North Carolina

Blue Cross NC promises more transparency after arrest and conviction of former CEO

In an effort to restore trust with customers after the recent scandal involving the drunk-driving arrest of former CEO Patrick Conway, Blue Cross Blue Shield North Carolina announced Wednesday that it is putting new procedures in place to increase for transparency in reporting significant events.

The company did not specify what the “enhanced corporate governance protocols” will be.

This comes as a response to controversy behind Conway’s arrest being kept private by the Blue Cross NC Board of Trustees for three months, which resulted last month in his resignation and the calling off of a $16 billion merger with Oregon insurer Cambia Health. Conway was supposed to be the CEO of the combined company.

Conway was arrested June 22 after colliding with a truck with his daughters in the vehicle. He was found guilty Tuesday in an Asheboro court of driving while intoxicated and misdemeanor child abuse. His attorney has said he will appeal the verdicts.

“We understand the handling of the incidents surrounding former Blue Cross NC CEO Dr. Patrick Conway has disappointed many of our valued customers, state leaders, and employees,” the trustees said in a statement to Blue Cross NC members and in a letter to state insurance commissioner Mike Causey. “While we cannot undo the events that have unfolded over recent weeks, we can act to restore your trust.”

In the letter, the trustees said they had “at all times, acted in good faith” in refraining from disclosing the situation due to Conway’s medical privacy and legal concerns.

The incident generated anger from insurance regulators and questions about what the Blue Cross board should have disclosed to them during their merger with Cambia. Insurance commissioners told the N&O in September that the companies may have failed to provide the amount of information required by their state law.

“They are required to report any material changes within two business days and they did not do that,” Causey said then, stating that the arrest would count as “material” under state law.

DIFFERENT DISCLOSURE RULES

What Blue Cross NC is promising moves them closer to what is required of publicly held companies that have to answer to investors.

“For a public company, this almost certainly would have been material,” said Thomas Hazen, a University of North Carolina law professor and expert on corporate governance issues. “Investors today would care if their CEO was careless enough that he would drive around with his kids under the influence. Not being a publicly held company, there’s no reason for them to say anything.”

Rules surrounding disclosure are different for Blue Cross NC, a nonprofit. Hazen said the merger with Cambia emphasizes the fact that the Blue Cross NC board should have disclosed the incident to regulators and the other party involved in the merger. “I don’t think they were required to do that, but it certainly would have been a cautious and prudent way to proceed,” Hazen said.

Alan Palmiter, a law professor at Wake Forest University, said, “In the public corporation sphere, where there are shareholders, where there is the SEC [Securities and Exchange Commission], the best practice is whenever there is a hint of a scandal to control the story immediately and become as transparent as possible and to be forthcoming and make sure you’re telling the story and not having other people speculate about the story.”

“It sounds like Blue Cross Blue Shield may not have gotten that advice,” Palmiter said.

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