I think this is an area where I’ve depended on our consultants and our advisors and our legal team to help us understand the overall risk.

KINNEY: Have your consultants told you that there’s no substantial risk or exposure to Elevance as a result of this lawsuit?

BARFIELD; Not specifically, no.

On Advocating the Plan

Despite Exposure

KINNEY: So you’re advocating this plan of reorganization knowing that there is a fraud lawsuit by the U.S. Department of Justice and you don’t know the exposure to Elevance, so you’re still advocating that this plan go forward?

BARFIELD: I am relying on our attorneys and advisors who have done the due diligence on the overall risk profile on Elevance and the overall business and whether they’re a good partner.

ANALYSIS: The importance of this line of questioning was to establish whether Elevance could be counted on to fulfill its obligations to Louisiana policy holders honestly and whether they would have the financial capability to do so.

Are Rates Guaranteed?

•When asked whether Elevance has guaranteed any rates for current members or any benefits for members going forward, Barfield said no.

Who Gets Purchase Price

And Reserves?

•Barfield was asked where the $2.5 billion purchase price for Blue Cross would go, and Barfield said that’s what his foundation, Accelerate, was projected to get.

•When asked what would happen to the $600 million in required reserves that Blue Cross currently has, Barfield said that would go to Elevance.

KINNEY: So they would own the reserves?

BARFIELD: They [Elevance] would own the company. They would own the reserves.

•Kinney then asked about the $1.2 billion in excess reserves owned by the members of Blue Cross and what would happen to that. Barfield said Accelerate is supposed to get $600 to $700 million of the excess reserves, along with the $2.5 billion price of the sale.

•Barfield said, “So we [the foundation] will get $2.4, 2.5 billion of cash and about $600 million to $700 million that are currently securities that are held in reserve. Those will be transferred to the Accelerate foundation.

A little over $300 million from excess reserves would go to members of Blue Cross at the rate of $3,000 per member.  Kinney has criticized this number, saying the members of Blue Cross own the company and should get 100 percent of the value of the company if it is sold.  That would amount to around $35,000 per member, Kinney said.

KINNEY: So the total value will be $3.1 to 3.2 billion?

BARFIELD: Yes

ANALYSIS: Barfield was asked what direct benefits members of Blue Cross would receive as a result of the sale. This is an important legal point because Louisiana law provides that the Commissioner can only approve the plan if there are direct benefits to the members of the mutual health insurance company.  Barfield cited benefits to the people of the state from the sale but could not list any specific benefits to the members of Blue Cross.

KINNEY: So let me rephrase the question. Are there any benefits that are going to come from you running Accelerate that are exclusive to the members of Blue Cross Blue Shield of Louisiana?

BARFIELD: No, not that I am aware of.

At this point in the depositions, attorney John Bradford of Lake Charles asked some questions of Tim Barfield

•One line of Mr. Bradford’s questioning was about the various reports and documents the Board of Blue Cross had received about Elevance.  Bradford asked if members of Blue Cross had been given a chance to review those reports and documents. He said, “So if all we 

have is what’s in the proposal, then you’re asking the members to trust us and I’m not going to give you a chance to verify,” he said.

•When asked the purpose of the Accelerate foundation and how it would use $3.2 billion, Barfield said, “To improve the health and lives of the people of Louisiana.”

•Bradford asked Barfield who was collecting proxies on behalf of Blue Cross. Barfield said it was “McKenzie something.”

No Secret Ballot

Votes Being Monitored • With regard to voting on the Blue Cross reorganization plan, Barfield said the Board was keeping up with the vote totals.  Bradford said, “So this isn’t like a secret ballot like when we do voting with political elections that you send in, seal it, goes off to the Secretary of State.  And the Secretary of State does not submit the absentee ballots or early voting ballots so that the public can see them. Is that similar to what you all are doing?” 

The Blue Cross attorney objected to the question. Barfield answered by saying the election was conducted like other companies do it.  Bradford asked where he got that understanding, and Barfield said he got it from he Blue Cross management team.

ANALYSIS: One of the most troubling things that came out of the depositions was the repeated contact between Insurance Commissioner Tim Temple and Blue Cross and Elevance.

Both under former Insurance Commissioner Jim Donelon and current Commissioner Tim Temple, the public was told that the commissioner could not discuss the proposed Blue Cross deal with anyone.  

As recently as Monday, Feb. 5, members of the Senate Health & Welfare Committee were told Commissioner Temple could not appear so as to make sure he said nothing to compromise his neutrality.

However, the meeting last August in Lafayette, which Temple attended, not only discussed the sale but began a negotiation process.  According to the depositions, the commissioner had other conversations with Blue Cross or Elevance officials about the sale. 

Ex parte contact with parties and certainly negotiation of the deal would disqualify a judge or administrative hearing officer.  That would be true because it denies due process and a fair proceeding to other persons with an interest in the outcome.

The potential conflict of interest may create a conflict of interest and grounds for recusal as the Commissioner of Insurance sits in judgment on whether to approve the Blue Cross deal.  

State law requires that approval or disapproval of a proposed reorganization is the responsibility of the Commissioner of Insurance.  The law does not say it shall be done by the commissioner “or his designee.”  Only the commissioner can make that decision.

If the Commissioner of Insurance has to recuse himself because of a conflict of interest or other reason, the law does not provide that anyone else can sit in judgment on such a matter.  As a result, there make be a conflict that cannot be resolved.