Conflicts of interest on Blue Shield boards of directors


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Conflicts of interest on Blue Shield boards of directors report together with separate and additional views
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v, 72 p. : ; 24 cm.
United States -- Congress. -- House. -- Committee on Interstate and Foreign Commerce. -- Subcommittee on Oversight and Investigations
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by the Subcommittee on Oversight and Investigations of the Committee on Interstate and Foreign Commerce, House Representatives, Ninety-fifth Congress, second session.
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CIS Microfiche Accession Numbers: CIS 79 H502-1
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At head of title: 95th Congress. 2d session. Committee print. Committee print 95-68.
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Dec. 1978.
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Full Text

95th Congress COMMITTEE PRINT c O 1IT, E ... 2d Session J PHI: N ) f


REPORT JAN 17 1979



36-6980 WASHINGTON : 1978

HARLEY 0. STAGGERS, West Virginia, Chairmn
JOHN D. DINGELL, Michigan JAMES T. BROYHILL, North Carolina

W.'E. WILLIAMSON, Chief Clerk and Staff Director KENNETH J. PAINTER, First Assistant Clerk ELEANOR A. DINKINS, Assistant Clerk WILLIAM L. BURNS, Printing Editor

JOHN E. MOSS, California, Chairman JIM SANTINI, Nevada JAMES M. COLLINS, Texas
DOUG WALGREN, Pennsylvania MATTHEW J. RINALDO, New 'Jersey
HENRY A. WAXMAN, California SAMUEL L. DEVINE, Ohio (Ex Officio)

HARLEY 0. STAGGERS, West Virginia
(Ex Officio)
ELLIOT A. SEGAL, Health Task Force Director KATHERINE C. MEYERS, Special Assistant BERNARD J. WUNDER, Jr., Minority Counsel



lVas i'ngtow, D.C., Dccembei 1.978.
Chairman, C'ommittee on Interstate and Foreign Commerce, Washington, D.C.
DEAR MR. CIIAIRM1AN: The attached report of the Subcommittee on Oversight and Investigations, entitled "Conflicts of Interest on Blue Shield Boards of Directors," focuses on the question of whether Blue Shield, which has approximately 40 percent of the health insurance market, acts in the best interest of the consumer. This report grew out of a Subcommittee investigation and hearings concerning doctor domination of Blue Shield plans and whether it affects the ways in which decisions are made. A
The Subcommittee found that 36 of the 69 Blue Shield plan boards are doctor- dom inat ed. Forty-four are dominated by a combination of physicians and other health care providers. An additional eight require that the board members be selected by the physicians, bringing the total to 52 plans which are provider -controlled. Sixty-eight of the 69 plans (excepting Delaware Blue Shield) have at least one feesetting or adjudication committee dominated by physicians.
Blue Cross and Blue Shield play a pivotal role in the cost of health care. Blue Shield, through its private business and administration of public programs, serves approximately 86 million persons. In 1976, Blue Shield paid almost $4 billion to doctors through its private business and another $2.5 billion through Governminent -underwritten p rograms.
The Subcommittee report states that there is little effective State regulation of conflicts of interest on Blue Shield boards of directors and that the Blue Shield Association provides little encouragement to the plans to eliminate these conflicts. Physicians on the board of a Blue Shield plan have an inherent conflict of interest. There are other "hidden" providers on the boards who have direct or indirect ties to the health industry f rom which they may benefit.
Based upon these findings, the report recommends that, Congress consider legislation establishing basic minimum standards for prlep)aidl health insurance coverage and clarify Federal antitrust jurisdiction over Blue Shield. We also recommend that the Department of Health., Education, and Welfare require that all intermediaries, carriers, and fiscal agents not have provider- do min ated boards as a condition of participation in Medicare and Medicaid.


It is my hope that the issuance of this report illustrating conflicts of interest on Blue Shield governing boards and deficiencies in the regulation of Blue Shield will serve to stimulate immediate action by the appropriate agencies and serve as a vehicle for further oversight by our Committee.
JOHN E. Moss.


IL Introduction -------------------------- I
11. Methodology---------------------------------------------------92
I11. Summary of findings ------------------------------------------- 3
IV. Recommendations -------------------------------------------- 4
V. An overview of Blue Shield plans ---------------------------- 5
VI. National Association of Blue Shield Plans -------------- ------VII. Potential physician conflicts-----------------------------------9
VIII. Public versus provider control --------------------------------- 13
IX. Case studies of conflicts ------------------------------------- 15
X. Conclusions ------------------------------------------------ 22
Separate views of Hon. James Al. Collins, M.N.C -------------------------4
Additional views of Chairman John E. 'Moss------------------------ 2
Additional views of Congress4man Luken-------------------------------- 31
Appendixes --------------------------------------------------------- 33

Digitized by the Internet Archive in 2013

The cost of health care in the United States is rising at an alarming rate. This year, health care expenditures are expected to reach $200 billion.' Of that amount, $64 billion is from public funds-amounting to nearly one-tenth of the Federal budget.2 Finding and controlling the source of these skyrocketing costs has become critical.
Blue Cross and Blue Shield play a pivotal role in the cost of health care. Blue Shield alone insures 34 percent of the population (72.6 million persons) in its private underwriting business It serves anotlier 19.3 million persons through government-funded programs primarily through administration of medicaid (the program for the indigent, title XIX of the Social Security Act) 5 and medicare (the program of the aged, title XVIII of the Social Security Act).c
The 69 local Blue Shield plans across the country have a major influence in determining health care costs through reimbursement for physicians' services to the more than 86 million persons (approximately 40 percent of the population) serviced by the plans. Because of their large market share, they can influence other health insurers' policies toward physician payments.
Doctors are responsible for a large share of health care spending. Twenty percent of health care expenditures goes directly for physicians' services. Since 1967, physician charges recognized by the medicare program have risen 50 percent faster than other consumer prices.7 Physicians are estimated to be indirectly responsible for more than 70 percent of health spending 8 by determining the level of care needed by patients: admitting patients to hospitals and nursing homes, ordering lab tests, and prescribing medicine. In 1976, through its private business, Blue Shield paid out almost $4 billion to doctors and, through its Government-underwritten programs, paid out another $2.5 billion.9
Who determines these Blue Shield policies affecting health care costs? The subcommittee has found that the 69 local Blue Shield boards are dominated and controlled by doctors and other health care providers-the recipients of Blue Shield expenditures. For 58 of the 69 plans, medical society approval is required for board membership. Furthermore, 68 of 69 plans had physician majorities on the critical fee-setting committees, which help determine reimbursement levels for doctors.
The New York Times, June 6, 1978, p. A9.
s Blue Cross and Blue Shield Fact Book, 1977, pp. 12-13. 4Id., at p. 12.
542 U.S.C. 1396.
8 42 U.S.C. 1395.
7 "Skyrocketing Health 'Care Costs: The Role of Blue Shield." hearings before the Subcommittee on Oversight and Investigations, Committee on Interstate and Foreign Commerce, U.S. House of Representatives, 95th Cong., 2d sess., Apr. 7, 1978, p. 709. S Id., at p. 704.
9 Id., at p. 5.


A conflict of interest exists whenever a person is in a position to influence a decision for his personal gain and to the detriment 6'f the organization. On cost-containment issues, all practicing health care providers who are Blue Shield board members-be they physicians, nurses, pharmacists, or others-have the opportunity to increase their reimbursement levels from Blue Shield. This is a conflict of interest whether it is acted upon or not because the board member's financial interest is hostile to that of the subscribers. It is also possible for board members of other professions to also have interests that conflict with the goal of providing consumers with the optimum level of care in the most economical fashion.
At this time, under the McCarran-Ferguson Act,10 the States are given jurisdiction to regulate the business of insurance. Despite the billions of Federal dollars which go to Blue Shield each year, the Federal Government does not have any accountability requirements for the plans' boards of directors.

The Subcommittee on Oversight and Investigations began its investigation of conflicts of interest by Blue Shield directors in the spring of 1977. The subcommittee requested that all Blue Cross and Blue Shield plans provide copies of their directors' conflicts-of -interest statements. Blue Cross complied with the subcommittee's request voluntarily. Because of the reluctance of Blue Sliield to comply with this request, the subcommittee, on May 3, 1977, subpenaed the plans' disclosure statements.
To receive more complete information than the plans require of their members, in February 1978, the subcommittee developed its own conflict-of -interest form which it sent to 15 sample plans for the board members to complete.
Hearings were held on March 21 and 22, 1978, and April.5, 6, and 7, 1978, which focused on the governance and regulation of Blue Shield plans. The subcommittee also interviewed and received documents from numerous Federal, State, and industry officials.
From these various instruments, the subcommittee hoped to learn the answers to three basic questions:
1. What is the extent of doctor domination and is there a need
to prohibit such domination of Blue Shield boards to better protect subscribers and to moderate rapidly rising health costs?
2. Is State regulation and enforcement of conflicts-of-interest
standards by Blue Shield directors adequate to protect the public?
3. Should Federal legislation be considered to allow for the
establishment of minimum Federal standards for health insurers?
It. should be noted that this report focuses upon the composition of Blue, Sield boards of directors and the resulting conflicts of interest. The subwommnittee is continuing- its broader examinationi into the iml)aet. of Blueo Shield on costs in general. The subcommittee is also continimno to investiga te physician charging patterns with respect to medicare, including the role Blue Shield plays in that process.

10 15 U.S.C. 1012.


The subcommittee finds thatA. There is doctor domination of most Blue Shineld pas
Physicians comprise a majority of the board of 44 of thte 69 lams and control 68 of the fee-setting committees. 'fTennhvii positions are often filled by other providers or persons withl close health industry ties. In some cases, these nonphysician memberQtS are designated or approved by the medical societies in the plan's area or by the existing board--establishin,(, a continuating domination.
In summation, the subcommittee finds that the cumulative
weight of these practices permits the physicians to dominate B11w1 ,Shield plans to affect their reimbursement.. It also prevents the, plans from making effective independent decisions aimed at controlling costs and prevents policyholders from exercising an effective voice in determining the types of providers able to be, reimbursed, the scope, and the, cost of health care coverage.
B. There is little, if any, effective State regulation of conflicts
of interest on Blue Shield boards of directors. State regulation is sporadic, bordering on nonexistent.. Even when disclosure stateinents are required by law, they are sometimes not filed with State insurance departments or disclosure is incomplete. Public disclosure is minimal and there are few, if any provisions for public
C. The Blue Shield Association provides little if any leadership
in encouraging plans to eliminate conflicts of interest.
D. Physicians on the board of a Blue Shield plan have an inherent conflict of interest. Some physician board members personally receive substantial amounts from Blue Shield directly for their treatment of subscribers. Consequently, their votes on reimbursement arrangements and fee levels directly affect~ their income. For example, in two States (New York and Indiana), physicians and their group practices received substantial reimbursement from Blue Shield. Reimbursement to physician members of Blue Shield boards in New York State totaled $16.644.820.29 for calendar year 1.977; Indiana Blue Shield paid the
physicians on its board $1,177,817.03 for calendar year 1977.
E. There are also nonphysicians with conflicts of interest on Blue
Shield's boards of director's. These -conflicts included interlocking arrangements with banks, hospitals, and nursing homes. For example, one "consumer" member of the Nevada Blue Shield board was the public relations director for the Association of Anesthesiologists for 25 years. One member of the board of directors of the Genessee Valley (New York) Blue Shield Plan is also on the board of a. local nursing home. Thl~e treasurer of Indiana Blue Shield is also the chairman of the board of the bank holding over $100 million in Blue Shield investments and at least, eight memnbers of the New York plans had connections with banks holdiniw
Blue Shield funds.

36-698 0 78 2

Based upon the above findings, it is recommended thatA. Congress consider legislation establishing basic minimum standards for prepaid health insurance coverage. This legislation should:
1. Clarify Federal antitrust jurisdiction over Blue Shield
plans and other health financing organizations to provide the Federal Government with, among other things, the ability to override State statutes requiring doctor domination of Blue
Shield boards;
2. Vest policyholders with the right to choose the directors
of private health insurance corporations such as the Blues;
3. Require full disclosure of conflicts of interest of physician and nonphysician providers;
4. Establish minimum standards for State monitoring and
enforcement; and
5. Consider amending the Federal Trade Commission Act
to permit the Commission to exercise jurisdiction over corporations not organized for profit or for the profit of their
It is also recommended thatB. The Department of Health, Education, and Welfare should:
1. Take immediate steps to require, that all intermediaries,
carriers, and fiscal agents (and their subcontractors) not have provider dominated boards as a condition of participation in
medicare and medicaid;
2. Study the impact of Blue Shield costs and reimbursement
under the "usual, customary, and reasonable" (UCR) system
on medicare; and
3. Compare the system of prepayment by Blue Shield to
that of other prepaid systems such as the Kaiser Foundation
health care plan.
The subcommittee also recommends thatC. The Federal Trade Commission should:
1. Work with and monitor the actions of State insurance
commissions to insure that regulation is more than pretense;
2. Develop a model conflict-of-interest disclosure form that
board members would be required to file annually with State insurance commissions and with HEW for all insurance
carriers administering the medicare and medicaid programs;
3. Consider promul eating a rule eliminating tIe current
practice of the Blue Shield Association in its bylaws and application for membership, of strongly suggesting, if not requiring, that a plan have medical society approval:
4. Consider promulgating a rule proiibitinig p)hysicians and
physician organ izat ions from dominating Blue Shield plans through their nolnebershiI) on the boards of directors or
D. The Nationa A sociation of Blue Shield Plans should:
1. Assume a more vigoroiis leadership role in the elimination of conflicts of interest on the national board and the iie11)er plans (this could lake the formi of a l)olicy position


similar to that of the Blue Cross Association, which would
eliminate doctor domination) ; and
2. Closely monitor cost-containment efforts of member plans
to insure they are acting in the best interests of he su!-ci!)ers.
The first Blue Shield plan was started by the California Me(dical Association in the late 1930's as a program guaranteeing physicians> payment for services.1 Medical societies in other areas followed suit organizing local Blue Shield plans around the country. Today there are 69 plans servicing 86 million persons.12 Each plan is autonomous. having its own bylaws and directors. The plans' principal tie to each other is their membership in the National Association of Blue Shield Plans (NABSP), which was founded in 1946 to coordinate the activities of local plans.13 The national membership requirements are not precise 14 and are often a poor guide to the way in which the plans actually function. To understand how Blue Shield operates, it is necessary to look at individual plans. By comparing data obtained for each plan, some clear patterns emerge.
At the time of the hearings, there were 69 Blue Shield plans nationwide, plus the national association. For these hearings, the Federal Trade Commission (FTC) analyzed the composition of the boards of individual plans. This compilation (appendix A) offers a breakdown of the board structure of each plan according to doctor domination of the committees for 1977-the year in which the subcommittee subpenaed the plans' disclosure forms.
The Commission's analysis shows that 36 of the plans (52 percent) have physician majorities. Eight additional plans have boards dominated by a combination of physicians and hospital representatives bringing the total to 44 plans (64 percent). An additional eight plans' bylaws require that the board of directors be selected by the physicians themselves. Consequently, 75 percent of the Blue Shield plans (52) are controlled by providers; 68 of the 69 plans (excepting Delaware) are either controlled by physicians or their major committees concerned with fees are controlled by physicians, giving them effective control of their reimbursement from Blue Shield.
Two plans are formally controlled by medical societies. Ohio Medical Indemnity, a Blue Shield plan located in Worthington. Ohio, is a wholly-owned subsidiary of the Ohio State Medical Association. The attorney general for the State of Ohio has brought a suit against the medical association which, if successful, would require divestiture of the Blue Shield plan.5 In Wisconsin, the Blue Shield plan is a division of the State medical society.16
Because the subcommittee felt that additional information was needed, sample disclosure forms developed by the subcommittee were
1 "The Blue Cross and Blue Shield Fact Book 1977," Blue Cross and Blue Shield Associations, 1977, p. 12.
12 See note 4, supra.
'3 Id.
14 "Bylaws and Membership Standards," Blue Shield Association. May 1977. 15 State of Ohio v. Ohio Medical Indemnity, Inc.. et al., case No. C-2-75-473, "Memorandum of State of Ohio Contra 'Motions of the Ohio State Medical Association and of Ohio Medical Indemnity, Inc. for Summary Judgment and Dismissal," Jan. 12, 1976. 16 Information contained in the response to subpena No. 95-1-84, May 3, 1977.


sent to 15 plans.'17 This survey found that, among nonphysicians-the so-called public members, conflicts of interest were common. The State agencies responsible for regulkating the plan do little to identify conflicts, much less remove them.'
The subcommittee received conflict statements from 285 board members. Of that number, 153 (54 percent) were physicians.'9 The subcommittee believes that physicians have an inherent conflict of interest. The physician board member has the ability to influence decisions for personal gain to the disadvantage of the subscriber. The conflict is perpetual and unabating as any decision to control costs means the physician's income may not increase and any action to increase reimbursement means a concomitant rise in costs to the subscriber.
We do not believe that most doctors think only of their income when making Blue Shield decisions. However, we find it hard to believe that a physician whose group practice receives upwards of $500,000 from Blue Shield in 1977 is unconscious of that fact when making reimbursement decisions .20 Congressman Albert Gore (Democrat of Tennessee) stated in dialog with Mr. Alden Flory, president of Blue Shield of Virginia:
I don't think anyone disputes the fact that there is great
value in having the expertise and judgment of physicians and the knowledge, and experience of physicians available to and represented on the boardof directors of Blue Shield.
But the issue here is completely different. Just as you
would not want-and I know you not want-a majority of your board of directors on an automobile insurance company to be executives of automobile repair shops, it does not make any sense likewise to have a majority of doctors on the board of Blue Shield, unless your purpose is to make sure that the fees and the pract ices of Blue Shield are guided and dominated by the point of view of the doctors and not necessarily to reflect the point of view of the customers whenever those
two points of view happen to be in conflict.2
Of the physician members, almost one-quarter (22 percent) held positions which placed them ii, a conflict situation, apart f rom, their inherent conflict of receiving money from Blue Shield for services provided to Blue Shield subscribers. The conflicts included ownership of and/or participation in a hospital, nursing home, or bank.
Not so obvious and therefore often misleading are the conflicts of interest of nonphysician board members. Of the 285 board members submitting disclosure forms to the subcommittee, 132 were nonp~hysicians. Of these, 64 or almost half had provider or bank relationShips with Blue Shield.22 "Public representation" was often a misnomer.
The subcommittee also found, through replies to its ownm questionnaire, that, almost three times as many board members had conflicts
Ssee appendix C for subcommittee disclosure form and compilation of plani responses.
'The stbonmte believe this to be true from the number of conflicts reported by ivmber, nlhuwvd to rein on the boards.
W~ Individual responses to subcommittee dItsclosure forms are maintained In the subconiinittee's permanent files.
20 See nlote 7, suipra at p. 143.
iiSe ote 7, suipra at p. 347.
2See note 19,. supra.


of interest as were reported to the plan and State aiuthoritieS.23 State regulation of conflicts is obviously impossible Nwere the State is not. even aware that a conflict exists. Research by the New York (.'o(nsun1ei' Protection Board indicates that~ the conflicts reported to the subcommittee may be incomplete. The New York Consumer Protection Board report revealed banking conflicts which some board members did( not list on the corporate or subcommittee disclosure statement S.24 Hlei is no way of knowing how many members of other plans chose niot to reveal the facts. However, based on plan and State inaction incae such as Indiana with reported conflicts, the subcommittee has little. confidence that even if the conflicts were reported, the membership of the governing boards would be any less conflict ridden.5
Due to the inadequacy of the plan's disclosure forms, the subcommittee was unable to determine exactly how many directors had ties with banks in which B~lue Shield had money deposited. But the subcommittee found that in its query of 15 sample Blue Shield plans, 18 directors representing 9 plans fiad ties with a bank in which Blue Shield had money deposited which they did not report to the State. Four of these directors were f rom the National Association of Blue Shield Plans, and their conflicts were through their local plans. All of these members of the national board were executive directors of their local plans, where the opportunity to act in their own self interest is obvious.
Sixty-eight nonphysicians reported conflicts on the subcommittee's disclosure form. The most common conflicts reported were bankers on the boards of plans that had accounts in their banks and hospital trustees and administrators. There are also members who have or participate in ownership in hospitals, nursing homes, and medical supply corporations. There is even an enterprising individual who owns a competing health and life insurance company. Then, there are the other direct providers such as dentists and nurses who list themselves as "consumer representatives" because they are not physicians.6
In questioning Richard Kilborn, president of Indiana Blue Shield, on this point of "hde"providers, Chairman John iE. Moss (Democrat of California) found that both the treasurer and Mr. Kilborn had direct conflicts and yet regarded themselves as public representatives.
Mr. Moss. The president is [automatically] a member of
the board.
Mr. KILBORN. Correct.
Mr. Moss. So that slot is not a public slot; is that correct?
Mr. KILBORN. That is correct, sir.
Mr. Moss. Now, the slot of the treasurer, the one that the
president of American Fletcher National Bank performs-am
I correct on that?
Mr. Moss. Is the treasurer required to be a member of the
Mr. KILBORN. I (d0 -not really know. I (don't think so.
Mr. Moss. Is he a member of the board?
24 See note 7, supra at p. 143.
25. See note 7, supra at p. 87.
26 See note 19, supra.


Mr. KLBORNT. He is a member of the board ...
Mr. Moss. There's the financial end of it. So, you have two
out of the five.27
This example is even more egregious when you realize that Mr. Kilborn, president of the plan, is also a director of the bank and owns stock in the holding company which owns the bank.28
The same point was made by Congressman Gore (Democrat of Tennessee) in questioning Mr. Flory, president of Virginia Blue Shield. Ten of the fifteen board members are physicians. Mr. Flory is considered a provider by State statute. Of the remaining four board members, one is a director of a hospital, one is vice president of a hospital. The third is an officer of the bank which is the investment manager for Blue Cross. The last nonphysician member was president of the Virginia State AFL-CIO at the time he was on the board. Concluding his discussion of the "public" representatives on the Blue Shield, Congressman Gore concluded "And I would say that that qualifies 1 member out of 15 as someone who is, first and foremost, primarily concerned with the interests of the health care consumer." 29
Of the 18 directors from 9 plans which the subcommittee found with banking connections, only 6 listed them in their plan's conflicts statements. Four directors with conflicts were on the national board. Six plans had no reported banking conflicts. Many of these directors serve on their plan's finance committee and two of the directors are actually treasurers of their plan. As with executive directors who have conflicts, their ability to abuse their positions makes their conflict especially unfair to Blue Shield subscribers. A number of directors also had ties with a bank where their local Blue Cross plan had money deposited. When the close ties between Blue Cross and Blue Shield are considered, the potential for abuse is present also. These ties are exemplified in the questionnaire responses where some directors listed the Blue Cross-Blue Shield plans as interchangeable.

According to President Walter J. McNerney, the. Blue Cross-Blue Shield Association (BC-BSA) does have power over local plans concernmng board composition, but prefers persuasion to threats of removal from the association.11 However, when studying the individual plans, the subcommittee questions whether the association demonI rates leadership in discouraging conflicts of interest or encouraging greater ptiblic participation. Certainly, the national association has never taken the ultimate step of removing a "Shield" from a )lan.
The Blue Cross Association, in 1972, passed a resolution supporting non-provider donination-Blue Shield has failed to take a similar policy position. In addition, the national board has not set an example of strong public representation for local plans to emulate. On the nationail -tre not physicians or local plan administrators. The national member7 See note 1, supra at pp. 147-148.
eId. atf p. 1316.
Id. at Ipp. 35-336.
See noes 17 and 19, supra.
81 See note 7, supra at p. 531.


ship standards require "adequate" public representat ion. If that is an example of adequate public representation, the p-ovision should be regarded as something less than useful. Further, according to tlei[ own conflict guidelines, nine of these plan administrators and three 1))si cians have conflicts apart from serving as physicians oi plan a(IInistrators because of other financial ties to local plans. Yet because the local plan's disclosure forms are so inadequate, only two of these nine list their conflicts in the plan's disclosure forms.32
Mr. McNerney assured the subcommittee that the national association annually checks for conflict -of-interest statements by board members. Yet, according to the disclosure forms received by the subcommittee, the association is unaware of even its own board members' conflicts.33
Blue Shield's commitment, as interpreted by Mr. McNe'nev,34 to greater public representation on boards is also not reflected in the data it collects on plans. For example, in the annual report to the national association which every Blue Shield plan must complete, there is one, question concerning public representation. It asks for the classification of board members only according to the following six categories:3.
1. Doctors of medicine;
2. Doctors of osteopathy;
3. Doctors of dental surgery;
4. Other licensed providers of health care;
5. Members representing hospitals; and
6. Public members-management, labor, other.
In its "Application for Renewal of Membership" to the Blue Shield Association, Virginia lists 10 doctors of medicine and 5 public members. Two of these so-called public members are hospital trustees. Many of the board members of individual plans could have close provider ties or be unlicensed providers, yet be listed as public memb es. Consequently, the national association data on representation is misleading to the public and the Government.

A. Conflicts related to physicians' practice
Blue Shield was founded as "the doctors plan for the doctors" 31 and is still promoted to physicians that way. Determinations are made by the board which affect the payments doctors receive for treatment of Blue Shield subscribers. Therefore, a practicing physician serving as a director of a Blue Shield plan has an inherent conflict of interest.
Conflicts may be manifested in many ways. First, physicians can encourage the board to take actions which have the effect of increasing reimbursement at subscriber and plan expense. The second is the physicians' failure to attempt to reduce plan costs because of the understandable bias in favor of their own profession. Many plans seem reluctant to utilize and pay cost-effective paraprofessionals, such as physician assistants and nurse practitioners. Congresman Gore described this
32 See notes 17 and 19, supra.
33 See note 7, supra at p. 530.
34 Id. at p. 508.
35 National Association of Blue Shield Plans application for renewal of membership, 1976.
3 "Blue Shield-Why Participate?" Blue Shield of Virginia, January 1975.


result as "missed opportunities"-steps that a Blue Shield plan could take to lower costs but has not:
the practice that we are spotlighting and highlighting in this series of hearings, which will continue, is not "venality" that we are talking about, but it is a practice done, in the opinion of many-and I include myself in that group-contrary to good public policy. It is a missed opportunity for the largest single group of medical care consumers to exert downward pressure on medical costs and on medical
There is no way of determining exactly how much money could be saved by a plan not dominated by providers because only one plan, Delaware Blue Shield, has a nonprovider majority on its board and fee-setting committees. It is noteworthy, however, that the Delaware plan has had a 7-percent reduction in subscriber premiums this year.33
During the subcommittee's hearings, Charles D. Weller, assistant attorney general for the State of Ohio, testified that, "at the bottom of most third-party reimbursement policy in this country is organized medicine's imposed view of how health care should be structured and paid for." 39Blue Shield plans were founded by doctors and are still required under the Blue Cross-Blue Shield Association membership standards to maintain close cooperation with physicians and medical societies.40 Basic plan policies were set long before the addition of public representation on the boards. Today, the medical society still must approve all physicians appointed to the boards of 58 plans, thereby insuring that directors' attitudes are in accordance with the views of organized medicine.41
Physician board members' financial ties to Blue Shield are substantial. For example, the 20 doctors on the board of Indiana Blue Shield, Mutual Medical Insurance (and in some cases their group practices), received a total of $1,177,816.90 from Blue Shield in 1977. This is an average of $58,890.85 per board member or group. The highest payment was $517,733.68 to a director in a group practice of approximately eight doctors, averaging more than $60,000 per physician. Including medicare and medicaid funds paid out by Blue Shield, the physician board members and their group practices received a total of $1,509,529.30.42
The reimbursement for New York physician board members is also substantial. For Blue Shield of Northeastern New York, the board members' group practices received a total of $447,022 in 1977, averaging $37,251 per physician board member or group practice and $21,286 per physician if each doctor in the group is included. For Blue Shield of AWestern New York, the 17 board members and their group parctices received a total of $ 38'653- ing to $8 1,626 per p ician )oarld member or group practice and $.55,506 per physician in all groups. Nevada had an unusually low total board reimbursement level of $21,542.68, averaging $2,692.84 per physician."
37 qee note 7, supra at p. 354.
S"Iealth Insurance: What's Gone Wrong? On the Threshold of Health Care Reform," San Francisco Examiner, June 23, 1978.
See note 7, supra at p. 252.
40 Id-, at p. 292.
1 Id., at p. 11.
Sld-, at p. 143.
SId. at pp. 212-222.


B. Physician conflicts unrelated to the practice of m dicine
Replies to the subcommittee disclosure forms reveal that reimbursement for services is not tihe only way in which physician board members' financial status can be affected by board decisions. Of the 153 physicians in the 15 plans surveyed, nearly one- physicians) had conflicts beyond their reimbursement for physician services.44 These conflicts included membership on hospital boards. consulting services with Blue Shield, and interests in medical equipment or various supply corporations, and nursing homes. Doctors with such financial ties to the health industry could sustain substantial losses from appropriate cost-containment measures.
The subcommittee received substantial testimony concerning the issue of physician conflict and how it affects doctor domination of Blue Shield governing boards. Rosemary Pooler, executive director of the New York Consumer Protection Board, stated that it is not fair to place a human being in a position, such as a physician dirertor, which will directly affect his own financial health.45
The Federal Trade Commission is concerned that not only is the practice of doctor domination unfair, but it may also reduce competition and distort prices." However, the McCarran-Ferguson Act which exempts the business of insurance from Federal antitrust laws, and section 4 of the Federal Trade Commission Act a which limits the Commission's jurisdiction of corporations organized for their own profit or for the profit of their members, present obstacles to FTC action.
Blue Shield officials themselves concede that the physicians on their boards present a potential conflict of interest. In questioning by staff, Mr. Richard Kilborn, president of Indiana Blue Shield, admitted at the subcommittee hearings that physicians on the Indiana Blue Shield board probably violate the plan's own conflict-ofinterest rules because they receive money from Blue Shield for services to patients.
The following Blue Shield of Indiana conflict-of-interest policy statement was read to Mr. Kilborn during the hearing:
No director, officer, or employee shall seek or accept
directly or indirectly any payments, fees, loans, services, or gifts from any person or firm as a condition or result of their
doing business with the corporation.
The question was then asked, "Would you assume that directors of your board who are physicians who are involved in corporations would fit that definition?"
Mr. Kilborn replied, "I really do not know, Mr. Segal. In my opinion, it probably would." 4 He also acknowledged that domination by any one group is bad and that it gives the appearance of conflict.
Mr. GORE. I am asking whether you would recommend
that your Blue Shield board not be dominated by physicians?
"S ee note 19, supra.
4 See note 7, supra at p. 227.
46 Id., at p. 8.
47 Id., at p. 9.
4 Id., at p. 120.

36-698 0 78 3


Mr. KILBORN. In all honesty, I think it is bad for any board to be dominated by any group.
Mr. GORE. You want to finish out that sentence? Do you
think it is bad for any board to be dominated by a group that profits from the activities of the board when, in fact, that board is supposed to be acting in the best interests of
the public?I
Mr. KILBORN. Again, Mr. Congressman, I have watched
for a longtime; and I have not seen them exhibit any conflict of interest in their duties as board members.
Mr. Moss. Will the gentleman yield?
Mr. GORE. I would be glad to.
Mr. Moss. Isn't it the case, however, long recognized in
law that you avoid not only the conflict but the appearance
of conflict?
The appearance is there; is it not?
Mr. KILBORN. Yes, sir.4
Mr. Alden Flory, president of Virginia Blue Shield, stated he would personally prefer a majority of consumer members on the board of Blue Shield, even though the corporation is "an agent of physicians" in the State.50 He explained that the State enabling legislation originally required a public majority. The Blue Shield members then directed that Mr. Flory recommend to the legislature that there be a provider majority instead because of the physician's personal gii a rantorship .5' According to the gu arantorship, the participating physicians will assume the cost of all covered patient services if Blue Shield is financially unable to pay the doctor. Blue Shield of Virginia has to reimburse physicians, and since there is $13.5 million in unencumbered reserves to reimburse physicians to cover that situation, physicians are, to say the least, not assuming much risk in return for their control of Blue Shield.52
Congressman Gore compared Blue Shield's domination by physicians when subscribers pay the bills to an auto insurance. company's domination by automobile mechanics and body shop owners. M.Nr. Flory explained that he himSelf had started an auto insurance company for a farmers' cooperative from scratch, and never had mechanics on the boards. Mechanics were only permitted to serve as staff consultants. Since farmers paid the insurance premiums, and the corporations were set up for farmers, only they sat on the, boards.3
The Blue Cross and Blue Shield Association's membership standards require "adequate representation" of the. public, yet "adequate" is not further defined.4 Blue Cross and Bluie Shield President Walter MecNerney testified that the Blue Shield boards should not be dominated by anyone, and that eventually, there will probably be at public majority on the boards.55 In fact, as president of the Blue Cros's Association, Mi'. .NcNerney advocates a public majority of board mnem~Id., at p. 145.
T d.. at p. 346.
WdF1. at p. 348.
_2 TI., at p. 344.
T' d., at p. 345.
Seenote 1. -1,uipra.
SSee note 7. supra at p. 519.


bers for that group. The association confirmed Mr. WVerney's position in 1972.
The subcommittee finds it incongruous that, though the, Blue, Cross and Blue Shield Associations have now merged, one group advocates public control while the other supports doctor domination.
Walter McNerney testified before the, subcommittee on April 6, 1978, that he did not believe that a correlation would be found betweell physician representation on Blue Shield boards and higher physician fees. He also testified that:
* there is no evidence which'clearly suggests that any
Blue Shield plan regardless of board composition has acted in any way other than in the best interest of its subscribers and the general public which they are committed to serving.57
Following that statement, Congressman Albert Gore (Democrat of Tennessee) brought to the attention of Mr. McNerney the District of Columbia plan's guidelines for payment. One of the rules says:
The customary charge shall be not less than the 90th percentile of charges reported for a given procedure, and shall be revised at least annually to reflect changes which have occurred in the usual charges of physicians or charges in the
cost of living, which ever is the greater.58
The District of Columbia plan's bylaws insure that the board of trustees will not make any changes in physician reimbursement without the approval of the participating physicians:
All revisions in the fee schedule and income ceilings, where
allowable, and the establishment of special programs such as those providing payment based upon usual and customary or reasonable charges, shall be inade by the Board of Trustees of the corporation only with the approval of the majority of the Participating Physicians voting by mail, except for minor revisions as provided for in Bylaws 39 of the corporation; provided that more than 50 percent of the mail ballots are
returned and voted.,59 [Emphasis added.] 0
The subcommittee believes that the bylaws and guidelines of the District of Columbia Blue Shield Plan demonstrate an attempt to maximize the usual charges of a physician. If there were an effort to moderate or restrain physician fees below the level of annual increases in the cost of living, the Blue Shield plan guidelines would almost. preclude it.
The results of these guidelines can be seen in the staff testimony presented to the subcommittee on April 611978.60 The, staff study illustrated that the percentage increase for the last 3 years for changes in
56 Id., at 504.
57 Id., at p. 503.
58 "The 17CR Service Benefit Plan: A Discussion of a New Medical -Service of D.C. Method of Paying Physicians' Charges," Blue Shield of the District of Columbia, p. 2.
m Bylaws of Medical Service of the District of Columbia, art. 39 and amendment IV. August 1977.
60 See note 7, supra at pp. 484-499.


customary charges for selective surgical procedures ranged between 29 percent and f5 percent.
The subcommittee believes that the "no evidence" of "best interests" statement of Mr. McNerney is inapplicable to the Blue Shield board of the District of Columbia. We believe that results of these usual charge increases demonstrate that the "best interests" served here are the physicians and not the plan subscribers.
Ohio Medical Indemnity, the Blue Shield plan based in Worthington, Ohio, has been criticized by the National Association of Blue Shield Plans for not acting in the best interest of its subscribers:
* little emphasis has been placed on efforts to contain
the rising costs of medical care in the community. Plan efforts seem to be directed toward satisfying the inflationary trends
of physicians' fees.6'
With respect to the Blue Shield position that there is no correlation between physician representation on Blue Shield boards and higher physician fees, Mr. McNerney testified "the preliminary results of an independent economic analysis performed by BSA economist show no systematic correlation between board composition and fee levels."1 62
The subcommittee requested and received that independent economic analysis. The analysis turned out to be an office memorandum within the Blue Shield Association from William Lynk to Edward S. Mills.
The hypothesis Lynk f ramed was". proportion ately greater physician representation results in higher physician fees". He describes the memorandum as a relatively crude initial look at the behavior of the currently available data. In fact, Lynk looks at particular specialists' fees and the board representation of that specialty rather than looking at all physicians on Blue Shield boards as a group.6 For example, the Lynk analysis takes the number of radiologists on the board and correlates that with the fee level for a specific radiologic procedure.
Since none of these specialties by themselves constitute a majority posit ion on a Blue Shield boa rd, the issue of doctor domination through majority control is never measured by this correlation technique. Furthermore, the separation into individual specialties by this Blue Shield memorandum ionores what the subcommittee believes to be the most important result of d1octor' domination, that is, that physicians will act in concert to take certain actions affecting fees. Logic would in(licat-. that radiologists would not act solely on behalf of radiologists and~ pathologists would not act solely on behalf of pathologists, and so on. One would be naive to expect that radiologist physicians do not know that at some point in time they will be voting on issues affecting I)athologrist physicians and vice versa.
Finally one must severely question the, parameters chosen for this study. The history of charges compared to allowances is the method chosen. This comes within the usual, customary, and reasonable (U-CR) reimbursement, system which is a program utilized for over 50 percent of Bluo Shiield's business ,. Many have proposed that this UCR system is at the root of rapidly increasing health costs. The Lynk study takes the reimbursement. method as a given.
11., a t p. 2 48.
11 d., at p. 505).
43H ,t OP. 559.


In fact, Mr. McNerney himself describes the need for broader perspectives when he states:
There is a large ballgame out there having to do with
institutional arrangements, IMO's shared services, preventive medicine, et cetera, where the doctor's participation and
his dedication are extremely important.4
The mention by Mr. McNerney of other arrangements is significant, particularly when one examines the UCR reimbursement system in comparison with another prepaid arrangement such as the health maintenance organization (HMO). For example, HMO's, such as the Kaiser Foundation Health Plan, are not based on UCR reimbursement and have significantly lower total health care costs for subscribers. The subcommittee believes it appropriate to undertake an indepth examination of the differences in physician fees using these two prepayment methods as the basis of a cost comparison study.
A second important deficiency in the Blue Shield study is the use of the differences between charges and allowances. For such a meas'urement to be a useful determinant, one would need to know several items of information including the previous increases in usual allowances, the previous increases in customary allowances, how the plan resolves disputed claims, the rapidity with which a plan increases its usual and customery fees, et cetera. All such relevant items are ignored in this paper.
Hence, the subcommittee agrees with the authors own assessment of the paper that it is "* * a relatively crude initial look at the behavior of the currently available data." 65 The subcommittee believes that indepth studies need to be designed and more cost-related data need to be collected. It also believes that the evidence available from the District of Columbia plan is sufficient to demonstrate that a relationship does exist between doctor domination of Blue Shield boards and increasing physician fees.

A. New York State
1. Plan regulation.--The New York Blue Shield plans are required by State law to have no more than 50 percent of their boards comprised of physicians.", Although this is one of the more stringent State laws concerning board representation, a study of the New York plans shows numerous conflicts of interest and that providers still dominate the boards.
A study of the New York Blue Shield plans, conducted by the New York Consumer Protection Board, demonstrated that the Statemandated maximum of 50 percent of the board's being physicians has resulted in that percentage representation.c7 The exception is the New York City plan which is required to have a maximum of 25 percent physicians, hospital represents tives, or other providers.0 According to State law, plan members elect the governing board. The plan mem64 Id., at p. 522.
65Blue Shield Association office memorandum from William Lynk to Edward S. Mills concerning a "Blue Shield Board of Directors Study," Feb. 24, 1978.
See note 7, supra at p. 152.
17 Id., at p. 164.
68 Id., at p. 169.


bers are not the subscribers-the insured consumers-but the participating physicians. This provision means that providers control the selection of the nonphysician board members, hence perpetuating provider domination of the plan board.9
The New York Consumer Protection Board noted other ways in which doctors were able to gain control of Blue Shield plans, such as designating alternates to vote in their absence while nonphysicians have no alternates, and setting requirements for board and executive committees that at meetings 50 percent of those present must be physicians for a quorum to be present.70 For all six New York plans, physicians dominate the fee-setting committees. Furthermore, nonphysician vacancies may take years to be filled.'
A major problem with the New York State law is its separation of board members into the categories of physician and nonphysician for allocation of membership. This means that dentists, hospital administrators, nurses. and providers who may receive Blue Shield moneys are defined as "public" members. This categorization allows individuals with a conflict of interest to be considered as public members. For example, 8 of the 16 "non-physicians" on the Board of Blue Shield of Northeastern New York were providers or had provider ties, including 2 dentists.72
Another problem with the New York State plans is that public oversight is difficult because little information is available to consumers. New York State does not require the filing of minutes of board meetings or attendance records with the department of insurance. Consequently, only those present can evaluate the performance of individual board members or determine the reasoning behind specific. board actions.
The public receives only limited information about board members under the State's freedom of information statute. For example, if nonphysician board members receive income from Blue Shield either directly or indirectly such as through a family member, the information does not have to be made public. Replies of three New York plans to the subcommittee's questionnaire show that some nonphysicman board members have conflicts because of close provider ties.3
The plans are required by law to have members sign disclosure statements: however, the public or plan subscribers are not permitted to see the disclosure statements unless the plan so allows. The plan also is not required to divulge the reimbursement of physician board members for services to Blue Shield patients. The New York State Consumer Protection Board was denied that information when is requested it for presentation in the subcommittee's hearing record.
The disclosure forms which the plans use are not devised by the State and. as a result, the plans' statements for board memobrs vary widely. New York plans had a total of 15 board members with conflicts of interest who did not. list them on their plan's disclosure forms.74 The statements range from a page-long series of questions for the board members of one plan to a statement saying that the board member has no conflicts "except 2' and a line for
q(,pe note 7. supra at pp. 163-164.
7o Id., at p. 153.
,n See note 7, supra at p. 197.
7 See notes 17 and 19, supra.
"7 Id.
4 Id.


the signature for another. Based upon the subcommittee's disclosure survey results, there was a much higher percentage of conflicts which were not reported in the one sentence-plan statements than in the more detailed conflict-of-interest statements. This is not unexpected, since the "except" statement does not give any guidelines to the board member as to the definition of a conflict, leaving it to the individual. Most board members would like to think that they do not really have any conflicts when given the opportunity to decide for themselves. From what we have seen, the operation of the New York plans may be considered typical.
2. Nonphysician conflicts of interest.-Of the 25 nonphysicians with conflicts in the three sample New York plans, 14 are involved in patient care or have relatives who are so involved. Because providers such as dentists can and do serve as nonphysician members of the plans' boards, the State law does not preclude provider domination.
All three plans have nonphysician members with banking ties, who held influential financial positions on all three plans. A chairperson of one board's budget and finance committee is a member of a bank's advisory board where the plan had, as of December 31, 1976, ,441,575 in open deposits not at interest. Another plan's board chairperson was vice president of a bank where the plan had a non-interestbearing account of $342,725. None of these persons listed their banking affiliations on their plan's conflict statement.75 One of them did not even list his conflict on the subcommittee's statement, which 15 other board members who had banking ties understood as requiring the listing of any banking ties. The subcommittee learned of his conflict through the New York Consumer Protection Board.
3. New York Consumer Protection Board recommendations.-The
board, based on its study of Blue Shield, made the following recommendations:
Reconstitute Blue Shield boards to provide for no more than
25 percent membership by health care providers, with the balance
of membership coming from the lay public.
Mechanisms must be created to encourage subscriber participation, perhaps through subscriber election of plan directors, through formally constituted advisory committees, and through
more extensive public reporting requirements.
Plans must be required to develop comprehensive preadmission
screening and utilization review programs, as well as extending
benefits for preventive medical services.76 B. Indiana
The board of directors of Mutual Medical Insurance, otherwise known as Indiana Blue Shield, is comprised of 25 persons, 20 physicians (80 percent) and 5 nonphysicians. At the time of the subcommittee hearings, Indiana Blue Shield's bylaws required that a majority of the board be physicians and that the medical association approve all physician nominees to the board.7 A study of Indiana Blue Shield reveals a history of conflicts of interest, little State regulation and enforcement, and plan refusal to comply with State demands.78
5 Id.
76 See note 7. supra at p. 184.
7 Id. at p. 70.
8 Id. at pp. 35-37.


The stipulation that the State medical association approve all physician nominees to the board has been in effect since the plan's founding in 1946. This provision gives organized medicine control of the Blue Shield board and is alleged to be illegal by the State insurance commission.79 The insurance department's 1970 report on examination of the plan recommended that this section of the bylaws be changed, according to present Indiana Insurance Commissioner H. Pete Hudson, for three reasons: (1) Doctors on the board constituted an inherent conflict; (2) the board structure was contrary to the public interest; and (3) the board structure was monopolistic. When the next insurance department report was released in June 1978, the plan's composition and nominating processes were still the same. Commissioner Hudson has now ordered Blue Shield to comply with the law.
The Indiana Blue Shield board also has a unique conflict-of-interest form. The State insurance department requires Blue Shield directors to complete disclosure statements consisting of three yes/no questions, including a general question as to whether the director had any possible conflict not encompassed in the first two questions. Only 1 of the 25 directors, Frank McKinney, the plan's treasurer and chairman of the bank by which the plan's assets of $107,589,204 are managed, indicated a yes answer to any of the questions. The State form does not require a director to further elaborate upon a yes answer.
Blue Shield also has an internal conflict-of-interest form which is quite different from the State's. It lists possible conflict situation and tells the director to provide all his affiliations for those areas. Consequently, the responses are much more detailed and result in more conflicts being listed. In this case, five members listed conflicts. The subcommittee also sent its conflict form to the Indiana Blue Shield board members. On the subcommittee forms, 10 persons listed conflicts. The State and plan forms provide inadequate and incomplete data. Disclosure statements of the plan are not submitted to the insurance commissioner but instead are kept on file at the plan. They are reviewed only when a complaint is received or during the plan's triennial examination by the insurance commissioner.
When Commissioner Hudson was contacted by the subcommittee in March 1977, concerning the conflict situation of Blue Shield treasurer McKinney, he replied:
A review of all transactions between Blue Shield and
Frank E. McKinney were reviewed. Mr. McKinney's bank receives a fee from Blue Shield for making investments. Additionally, a member of Blue Shield or Blue Cross is on the bank's board of directors. The fees paid the bank were traced into the bank's funds and the processing of same was traced.
We considered a possible conflict of interest but determined io apparent conflict existed based on the information which
we discovered and conside" red.
Idl at p. 36.
Letter from if. Pete Hudson, commissioner of lnsurnnee for the Stnte of Tndiana, to ha i r 1 John I. Moss, Subicomnit tee on Oversight and Investlgations, Der. 9, 1977.


At the subcommittee hearing, Mr. Hudson admitted t hat the opportunity existed for Mr. McKinney to act in a manner detrimintal to the plan:
We have been unable to find or discover any act that really
appeared to be detrimental to the coilipany or the policyholders but nevertheless, the possibility, we have to admit, exists.
So, I guess as long as tie possibility exists, particularly in today's climate, it seems to me that it's appropriate that that
be terminated too.8'
Commissioner Hudson stated that he had the power to remove a board member if necessary.2 The insurance department's report issued June 9, 1978, on the triennial examination of Blue Shield included a recommendation that Mr. McKinney be removed as treasurer and his position as a board member be "reevaluated."
* it is questionable whether Mr. McKinney (or any
person) can completely serve both entities in a truly arms length fashion irrespective of the fact that no nisappropiation of company assets was determined during the examination.3
If the plan did not comply within 60 days of the report's issuance a hearing would be held. In a letter to the subcommittee, Commissioner Hudson explained that contrary to his testimony, Department counsel had advised him that under Indiana law the insurance commissioner could not order a member's removal:
There are certain areas wherein I would like to have been
in a position to order certain remedial measures, but as counsel has reviewed our statutes, they are of the opinion that.
our authority is not as broad as we would like. As I indicated to you earlier, we have been concerned with some of the ambiguities within our statutes. It was enacted in 1935 and has been "patched" in certain specific areas which does lead to some arguable ambiguities and it is for that reason that I have chosen not to issue "orders" in certain areas but rather made suggestions and recommendations. I have reason to believe this approach may be expected to accomplish essentially the
same results as would the orders. However, time will tell.s4
Commissioner Hudson was being overoptimistic. On June 26, 1978, Blue Shield filed suit against the Indiana Department of Insurance to forestall implementation of the department's recommendations. Commission Hudson reported in a July 6, 1978, letter to the subcommittee:
The news article from the Indianapolis Star under date of
June 27, 1978, acknowledges the filing of suit by Blue Shield in response to our orders. This suit is in accordance with the
81 See note 7, supra at p. 37.
82 Id., at p. 87.
83 "In the Matter of Triennial Examination of Mutual Medical Insurance. Inc. : Finding and Order," Indiana Department of Insurance, JIune 9. 1978.
e4 Letter from H. Pete Hudson, commissioner of insurance for the State of Indiana, to Chairman John E. Moss, Subcommittee on Oversight and Investigations, June 8, 1978.

36-698 0 78 4


right of appeal of the Indiana Administrative Adjudication Act wherein they -are simply seeking review by a competent court of our order and requesting an, injunction against our
pursuit of the findings and order.85 4
Mr. McKinney is not the only director with banking ties. Richard C. Kilborn, board member and president of Indiana Blue Shield, is a director of Fletcher Corp., the holding company for Fletcher National Bank, and owns stock in the corporation. Any action taken against Mr. M.NcKinney could also apply to Mr. Kilborn. No action has been taken or recommendations made by the insurance department concerning Mr. Kilborn. Additionally, Mr. Kilborn 's responses on the State's disclosure form were contrary to those on his company statement signed the same day. The company form indicated a possible conflict, while the State form declared no possible conflicts. 86 Yet again, no action has been taken concerning this inconsistency.
The Indiana forms demonstrate the effect of allowing members to individually define a conflict of interest. Only 1 of the 25 persons indicated. that he had a conflict on the State questionnaire. The internal form, signed the same day, shows five members with affiliations representing potential conflicts.
Mr. Kilborn admitted at subcommittee hearings that, according to the plan's own written conflict-of -interest policy administration rules mentioned earlier, physicians have an inherent conflict of interest.87 Yet, not 1 of the 20 physicians answered "yes" to either Blue Shield or State disclosure questions. These 20 physicians received a total of $1,177,816.90 from Blue Shield in 1977, and an additional $331,712.40 from medicare and medicaid, for which Blue Shield is the carrier and fiscal agent, respectively. This includes one physician whose eightmember group received more than $500,000 in 1977.88
However, Mr. Kilborn defended the physician majority in a letter to Blue Shield members, stating "It takes professionals, knowledgeable in the medical field, to make intelligent decisions in the face of the constant changes that are taking place in health care today." 819
Mr. Kilborn further wrote, "so long as we enjoy, each other's confidence and trust, we stand strong in the face of unfair criticism from outsiders." Of course, in that same letter he stated that, "as I see it, my board membership with American Fletcher Corp. is a major responsibility of my position as president of Blue Shield of Indiana." This opinion contrasts sharply with that of Alden Flory, president of Blue Cross and Blue Shield of Virginia, who testified that being a member' of a bank board that held Blue Shield money while being on the board of Blue Shield would be an unacceptable conflict of
interest. 90
The insurance department report also found that Blue Shield's prLoxy system deprives the subscriber of any opportunity for meaningful input into the company's operations.91 11Yhen an individual applies
b5 Letter from H. Pete Hudson, commissioner of Insurance for the State of Indiana, to Chairman John E. Moss, Subcommittee on Oversight and Investigations, July 6. 1978.
SSee note 7, supra at pp. 131-133.
Id hiat p. 120.
Id., ,it p. 143.
SLetter from Richaird C. Kilborn, president of Indiana Blue Shield, to Blue shield memuber-. a f tr subcommittee hearing on Mar. 21, 1978, undated.
1"( See note 1, supra at p. 321.
W' Id., at pp. 78-79.


for coverage, he or she also signs a permanent proxy which must be revoked in writing should the subscriber want to participate at an annual meeting. Because of this and the fact that no notices were sent out, there has been virtually no attendance at meetings other than that of Blue Shield employees or board members.2 At the recommendation of Commissioner Hudson, Blue Shield now at least sends out notices for the date and time of the annual meeting. C. Ohio
1. Medical society ownership.-Ohio Medical Indemnity (OMI), Blue Shield of Worthington is a wholly owned subsidiary of the Ohio State Medical Association (OSMA) 3 Organized medicine literally controls Blue Shield policies. At the present time, Ohio Attorney General William Brown is in litigation with OSMA over its ownership of OMI. The attorney general's suit alleges price fixing, monopolization of the doctors' insurance market, and restraint of trade. The suit recommends divestiture of OMI. OSMA moved for dismissal claiming McCarran Act immunity.94 On September 16, 1976, the court ruled OSMA was not entitled to immunity.95 The medical society appealed and on July 13, 1978, the rulin again went against OSMA.96
Over 90 percent of all physicians in Ohio are members of OSMA. OSMA's council, equivalent to a board of trustees, nominates and elects all 21 members of OMI's board, 13 of whom are required to be physicians. Of an 11-member executive committee, 7 must be OSMA members. The OMI board in turn elects the officers of OMI. To make control complete, the OSMA council "maintains a constant surveillance over OMI" through its "OMI Liaison Committee" whose members attend all meetings of OMI's board of directors and executive committee meetings.17
2. Disincentives for cost containment.-As far as OSMA is concerned, there is no conflict of interest in its ownership and domination of OMI. OSMA, in 1951, presented its position quite explicitly:
There is no more certain method for the medical profession
to protect its own interests and at the same time the interests of the subscriber than to control the plan with which both subscribers and physicians have to deal. Control by the medical profession offers a mechanism by which premiums aind benefits can be properly balanced and can be adjusted to meet changing conditions. Without this control, the medical profession might find itself subject to pressures and inequitable decisions at the hands of interests and individuals who are not sympathetic to the wishes and welfare of the medical
In the normal free marketplace, we expect buyers to seek and obtain the product for the lowest price. Any seller who claims lie has a "right" to sell at his price usually goes out of business. OSMA believes physicians have the right to charge at whatever level they prefer and also to be paid at that level. OSMA's executive director termed
92 Id., at p. 147.
93 Id., at p. 246.
4 15 U.S.C. 1011 et seq.
85 Ohio v. Ohio Medical Indemnity, Inc., 1976 trade case, para. 61, 128 (S.D. Ohio). 9 Ohio v. Ohio State Medical As8ociation, 1978-2 trade cases 62, 154 (S.D. Ohio). 97 See note 7, supra at 263.
9 Id., at p. 265.


it "the physician's right to establish his own charges." 99 Even the National Association of Blue Shield Plans has criticized OMI for its lack of effort to contain medical costs. "Plan effort Seem to be directed toward satisfying the inflationary trends of physicians' fees * *651 100
A May 15, 1978, letter to the subcommittee shows that OSMA still wants to maintain physician control of reimbursement. OSMA's Resolution No. 17-72 states thatResolved, That the Ohio State Medical Association not
oppose the involvement of reputable physicians or the Ohio Medical Indemnity, Inc., in closed panel or prepaid, group practice organizations, or any other health care delivery systems provided that the principles of high quality medical care and physician control of the practice of medicine be maintained.'0'
3. Physician control of OMJ reimbursement levels.-In August 1974, an Ohio physician-anesthesiologist who was also a member of OMI's board complained to OMI that the reimbursement for anesthesiology was not high enough. OMI subsequently increased the allowance 17 percent. This same physician felt that 17 percent was not sufficient and so informed the president of OMI.02
OMI conducted a study to determine the appropriate fee level. The study showed that both Long Island and Chicago paid anesthesiologists less than OMI. OMI's Actuarial Services Department also reported that the increase in anesthesiology reimbursement would result in a "minimum increase of $200,000 per year to OMI subscribers." In spite of these factors, OMI increased the rate 50 percent.103 At the very least, this anesthesiologist board member participated actively in a major fee increase which served to benefit him directly.

The subcommittee finds that individual Blue Shield plans are controlled by the group which benefits most directly-pr'oviders of care. Physicians particularly have an inherent conflict of interest in serving on Blue Shield boards.
The subcommittee finds that at the present time, there is little, if any, State or Federal regulation of conflicts of interest on Blue Shield Boards of directors. State regulation has been sporadic at best with very few provisions for public scrutiny. Though the Federal Trade Commission has been investigating Blue Shield for the last 2 years, no formal report or recommendations have been made public. On June 20, 1978,' Secretary Califano issued a statement sayIng the Departmnent of Health, Education, and 'Welfare would publ a regulation mandating a public majority on the boards of all third-party payers doing business with the Department. That regulation has yet to be issued. The Department and the Commission will have to find a
00 Id., at p. 267.
100 Id., at p. 268.
"I1 Letter from Homer S. Harrison, senior vice president, Ohio M.\edical Indemnity to Chairman John E. Moss, -Subcommittee on Oversight and Investigations, May 11, 7678, pp. 17-18.
102 See note 7, supra at pp. 279-281.
10- Id.


way in which to deal effectively with problems in the Blue Shield plans. Congress also must consider mandating minimiurn Federal standards for all health care insurers. As this Nation moves toward national health insurance, it becomes clear that we must attempt to deal with the problems surrounding Blue Shieldbefore we undertake a massive revision of the health care delivery system itself.

I cannot support the findings and recommendations contained in the Subcommittee Report. The principal finding of the Subcommittee Report is that, because physicians dominate many of the Boards of Blue Shield plans they, thus, control their own reimbursement by these plans, thereby driving up the cost of health care. This is quite simply not supported by the evidence taken by the Subcommittee during the course of its hearings. There is no evidence indicating that when doetors control these boards that the charges for physician services are higher than they would be if the boards were controlled by nonphysicians or providers. If that fact cannot be established, then the necessity for recommendations contained in the Report is found wanting.
I will illustrate my point about the lack of evidence, in fact evidence to the contrary, by the use of five charts f rom the hearing record which will be set out below showing charges for selected surgical procedures in four States: Michigan, Indiana, Georgia and Alabama. These four States will be used for comparative purposes. Michigan will be compared to Indiana, because in Michigan non-physicians dominate the Blue Shield's Board whereas in Indiana the physicians control the Board. In Alabama the non-physicians control the Board, but in Georgia physicians dominate. In addition, .Nlichigan is adjacent to Indiana and Alabama is adjacent to Georgia. This was done to avoid one of the pitfalls of such comparisons. The differences between Alabama and Georgia and Michigan and Indiana, are simply not that great.





1975 1976 1977 1978 1975-76 1976-77 1977-78 1976-1978. 1975-1978

Coronary Artery ByPass
Single $1200 $1200 $1300 $1300 o 8% ot 8 At
Double $1500 $1500 S$1o $1600 0ot 7% ot 7t% 71
Triple $2000 $2000 $2200 $2200 oS 10% o 10ot 10%
Hip Replacement $1500 $1500 $1500 $1620 01 o 8% 81 t
Tonsillectomy 2/ $ 136 $ 200 $ 200 $ 227 47% 0t 14% 14 67%
Cholecystectoy $ 459 $ 513 $ 513 $ 600 12t 0O 17% 17% 31%
Hysterectomy $ 510 $ 575 $ 575 $ 625 13% 0% 9% 9% 231
Simple Mastectomy $ 247 $ 330 $ 330 $ 400 34% 0ot 21% 21% 62%

1/ "Usual, customary, and reasonable allowances" provided by National Association of Blue Shield Plans. 2/ Over 12 years.



1975 1976 1977 1978 1975-76 1976-77 1977-78 1976-1978 1975-1978

Coronary Artery ByPass
Single $1900 $1900 $1900 $1976 0t 0t 41 41 4
Double $2200 $2300 $2300 $2392 St 0% 4% 4% 9i
Triple $2450 $3200 $3200 $2900 31% 0t (9%) / (9%) 18%
Hip Replacement $1400 $1690 $1700 $1768 21% It 4 5t 26%
Tonsillectomy .1/ $ 175 $ 225 $ 250 $ 250 29% 11%it 0. 11%it 43%
Cholecystectomany $ 478.5( $ 640 $ 700 $ 740 34% 91 6% 16% 55
Hysterectomy $ 460 $ 650 $ 700 $ 750 35% 8%t 7% 1S% 56%
Simple Mastectomy $ 264 $ 381.60 $ 407 $ 425.60 45% 7% St 121 61t

f/ "Usual, customary, and reasonable allowances" provided by the National Association of Blue Shield Plans. 2/ Over 12 years.
3/ ( ) indicates percentage decrease.


1975 1976 1977 1978_/ 1975-76 1976-77 1977-78 1976-1978' 1975-1978 Coronary Artery ByPass
Single _2./ $1725 $172S NA s/ 0% NA NA NA
Double / $19oo $1900 Kk 0% KA Nk as
Triple .2/ $2015 $2015 N4 0% NA KA NA
Hip Replecemanent $1860 $2140 $2140 s15% 0% NA NA A
Tonsillectomy $ 275 $ 320 $ 320 16% 0% NA NA NA
Cholecystectay $ 625 $ 720 $ 720 15% 0% .NA NA NA
Hysterectomy $ 625 $ 720 $ 720 s15% 0% NA NA NA
Simple Mastectomy $ 470 $ 545 $ 545 16% 0% NA NA

j/ 'jsual, customary, and reasonable allowances" provid-e by National Association of Blue Shield Plans. 2/ Cannot be determined due to insufficient claims experience. 3/ /U allowances will not be available until June lI ".
4/ Over 12 years.
. Not available due to lack of data for 1975 and 1978.

In Alabama. the Blue Shield Board is composed of 26 members with 14 being non-providers (non-physicians), 6 being physicians, and 6 being from hospitals or other health providers. The important committees with respect to physicians charges of Fee Schedules and Reasonable Charges are controlled by non-physicians. Thus. Alabama has a consumer dominated Blue Shield Board.
In contrast, Georgia has two Blue Shield plans, one in Columbus and one in Atlanta. In Columbus, the plan's board is heavily physician dominated with 58 of the 67 board members being physicians and with physicians dominating all of the important committees.
In Atlanta, the Board has 27 members comprised of 11 physicians, 9 from hospitals and other health providers and 7 non-providers, but with physicians controlling all of the important committees.
If the thesis of the Subcommittee Report is correct, then Alabama should have the lowest fees, with Atlanta second and Columbus third, but such is not the case. Using the last full set of charge figures, Columbus with its heavily physician dominated board has lower fees in every instance than Alabama or Atlanta. Then if you compare the major metropolitan area'of Atlanta to Alabama. you find that for the eight procedures. Atlanta has lower charges for five of the eight and they are higher for the three others.
These data I )elieve support my initial statements that whether the boards are physician-dominnated or consumer-dominated is not the im)ortant consideration. If it were the case. Atlanta's fee charges across the board would be higher than Alabama's.





1975 1976 1977 1978 1975-76 1976-77 1977-78 1976-1978 1975-1978

Coronary Artery ByPais
Single $1500 $10 $s0 $)So0 Ot Ot Ot 01 Ot
Double $2000 $2000 $2000 $2000 0% 01 0 01 0o
Triple $2500 $2500 $2S0 $2500 0 Ot O0 0% 01
Hip Replacement $1250 $1500 $1700 $1700 20% 134 01 13t 36i
Tonsillectomy 2/ $ 175 S 200 $ 210 $ 225 14% SI 71 13% 29%
Cholecystectay $ 500 $ 550 $ 551 $ 600 10% .181 9t 9% 20%
Hysterectomy $ 500 $ 600 $ 615 $ 0SO 20% 31 61 8t 30t
Simple Mastectomy $ 325 $ 450 $ 450 $ 450 38 0t Ot 0% 38t

1/ 'Usual, customary, and reasonable allowances" providhled by National Association of Blue Shield Plans. Z/ Over 12 years.



1975 1976 1977 1978 3/ 1975-76 1976-77 1977-78 1976-1978 1975-1978

Coronary Artery ByPass
Single $1624 $1626 $1708 $1879 0.12t 5%t 10% 16% 16%
Double $1869 $1792 $2211 $2274 (4%)i 23% 3% 27% 22%
Triple $2084 $2161 $2637 $2729 4% 22% 3% 26% 31%
Hip Replacmaent $1006 $1043 $113S $1185 41 9% 4% 14 18s%
Tonsillectamy 2J $ 132 $ 141 $ 162 $ 174 7% 15s% 7% 23% 32t
Cholecystectay $413 $ 437 $ 474 $ 486 6% 8t 3% 11% 18%
Hysterectomy $ 473 $ 499 $ 538 $ 560 St 8% 4% 12% 18%
Simple Mastectomy $ 254 $ 259 $ 294 $ 314 2% 144 7% 21% 24%

I/ "Usual, customary, and reasonable allowances" provided by National Association of Blue Shield Plans. 2/ Over 12 years.
/ Estimated from first quarter data.
4/ ( ) indicates percentage decrease.

In Michigan, the Board is heavily dominated by non-providers (non-physicians). There are 47 members with 28 being non-providers. 9 being physicians and 10 being from hospitals and other health providers. In addition, physicians do not control the Committees on Fee Schedules, Medical Claims or Reasonable Charges. In Indiana by comparison, the Board is heavily dominated by physicians. There are 25 members of the Indiana Board with 20 of the Board members being physicians and physicians controlling all of the major committees.
If the Subcommittee Report's thesis was correct, the charges in Michigan would all be lower than the charges in Indiana, but as the

36-698 0 78 5


charts indicate such is not the case. In factl in Indiana, for three of the procedures the charges are lower in Indiana than they are in Michigan and for one other of the procedures (tonsillectim v) rates have gone up in Michigan at a greater rate than in Indiana. this does not suggest to me that by virtue of the fact that doctors dominate a board of a Blue Shield plan, that rates will be necessarily higher than when they are non-physician dominated. Some may be higher and some may be lower.
Thus, in this example as in the Georgia-Alabama example, rates are not uniformly higher in doctor-dominated plans in spite of what appears to be an apparent conflict of interest by the doctors in those plans.
As my two case studies demonstrate and they are the best evidence that the Subcommittee has on the actual experience of one type of p.1an versus another, the fact of doctor domination is not the problem the Subcommittee Report makes it out to be. The Report's position is theoretically unsupported by actual data, whereas my position is supported by hard data.
I would, therefore, say that if it cannot be shown, and it cannot, that physician domination results in higher fees then the recommendations calling for heightened activity and increased power to the Federal Trade Commission are aroundless and without support. The hard evidence simply does not identify a problem area warranting a massive intrusion by the Federal Government into an area being effectively regulated by the States.

Mr. Collins, in his separate views to the Subcommittee report, presents an interesting but unsupported hypothesis. Ile uses materials submitted by Blue Shield for insertion in the hearing record concerning the customary rates for the Blue Shield plan of Alabama versus the two Georgia plans and the Indiana plan versus the Michigan plan. Two initial points are relevant.
First, Mr. Collins, while contending that non-physicians control the Alabama and Michigan plans, ignores the other providers on the boards. For example, when one adds the hospital and other health providers to the physicians on the Alabama board, the consumer majority is 14 to 12. However, their plan president is included in the 44consumer" figure rather than in the provider category. Alden Flory, president of Virginia Blue Cross and Blue Shield, testified that lie is considered a provider.
Mr. FLORY. By definition of our enabling act. They say Fm
a provider if I'm going to be president of the organization.
Hence, the Alabama board must be considered at least 50-percent providers.
Second, the Subcommittee report is based upon the premise that the composition of the board committees which establish the fees and fee structure must be examined. In the cases of Michigan and Alabama (along with 66 of the remaining 67 plans), at least. one or more of the committees which set or adjudicate fees are physician-cont rolled. Unless fee-setting committees have their established rates changed by the total board, then it is the fee set by the doctor- dominated committee that is passed on by the Blue Shield board to its subscriber.
The Subcommittee has yet to find a good test of Mr. Collins' hypothesis. Walter McNerney, president of the Blue Cross and Blue Shield Association, has used as his standard that Blue Shield plans operate in the public interest. The standard that the Subcommittee has employed for provider domination of boards is whether the best interests of subscribers and the public can be served while providers determine their reimbursement system and their fees.
I believe evidence presented in the report concerning the District of Columbia Blue Shield plan's structure and fee increases demonstrates that the best interests served are not those of the subscribers but rather of the providers.
Lastly, I believe the true test of the Blue Shield plan's ability to work in the best interest of the consumer is to judge them against other prepayment plans. In a recent New England Journal of Medicine article (October 12, 1978), the Harvard Community Health Plan was compared with a Blue Cross/Plue Shield community-rated group durthe same period. The Harvard Plan's premium for an individual was $43.50 per month and $109.00 per month for a family. Blue Cross/Blue Shield's premium was $50.12 for any individual and $126.68 per month for a family. According to the article,


It has been repeatedly documented that expenditures for
services not covered by health insurance are considerably lower for members of an HMO than for subscribers to Blue
The Subcommittee in this report has not completed its investigation into all the aspects of fee-setting and comparative costs. In fact, the Subcommittee recommends that more in-depth comparative analyses of reimbursement systems be undertaken.

I would first like, to commend Chairman Moss and the Oversight and Investigations Subcommittee staff foi- the, outstanding investigative, work done in one of the most critical areas facing us today: the soaring costs of medical care. The efforts of the Subcommittee have given us a much orreater understanding of the root causes of the high costs of medical care, and have enabled us to focus on possible solutions to our health care problems.
However, there are two aspects of the report with which I take issue. First, I disagree with the recommendation that Congress should consider legislation which would establish basic minimum standards for prepaid health insurance coverage. Although I recognize the problems inherent in a system where the mechanisms for increasing reimbursement are in the hands of the. providers, I do not feel that Federal legislation to deal with the problem is warranted at this time. When a problem, such as the one we are faced with here, is exposed, the involved parties should have the opportunity to work out a solution, without the Federal Government threatening to come in and "cort-ect" the problem. Earlier this year, I was involved in a similar investigation into the soaring costs of product liability insurance through the Small Business Subcommittee on Capital Investment and Business Opportunity. There I opposed the Subcommittee's recommendation that Congress establish a Federal Insurance Commission to deal with problems such as product liability, where it was perceived that States were doing an inadequate job of monitoring the insurance industry's activities. In that case, many States were already taking action to help solve the product liability problem, and Federal intervention might have only made things worse. My point is, the private sector is now saturated with Federal regulation, and I believe we should try to solve problems without enacting new laws, where possible. The time is not ripe for the Federal Government to get further involved in an industry-insurance-which currently receives minimal Federal intervention.
Second, I am deeply concerned that this report is being issued at a time in which Ohio Medical Indemnity and Ohio State Medical Association are in litigation with the Ohio Attorney General. At one of the hearings, the Assistant Attorney General of Ohio made strong allegations against Ohio's largest Blue Shield plan, Ohio Medical Indemnity. Neither Ohio Medical Indemnity nor the Ohio State, Medical Association has responded to the allegations made at that. time, and it is my understanding that neither organization wishes to do so until after the case is litigated, which is expected to happen in the next few weeks. I believe that without a response from either organization, we really do not have a fair or accurate picture of Blue Shield in Ohio. Given the critical stage of litigation as well as Ohio State Medical Association's apparent willingness to testify on the matter as soon as litigation is complete (which should be shortly), I feel strongly that issuance of the report now is not only untimely, but also terribly unjust.


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MAY 1977



The Blue Shield Association was established in 1946 with the aid of the American Medical Association, and was known originally as Associated Medical Care Plans, Inc. Four years later, it became known as Blue Shield Medical Care Plans, after the Blue Shield name and -symbol had been adopted for use by member Plans. In 1960, the name was changed to National Association of Blue Shield Plans. In 1977, the corporation's name was again changed to Blue Shield Association.
The Association's Bylaws were originally adopted by member Plans in 1946, and subsequently amended on several occasions. The Membership Standards were first adopted in 1950, and thereafter amended from time to time. Each member Plan is required to meet and mainudn these Membership Standards if it is to qualify for approval as a Blue Shield Plan.
The Bylaws and Membership Standards appearing in this booklet supersede all prior Constitutions, Bylaws or Membership Standards of the Blue Shield Association.
(This revision reflects amendments to the Bylaws and Membership Standards voted at the 1977 Annual Business Meeting of Blue Shield Plans.)



Page No.
CHAPTER I-- NAME .................................... 1
[I- PURPOSE ................................. 1
OF CORPORATION ........................ 1
IV DISTRICTS ................................ 2
Sec. 1. Constitution of Districts
2. District Organizations
V--BOARD OF DIRECTORS ................... 2
Sec. 1. General Powers
2. Composition
3. Elgibility, Tenure and Election of District Directors
4. Eligibility, Tenure and Election of Directors at Large
5. Meetings of the Board
6. Committees of the Board
7. Expenses of Directors and Committees 8. Duties of the Board
VI- MEMBERSHIP AND AFFILIATIONS ........5 Sec. 1. Classes of Members
2. Active Members
3. Associate Members
4. Application for Membership
5. Duration of Membership
6. Conditional Approval
7. Termination of Membership
8. Report to the Corporation 9. Standards for Membership 10. Affiliations
VII -OFFICERS .................... ..... 7
Sec. 1. Officers
2. Election of Officers
3. Vacancies
4. Chairman of the Board
5. Vice-Chairman of the Board
6. President
7. Treasurer 8. Secretary
9. Other Officers

Page No
Sec. 1. Annual and Special MeetingsCail and Notice
2. Quonm
3. Speaker, and Vice-Speaker of the Program Conference
4. Procedure of Meetings of the Corporation
5. Delegates and Alternate Delegates
6. Right to Vote
7. Reference Committees 8. Privilege of the Floor
9. Limited Time for Introduction of New Business 10. Executive Sessions 11. Notification to Plans Concerning Corporate Business at Annual Meetings
IX FINAN CES ................................ 11
See. 1. Raising of Funds
2. Appropriation and Expenditure of Funds
3. Determination of Dues or Assessments
4. Arrears
X-INDEMNIFICATION ....................... 12
XI- -RULES OF ORDER ......................... 12
XII A.MENDMENTS ........................... 12
MEMBERSHIP STANDARDS ............... 13
Sec. 1. Plan Approval
2. Nonprofit Operation
3. Free Choice of Physician
4. Participating Physician Agreements
5. Patient-Physician Relationship
6. Subscriber Benefits
7. Public Policy
8. Cost Containment
9. Reports and Records 10. Financial Responsibility 11. Professional Relations 12. Plan Performance 13. Interplan Obligations of Members 14. Enforcement of Membership Standards 15. Public Representation 16. Standards Subordinate to Laws Governing Plans





'ne name of this Corporation is Blue Shield Association, hereinafter refen-ed to as "the Corporation-"


7be purpose of the Corporation is to promote the collective capacity of Blue Shield through the exercise of authority delegated by the Plans. It shall assist Plans in the acquisition and maintenance of public and professional support and in the orderly expansion of their roles in the financing of health services. It will exert constructive influence on the quality and availability of health care services and assist Plans in discharging their responsibilities to the private subscn-ber, the public subscribe r, providers of health care and the community at large.

The Corporation exists to serve common needs, and it shall be supported in every lawful effort, regularly approved or enacted by the members of the Corporation.


The power to alter, amend or repeal the Bylaws, is vested in the active members. Unless otherwise herein specified, actions of the active members, by majority vote, at a duly called and. constituted meeting, are the acts of the Corporation.

The Corporation, at any meeting, may by resolution create such cmmittem or agencies as it may deem advisable, to be constituted and appointed as the Corporation shall. determine, o investigate and study problems, or to perform such acts as may be designated, provided only that the jurisdiction of such comminem or agencies shall in no way conflict with the provisions of these Bylaws.



Section L Constitution of Districts. The member Plans shall be divided into such geographic districts as the Corporation may from time to time determine, for purposes of district organization and for the election of district directors.

Section Z. District Organizations. Member Plans in each geographic district shall establish a District organization which shall fillfill the following
um, requirements:

(a) Each District annually shall elect a chairman and vice-chairman who shall
serve for a term of one year. The chairman of the District shall be responsible for calling all meetings of his District organization and shall act as the presiding officer at all such meetings except, that in case of his inability to act, his duties shall be performed by the vice-chairman of the District.

(b) Each District annually shall elect a secretary who shall serve for a term of
one year. The secretary shall prepare and transmit to the member Plans of his District minutes of a meetings 'of the District organization. He shall transmit a copy of all minutes of District meetings at which District Directors are elected to the Secretary of the Corporation.

(c) Each member Plan in each District shall designate a voting representative
to the District organization.

(d) Election of District Directors and other actions of the District organization
shall be decided by a majority vote of the Plans on the basis of one vote
for each Plan in the District.

(e) In the event of a vacancy in the office of a District Director, the District
concerned'shall without delay elect a successor to fill the unexpired term.

M 1n the event that a meeting of- representatives of a District organization is
not convened, a District may conduct business including the election of District Directors, by written vote of the qualified voting representatives of
the DL*SM*c:L


Section 1. General Powers. Tle Board of Directors (hereinafter referred to as the "Board") as hereinafter defined, shall have the authority to establish policy and supervise implementation required for the conduct of the Corporation's affairs. The Board,, acting in, accordance with these Bylaws, shall have full power and authority to perform all acts and to transI


act all business for and on behalf of the Corporation, and to manage and conduct all the property, affairs, work and activities of the Corporation. The Board shall have such other powers and duties as these Bylaws provide or as the Corporation may, in addition, grant or impose.

Section 2. Composition -The Board shall consist of: (a) district directors; and (b) directors at large.

Section 3. Eligibilty, Tenure and Election of District Directors.-Two, Directors shall be elected by each District as provided in Chapter IV, Section 2 of these Bylaws. Directors elected by the Districts shall be designated as District Directors and shall serve terms of two years.

One Director from each District shall be a doctor of medicine who has practiced at least five years and is a member of the governing board of a member Plan. The other District Director shall be the chief salaried executive officer of a member Plan.

Any vacancy occurring among the District Directors shall be filled as provided in Chapter IV, Section 2 of these Bylaws.

Section 4. Eligibility, Tenure and Election of Directors at Large.Fourteen Directors at Large shall be elected as herein provided.

Eligibility for office shall extend to chief salaried executive officers of member Plans or to persons (physician or public members) who shall be a member of, or shall have had no less than three years of service within the past six years, on the Board or on the governing board of a member Plan.

The Board shall determine annually the number of Directors at Large whose terms of office expire and shall cause, through a nominating committee appointed by the Board, to be submitted to the member Plans nominations for such offices of Director at Large at least 30 days'prior to the annual meeting of the Corporation. Nominations for Director at Large may :a1l() be made by any member of the Corporation at the time nominations of the Board are submitted or at the annual meeting of the Corporation.

Directors at Large shall be elected by weighted vote and shall serve terms of three years. Upon election, each Director at Large shall assume office at the close of the meeting of the Corporation at which elected.

Any vacancy in the office may be filled by the Board until the next meeting of the Corporation, at which time it shall be filled in the manner above prescribed.


Section -5. Meetings of the BoarcL 'rbe Board shall meet immediate1v upon adjournment of the annual meeting of the Corporation and shall organize. This meeting shall constitute the annual meeting of the Board. The Board shall hold at least one additional regular meeting each year, at places and on dates to be determined by the Board at its annual meeting. The Chairman may call special meetings at other times, and must call a special meeting on the written request of three or more directors. At least fifteen days' notice of any regular or special meeting, other than the annual meeting, shall be given by the Secretary. A majority of the Board shall constitute a quonim. Any lesser number may adjourn from time to time until a quorum is present.

Section 6. Committees of the Board.
(a) There shall be an Executive Committee consisting of seven members.
The Chairman of the Board, the Vice-Chairman of the Board, the Secretary and Treasurer shall serve on the Executive Committee. The remaining three members shall be nominated by the Chairman from the membership of the Board and elected by the Board. All terms shall be for a period of one year or until the successor therefor has been qu2lifie-dThe President shall be an ex officio member of the Committee, without
the right to vote.
The.Executive Committee shall, during intervals between regular Board meetings or where a specially called meeting of the Board is not feasible possess and may exercise all the powers of the full Board in the management of the business and affairs of the Corporation, except those powers expressly reserved by the Board or those prohibited by law. Any action by the Executive Committee which is withi the scope of the power herein delegated to it shall be as effective for all purposes as the
action or authorization of the Board of Directors.
Said Executive Committee shall at all times act under the direction and control of the Board of Directors and shall make reports of such actions to the Board at the meeting next following such actions. The reports of the Executive Committee shall become part of the records of the Corporation. The Executive Committee shall keep regular minutes of its proceedings. The Executive Committee shall not have the power to
change the membership of or to fill vacancies in said co i

(b) Other Committees. -The Board may appoint such committees as in its
judgment are desirable to carry out the purposes and responsibilities of
the Board.
(c) Meetings of any committee of the Board of Directors may be held
through the use of conference telephones, television, or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation by any committee member


in a meeting so held shall constitute presence in person at the meeting, and the minutes of any such meeting shall be prepared. in the.-same
mapnner as a meeting of the committee members held in person.

Section 7. Expenses of Directors and Committees. -' The directors shall rcevve no compensation from the Corporation for their services as directors The expenses of directors and of committees in the performance of their duties shall be met from Corporate funds in accordance with regulations adopted by the Board. Under no circumstances shall any director or committee member personally profit by virtue of his office.

Section & Duties of the Board. -The Board shall perform such duties as law, customary practice, and these Bylaws impose upon it.
In addition, the Board shall:
(a) Undertake and promote such research as is in the interest of its
members and shall compile statistics and studies of experience, and shall collect and distribute financial and service data of -member
Plans(b) Provide consultation and information services based on contacts
with existing and contemplated plans, concerning administrative policies and procedures, enrollment, and pertinent information relative to prepayment of health care, and may distribute significant
literature and information.
(c) Promote public education as to the scope and significance-of Blue
(d) Promote coordination and reciprocity among member Plans.
(e) Adiminister the standards for membership as established by the
(f) Make recommendations as to desirable changes in the standards
*for membership, following study by appropriate committee or

CHAPTER VI- MEMBERSHIP AND AFFILIATIONS Section L Classes of Members. -The Corporation shall consist of:
(a) Active Members
(b) Associate Members
Section 2. Active Members. Active membership shall be granted to any nonprofit medical care plan which meets and complies with these Bylaws and with such standards for membership as have been established by the Corporation on approval of its application .by the Board. An active member, if its application so states and the Board approves, may consist of a group of nonprofit medical care plans located within a single state, who


affiliate together for the purpose of such active membership, and who select one of their number to be group sponsor. Section 3. Associate Members. Associate membership shall be granted to any nonprofit. medical care plan, which is in process of organization, on approval of its application by the Board. Section 4. Application for Membership.-The name of a proposed new member shall be submitted in writing to the Board. If the Board finds that the candidate is eligible, it may admit the candid te plan to membership. Section S. Duration of Membership. Membership shall endure from the close of one annual meeting to the close of the next following annual meeting of the Corporation, and shall thereupon terminate, unless renewed as herein provided. The Board, at any time within four months prior to, or during, the annual meeting, shall renew for the above described period the membership of each member which it finds has complied with al.1 the provisions of these Bylaws and such standards for membership as have been established.
Section 6. Conditional Approval. If at any time, a member is found not to be in compliance with the provisions of these Bylaws or any standard for membership, the Board may declare its membership to be condition,-.0 for such period of time as may, in the Board's judgment, be required to permit the member to present evidence that it fully qualifies for membership. During a. period of conditional membership a Plan shall continue to be liable for payment of its dues and shall be entitled to all privileges of membership.
Section 7. Termination of Membership. -The Board may terminate the membership of any member at any time if it finds, after' bearing, that the member has violated these Bylaws or has, failed to comply %ith the standards for membership. Membership shall also terminate as provided in Chapter I, Section 4.
Section & Report to the Corporation. Tle Board shall makean annual report to the Corporation on membership. Such report shall include all actions of the Board on applications for membership, renewals of membership or qualifications thereof, and terminations of membership for whatever cause.
Section 9. Standards for Membership. Each applicant for membership, and each member seeking annual renewal of membership shall comply with the requirements set forth in these Bylaws and the standards for membership. The Board of Directors, acting upon original applications for -membership, or annual reviews of membership Status, shall have'the right to waive, for a stated time, one or more requirements wherever in its judgment circumstances may warrant such action. Upon acceptance as a member, and thereafter, upon periodic renewal of membership, each mernber shall be entitled to use the term "Blue Shield" and the officially adopted Blue Shield symbol on its certificates and all other printed literature issued by


such member under its own Plan name, except that under no circumstances shall the Blue Shield service mark be utilized in connection with the identifiCation of any service or commodity other than health care prepayment.
Section 10. Affiliations. Any nonprofit health care plan located outside the United States, its territories and possessions, any subsidiary or controlled ,organization of the Corporation, or other health care prepayment organizaItion shall be eligible for affiliation, provided such plan complies with such Standards for affiliation as may be established from time to time by the Board. On approval of its application by the Board, such plan shall be an affiliate.
Affiliates shall not have voting rights, and, unless authority is specifically granted by the Board, they shall not be entitled to use the term "Blue Shield" or the officially adopted Blue Shield symbol.


Section 1. Officers. The officers of the Corporation shall be a Chairman of the Board, Vice-Chairman of the Board, President, Secretary, Treasurer and such other officers (including one or more Vice-Presidents) as the Board may designat& upon recommendation of the President Only a member of the Board shall be qualified to be elected as Chairman of the Board, Vice-Chairman of the Board, Secretary or Treasurer. The President shall not be a member of the Board.

Section 2. Election of Officers. (a) All officers shall be elected by the Board at its annual meeting. (b) All officers shall assume office immediately upon election and serve for a period of one year or until their successors are elected and assume office.
Section 3. Vacancies. In the event of the death, resignation, removal or disability of any officer, the Board may at any meeting elect his successor who shall serve during the remainder of the term or until his succesor is elected and assumes office.
Section 4. Chairman of the Board. The Chairman shall preside at all meetings of the Board and at all business meetings of the Corporation, and shall exercise general supervision over such affairs and activities of the Corporazion as are not expressly reserved for the President.

Section 5. Vice-Chairman of the Board. The Vice-Chairman of the Board shall preside at meetings of the Board and at business meetings of the Corporation in the absence of the Chairman or at his request. He shall assist the Chairman in the discharge of his duties. 1n the'event of the death, resignation, removal or disability of the Chairman. the Vice Chairman shall assume the office of the Chairman until the next annual meeting of the Board or until his successor is elected.



Section 6. PresidenL -The President shall be the chief executive officer of the Corporation and shall supervise and administer al1 of the business and affairs of the Corporation. He may sign any instruments which the Board has authorized to be executed. He shall, be responsible for causing all votes and minutes of all proceedings to be recorded so that true copies of all minutes of all such proceedings shall be transmitted to each member. He shall cause notice of all meetings of the Corporation and the Board to be given. He shall perform such other duties as usually pertain to his office or as may be prescribed by the Board from time to time. Section 7. Treasurer. The Treasurer shall cause to be entered on the books of the Corporation the dues of each member as determined by the Corporation; shall demand and receive all funds due the Corporation; shall cause the same to be promptly deposited, together Nith all devises, bequests and donations, in a depository approved by the Board; shall cause to be kept proper and accurate records thereof, as well as of funds disbursed by the Corporation; shall pay out of the monies of the Corporation only such amounts as are approved by the Board; shall give bond in such sum, if any, as the Board may determine, the premium of such bond to be paid by the Corporation; shall perform suc-h other duties as may be required by these Bylaws, or by the Board. In the absence or inability of the Treasurer to act, his duties shall be performed as specified by the Board. Section 8. Secretary. The Secretary shall be the custodian of the minutes of the meetings of the Corporation and the Board, and of all other records, books and papers belonging to the Corporation and of the Corporate Seal; shall receive applications for membership and transmit them to the Board; shall provide for the registration of all members at meetings of the Corporation and keep a record of such registration; shall keep a register of active and associate members and affiliates; shall sign any instruments required by law to be executed by a Secretary; shall perform such other duties as may be required by these Bylaws, or by the Board. In the absence or inability of the Secretary to act, his duties shall be performed as specified by the Board. Section 9. Other Officers All other officers shall have such powers and duties as from time to time may be assigned to them by the President or by the Board of Directors.

CHAPTER Vill -MEETINGS OF THE -CORPORATION Section 1. Annual and Special Meetings Call and Notice.- The Corporation shall meet annually at such time and place as the Board shall determine. The membership may be called into special meeting at any time by the Chairman of the Board. The membership must be called into special meeting by the Chairman of the Board on direction of the Board or on the request of one-third (1/3) or more of the members. Notice of at least ten daysl shall be given the membership in writing and by mail or telegraph prior to any special meeting of the Corporation.


Section I Quorum. A quorum of any meeting of the Corporation shall consist of a majority of the active members and, in addition, a majority of the total weighted vote of -all member Plans.

Section 3. Speaker and Vice-Speaker of the Program Conference A- A Speaker and Vice-Speaker of the Programn Conference shall be elected by the Corporation at its annual meeting and, upon election, shall assume office immediately and serve for a period of one year or until their successors are elected and assume office.
B. The Speaker of the Program Conference shall preside at the program sessions. He shall be an ex officio member of the Board, without right to vote.
C. The Vice-Speaker of the Program Conference shall assist the Speaker in the discharge of his duties and, in the case of the death, resignation, removal or disability of the Speaker shall assume the office of Speaker.

Section 4. Procedure of Meetings of the Corporation. The Corporation shall proceed in the order of business determined by the Board. At any meeting, however, the members, by majority vote on a specific motion, maychange the order of business previously arranged and proceed in accordance with the terms of such motion.

Section 5. Delegates and Alternate Delegates. Each member shall have one delegate and two alternate delegates who shall be designated as first and second alternates. The delegate shall vote on behalf of the member, except that in his absence his first or second alternate delegate in that order, shall be entitled to vote. The delegate shall cast all his member's vote&. In voting on election of candidates for office, the delegate may divide the weighted vote of his Plan. Designation of delegate and alternate -delegates shall be filed by the member in writing with the Secretary at, or prior to, the commencement of the meeting for which such* designation is made. Such designation for an annual meeting shall -be evidenced by a resolution of the member's governing board, duly certified by an authorized officer of that board, and flied wvith the Secretary of the Corporation- The Secretary shall then certify the designated persons as delegate and alternate delegates of the member Plan until a new designation has been filed.

Section &. Right to Vote. -The right to vote shall be vested in the active members, equally, on the basis of one basic vote for each member, plus one vote for each $1,000, or fraction thereof, of annual dues last assesed by the Co.-oration on underwritten business, and one vote for each $'2,000, or fraction thereof, of annual due-s last assessed by the Corporation on non-underwritten business. The Board shall report to the Coz-poratio_, at each meeting the eligible w-eighted vote of each member.



Section 7. Werence Cornmittee&
A- Reference committees and other committees related to the conduct of a Corporate meeting shall be appointed by the Cha=*an of the Board. He shall cause all members thereof to be notified of their appointment,- if possible, prior to the convening of any meeting of the Corporation., B. All reports and new business introduced at the first business session of any an ual meeting of the Corporation shall be referred by the Chairman of the Board to the appropriate reference committee immediately upon its presentation. The time and place of the reference committee meetings shall be announced before adjournment of the first business session. C. Reference committees shall report at the second business session. D. At reference committee hearings, all members of the Board, official delegates and alternate delegates, all officers, trustees, directors, executive directors or representatives of member Plans shall be extended the privilege of the floor.

Section 8. Privilege of the Floor. At meetings of the Corporation, the privilege of the floor shall be extended only to: A. Officers and directors of the Corporation, delegates or alternate delegates of member Plans.
B. Members of governing boards and officers of member Plans, when requested by the Plan's delegate.
C. -Other persons when requested by a delegate and authorized by majority vote of the member Plans present.
D. Counsel, consultants and employees of the Corporation, on request of the Chairman.

Section 9. Limited Time for Introduction of New Business. -Any new business at the final business session of an annual meeting may be introduced by the Chairman, the Board of Directors, or the chairman of a committee appointed by the Corporation. At the final session of an annual meeting, a two-thirds (2/3) affirmative weighted vote of the member Plans represented at the meeting shall be required for the introduction of any other new business.

Section 10. Executive Sessions. All business sessions of the Corporation shall be open sessions for all persons registered at the meeting, unless otherwise determined by a majority vote of the members present. When it is so determined that the meeting shall become an executive session, the following may attend: officers, directors, and voting delegates; and such other persons as the members, by two-thirds (2/3) vote, shall determine are necessary for the conduct of the meeting.


Section 11. Notification to Plans Concerning Corporate Business at Annual Meetings. Mlember Plans shall be notified not less than 30 days in advance of each annual meeting, with respect to any business to be presented by the Board except for such emergent matters not pertaining to dues or assessments which may arise within the 30 day period.

Section 1. Raising of Funds. Funds for conducting the affairs of the Corporation may be raised by (1) regular dues imposed by the Corporation at annual meetings; (2) such special assessments as the membership may impose; and (3) contributions, devises, bequests or gifts.

Section 2. Appropriation and Expenditure of Funds. At the annual meeting of the Corporation the Board shall submit a budget of the expected income and expenses for the ensuing year. Upon approval by majority weighted vote of the members present and voting, with or without amendment, the Board shall have authority to appropriate and disburse funds in accordance %;ith the budget. During the course of the fiscal year, if it is found that the budget is insufficient to cover one or more programmed activities or projected administrative expenses, the Board may authorize expenditures in excess of such budgeted items by a three-fourths (3/4) vote of all members of the Board present.
During the period between annual meetings, if the Board determines that a special appropriation is required to implement an activity not specifically provided for in the current budget, and if in the judgment of the Board such activity is clearly in the interests of member Plans and not in conflict with the policies of the Corporation or the general powers of the Bot~rd as defined in Chapter V, Section 1 of these Bylaws, the Board shall have the power to vote such special appropriation if approved by a three-fourths (3/4) vote of all members of the Board present.

Section 3. Determination of Dues or Assessments. Dues shall be determined annually by the Corporation at its annual meeting. In determining dues the amount may be based on any formula that is uniform in application. Dues shall be payable monthly, and the amount owed by each member shall be determined periodically on the basis of reports which shall be furnished periodically to the Board by the respective members. The period for furnishing reports and determining dues liability may be monthly, quarterly, semi-annually or annually, as determined by the Board. Approval of a
-proposal for an assessment, other than regular dues, shall require the affirmative vote of a majority of the members present and voting, representing twothirds (2/3) of the weighted vote of such members present and voting.

Section 4. Arrears Mlembers who have been declared by the Board to be sixty days in ai-rears in the, payment of dues shall not be eligible to vote. T-he membership of any member whose dues have not been paid for one year


from the* date on which they last fell due shall terminate. Any member Plan in arrears, for dues which resigns its membership or whose membership is terminated for non-payment as above provided, shall remain liable to the Corporation for the unpaid amount of its dues up to the date of such resignation or termination. No reinstatement shall be in order for a resigned or terminated member until and unless unpaid dues have been paid, and then such reinstatement shall be only by application and election as provided herein. No refund of dues shall be made if a member resigns before expiration of the current period for which dues have betn paidCHAPTER X INDEMNIFICATION
The Corporation shall. indemnify and hold harmless any person, his administrator or executor, made or threatened to be made, a party to any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding and any appeal therein (and any inquiry or investigation which could lead to such action, suit or proceeding) by reason of the fact that he is or was a director, officer, member of a corporate committee or employee of the Corporation. The foregoing indemnity shall not apply to actions brought by the Corporation or to any matters in which such person is finally adjudged in such action, suit or proceeding to be liable for gross negligence or intentional criminal acts or a willful criminal failure to act in the performance of his duty to the Corporation. In the event that there has been no*final adjudication or it is unclear from such an adjudication whether the person is entitled to indemnification, then adjudication shall be made by a majority vote of a quorum consisting of the Board of Directors of the Corporation. If such a quorum is not attainable then said adjudication shall be made by at least three independent legal counsel in a written opinion. This indemnity shall not extend beyond the limits permissible under applicable common or statutory law, state or federal; nor sha.U said indemnity be exclusive of other rights to which such person may be entitled.

In the absence of any provision to the country in these Bylaws, all meetings of the Corporation or Board, or of any committee created by the Corporation or Board, shall be governed by the parliamentary rules and usages contained in the then current edition of Roberts' Rules of Order.

These Bylaws may be amended at any annual or special meeting of the Corporation upon two-thirds (2/3) affirmative weighted vote of the members present and voting provided such motion is also supported by an affirrnative Voic of the majority of the member Plans present and voting and further provided that a copy of the proposed amendment has been mailed by the



Secretary to each member at least 60 days prior to the meeting at which such proposed amendment is to be voted upon. . -MEMBERSHIP STANDARDS OF.
These Membership Standards provide objective criteria for evaluating the effectiveness of a Plan's service to the public, to the medical profession and other providers of covered services and to Blue Shield as an interdependent association of Plans. It shall be the duty and responsibility of the Board of Directors as provided in Chapter VI of the Bylaws to determine a Plan's adherence to these Standards.
Section 1. Plan Approval
A Plan shall have substantial support of the medical profession, evidence of which may be approval of the Plan by the appropriate medical society or societies... ..
Section 2. Nonprofit Operation A Plan shall operate on a not-for-profit basis.A Plan organized under laws other than nonprofit enabling acts shall include in -its bylaws a specific provision for operation on a nonprofit basis. No director, officer or any other individual shall receive, directly or indirectly, any profits from the operations of a Plan. Compensation for services performed or reimbursement for expenses incurred shall not be considered profit.
Section 3. Free Choice of Physician Subject to express provisions of law or contract, there shall be free choice by the patient of any duly licensed physician practicing in the area served by the Plan.
Section 4. Participating Physician Agreements - '
All Plans should endeavor to secure participating physician. ag elements. U a Plan utilzes Participating Physician Agreements, which in any way affect the services and/or benefits provided in the subscribers' certificates, such Plan shall secure and maintain the participation of not less than 51 per cent of the eligible physicians practicing in the area served by the Plan. Section 5. Patient-Physician Relationship .The personal relationship between patient and physician shall not be.abridged.
Section 6. .Subscriber Benefits
Each active member Plan shall make available a paid-in-full program preferably based upon the usual, customary and reasonable charges of physicians.



Admini ation of such program shall incorporate active application of the following definitions:
A usual fee is the most consistent charge by an individual, physician or
provider to patients for a given service.
A customary fee is a charge which falis within the range of usual charges for a given service billed by most physicians or providers with similar
training and experience within a given area'.
A reasonable fee is one which meets the usual'and customary cnteria, or which, in, the opinion of an appropriate peer review committee, merits special consideration based upon the complexity, of treatment
of the particular case.
Such programs shall show evidence of professional involvement; and shall have regular professional review and analysis consistent with responsibility to the general public and to those who provide covered services. Such program shall include the Blue Shield Comprehensive Contract as approved by the membership on April 6, 1970. Such program shall also include, as part of its administrative mechanism, appropriate techniques, as determined by the Board, to prevent excessive fee escalation.
Benefits may also be offered on a service or indemnity basis to meet the needs of those subscribers.
Each active member Plan shall make available by January 1,1975, a dental program that conforms with the nationally approved building bloCk approach.
Each active member Plan shall use by January 1, 1977 the national identification card for all lines of business utilizing, to the degree possible, a plastic card. Existing cards need not be reissued.
A Plan shall submit evidence that its practices provide for effective utilization review and control designed to safeguard the interests of all persons served by the PlarL Criteria for measuring the effectiveness of a Plan's utilization review program shall be established by the Board.

Section 7. Public Policy
A Plan shall be organized and operated to provide the greatest possible service to the public.
A- A Plan's subscribers' certificates shall state clearly the benefits and the conditions under which such benefits will be provided. All exclusions, waiting periods, deductible provisions, and other limitations must be clearly indicated in promotional literature and in the certificates. B.'A Plan's promotional activities shall be reasonable and shall avoid anv misleading statements.
C. A Plan's incurred claim expense for underwritten business over a reasonable period shall be not less than 80 per, cent of earned subscriber income.

Section 8. Cost Containment
A Plan shall adopt and implement a cost containment program. Such prc14


gram, incorporating those sidelines established by the national associatlo.Board, shall include a means to analy-ze relevant data concerning costs of health care, to make appropriate recommendations as to effectiveness and to submit reports as required to the national association.

Section 9. Reports and Records
A- A Plan shall maintain such records and shall submit such reports and information as the Board may require. B. A Plan shall notify the Blue Shield Association of any changes pertaining to the operation of the Plan, such as changes in its bylaws, major policies. membership of governing board, officers, or other items of importance.

Section 10C. Financial Responsibility A. A Plan shall mainan such reserves as are legally required; and are sufficient to protect the interests of subscribers, physicians and other providers. B. A Plan shall establish and maintain accounting practices which conform with recognized accounting principles and will afford a reliable financial statement. All operating statement data submitted to the Board of Directors sh~al be on an accrual basis.
C. A Plan shall provide adequate liabilities for claims reported but not yet paid and unreported claims, and shall reflect these liabilities in its operating statement. The Board of Directors may require a Plan to submit satisfactory, evidence that its liability account for incurred claims is adequate. D. A Plan shall maintain an adequate reserve for contingencies over and above all liabilities. Such reserves should be sufficient to meet claims and operaung expenses for a period of at least three months.
A Plan whic h shows evidence of a deteriorating financial condition shall produce evidence satisfactory to the Board of Directors that its financial policies are sound.
E. A Plan shall submit to the Board its most recently completed annual audit report, certified by a firm of certified public accountants containing a minimum of such information and certifications as the Board may require. Those Plans subject to the jurisdiction of a state regulatory agency shall promptly submit to the Board of Directors copies of all examination reports issued by the regulatory agency concerning the Plan.

Section 11. Professional Relations
A Plan shall maintain, as part of its regular organizational structure and operation, an active program of professional relations directed toward securing and maintaining close cooperation %kith practicing physicians and w#ith the appropriate professional society or societies.

Section 12. Plan Performance
Each Plan shall effectively administer all programs in which it participates, based on guidelines or performance stadards established by the Board, and, where indicated, the Plan shall take corrective action to improve performance to acceptable levels within a reasonable period of time.



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1/- Column represents the number of conflicts reported to
the Subcommittee which were not included on the plans'
internal or State forms.

2/ One member who had a banking conflict but has switched jobs. 3/ Does not include one member with a Blue Cross banking
affiliation which he listed as a conflict of interest.

4/ Data from State form on left; internal form data on right. S/ New York State law separates physicians, hospital Tepresentatives, and other providers from all other members.



IIPlease be careful to respond to the questions fully and with complete accuracy. In all those questions where you indicate a
"yes" response, please specify whether the response refers to yourself or (a) given member(s) of your immediate family (husband/ wife; father; mother; brother; sister; son; or daughter).

Where the answer is "e", please set forth pertinent facts in your response on the back of the page of -the related question. In the expanded response, include the nature of your relationship (vice president, stockholder, legal -representative 'of etc., etc.)
and the relationship (if any) of the institution to Blue Cross, Blue Shield and/or Blue Cross/Blue Shield. Please be specific in
your -response. When varied titles have been held at a given
organization, note only the most senior title and date of such title.

Please return the questionnaire to the Subcommittee on Oversight and Investigations, 2323 Rayburn Office Building, Washington D.C. 20515, no later than February 20, 1978.



Ho-me Address: _______________________Home Telephone Number:__________ _________Business Address: _________________________Business Telephone Number: __________________Nature of Business:______________ ________Signature:


Page Two

1. Do you own any interest in, or serve
as a director, officer, or employee Yes No
of any hospital, nursing home, or
related health care facility? Self Family

2. Do you receive any income from, or
have a financial interest in, or serve as a director, officer, Or employee of a formally organized
association doing business with, Yes No
or representing Blue Cross or
Blue Shield in your-State? Self Family

3. Does any family member, other
than yourself, serve as a
director, officer or employee
of BC, BS, and/or BC/BS? Yes No

4. Do you serve as a director
officer, employee, or have any
financial interest in any in- Yes No
surance organization other
than BC, BS, and/or BC/BS? Self Family

5. Are you a physician, dentist,
registered nurse, or other
health professional? Yes No
---If "yes", please specify which:

(1) Subspecialty

(2) Board certified?

(3) Presently in practice?

(4) Presently retired?

(5) Presently functioning in an

administrative Tole?


(6) Presently in full-time academic




Page Three

6. Is any member Of Your family a
physician, dentist, registered
nurse, Or other health professional? Yes No

--If "yes", please specify present location and which:

(1) Subspecialty

(2) Board certified?

(3) Presently in practice?

(4) Presently retired?

(5) Presently functioning in an

administrative role?


7. Do you serve as a trustee for a hospi- Yes No
tal, nursing home, or other related
health care facility? Self Family

8. Are you a public official? Yes No

--If "yes", specify Self Family

9. Are you presently an execute ive, officer,
.or employee of any company, union,
welfare, or health benefit fund withemployees covered by health insurance Yes No
provided through Blue Cross and/or
Blue Shield? Self Family

10. Are you an employee, executive,
ourneT, or shareholder of-any supplier Yes No
of goods or services to any health
care facility, doctor's office, etc.'? Self Family


Page Four

11. Are you any executive, member, or
employee of any health care organi- Yes No
zation in your State (hospital
association, medical society, etc.)? Self Family
--if t1yes", specify title, years
served, etc.

12. Do you derive any income from Blue Yes No
Cross or Blue Shield in your
State? Self Family

--In calendar year 1977? Yes No

--Amount Self Family

--Services rendered

13. Please-list all Blue Shield, Blue
Cross or BC/BS, committees or sub-.
committees on which you serve, and, all.positions you hold in the given

14. Please specify the category Of Your
membership on the Board of Blue-Cross,
Blue Shield, and/or Blue Cross/Blue
Shield (consumer representative,
physician, etc.)


UNIVERSITY OF FLORIDA 3 1262 09119 2814