Health foundation prepares to target state's needs

Sunday, September 2, 2001

JEFFERSON CITY, Mo. -- With assets of well over half a billion dollars that could quickly grow to more than $1 billion, a new not-for profit foundation created under the direction of Missouri's attorney general could soon start having a significant impact on health care in the state.

Those involved in the new Missouri Foundation for Health -- the phoenix that has arisen from the ashes of Blue Cross Blue Shield of Missouri's attempt to convert its assets into a for-profit company -- hope the organization will make a lasting impact on the health-care needs of Missouri's most vulnerable citizens: the poor and the elderly.

With nearly $665 million in assets, a figure that is expected to grow significantly with shrewd investment, the foundation has the financial wherewithal to give away millions of dollars to whatever health-related programs it chooses.

"We hope to make a difference, because this a very important addition to the health scene in Missouri when you consider the assets we have," said Alberta Slavin of Clayton, Mo., chairwoman of the foundation's board. "The need is enormous. The issue before the foundation is to be able to focus on the needs and make a difference. How to do that is still in the formative stages."

The foundation, established last November, is beginning from scratch. So far, its board has hired two private firms to manage its investment strategy. It also recently hired its first executive director to handle day-to-day business.

But what type of programs it will fund in St. Louis and 85 Missouri counties, including many in Southeast Missouri, and the process by which it will distribute the money remains undecided.

Slavin says the first task is to put the not-for-profit foundation on a firm financial footing that will keep it viable well into the future.

"It has been a good time for us to do a lot of work before we get a lot of requests for support, because we have to be in a position to do that right before we are deluged with requests for money," Slavin said. "We are anxious to give money but have to have a process in place. I think we're moving pretty fast."

The foundation's funding criteria are expected to be established by the end of the year, with its first grants being handed out in July.

Missouri Attorney General Jay Nixon, who pursued the litigation from which the foundation had its genesis, says the foundation has considerable leeway in how it doles out its resources. He said that's necessary for the foundation's longevity.

"The focus here is on doing things the government doesn't do, filling gaps," Nixon said.

Foundation creation

The chain of events that led to the creation of the Missouri Foundation for Health began in 1994.

That year, Blue Cross Blue Shield of Missouri, a public-benefit, not-for-profit corporation, shifted its assets into RightChoice Managed Care Inc., a for-profit insurance company.

The Blue Cross and Blue Shield concepts were established in Missouri and other states in the 1930s. In the beginning, members paid monthly dues in exchange for necessary medical services at little or no extra charge.

But by the 1980s, the plans were facing increased competition from private, for-profit insurers with greater discretion about which individuals they would insure and what medical services they would cover.

Blue Cross was assured by lawyers with the state's largest law firm that its shift to for-profit status was legal, and the change was endorsed by the Missouri Department of Insurance.

Blue Cross owned 80 percent of the stock in RightChoice. The remaining 20 percent was sold to private investors.

Nixon was not convinced the move was legal. At the urging of several consumer groups, he sued Blue Cross in 1995 on grounds that the corporation had abandoned its not-for-profit mission.

"The law says that if you want to dissolve a not-for-profit that you can't just do that," Nixon said. "You can't just take a charity ... and divide up the shares of stock."

After a long court battle, Nixon negotiated a settlement in 1998. Under the terms of the settlement, Blue Cross would surrender all 15 million of its RightChoice shares to a not-for-profit foundation. The foundation would have five years to divest itself of the stock. Proceeds from selling the stock would go into an endowment from which the foundation would fund selected health-care initiatives benefiting the public.

Though the majority shareholder, the foundation couldn't vote its stock, and RightChoice would continue to operate as a for-profit business.

That fall, a trial-court judge attempted to order RightChoice into receivership and take control of its assets. The Missouri Supreme Court eventually ruled that the lower court had no authority to reject or replace the settlement as worked out by Nixon. In February 2000, the attorney general dismissed all court actions against Blue Cross and began implementing the settlement.

A community-advisory committee was created to select a slate of 35 nominees to serve on the foundation's board. From that slate, 15 board members were chosen.

Nixon and Gov. Mel Carnahan were to choose the board members and were in the process of doing so when Carnahan died in a plane crash. Gov. Roger Wilson, unfamiliar with the details of the situation, told Nixon to make the selections on his own. Last November, Nixon appointed the board, which includes medical professionals, clergy and others with experience on the boards of not-for-profit foundations.

There were questions about why the attorney general should have the power to name a board that would control such a massive amount of money. Nixon says attorneys general have long had oversight under Missouri statutes in ensuring that not-for-profit corporations don't abuse their charitable status.

"It is not outside of the way things are generally done," he said. "It's just not something that gets a lot of attention. This one gets a lot of attention because it's pretty contentious litigation, plus it's a lot of money."

Future board members, who are appointed to three-year terms, will be chosen by the board from nominees by the advisory committee, not the attorney general.

Financial matters

When the board held its first meeting in December, the foundation had $13 million in cash. Its 15 million shares of RightChoice stock were valued at roughly $400 million.

The foundation sold 4 million shares of stock in May, and it currently holds liquid assets of approximately $150 million, which includes both cash and short-term bonds.

RightChoice shares on the New York Stock Exchange closed Thursday at $46.80, making the foundation's 11 million remaining shares worth nearly $515 million.

Dr. J. David Auner, a foundation board member and a family physician in private practice in Ironton, Mo., says establishing such a massive operation hasn't been easy.

"I ought to write a paper on how, if someone is trying to start a not-for-profit foundation among an amorphous group of people, they can do it better," Auner joked.

The board of directors didn't pick its leaders until March. Although it has hired some private consultants, the foundation won't have a full-time staff until October.

"It looks slow, but I feel like we are moving along," Auner said.

On Oct. 1, Dr. James Kimmey will become the foundation's first executive director and will begin hiring staff to manage the foundation. Kimmey was founding dean of the St. Louis University School of Public Health and currently serves as the director of the school's Institute for Urban Health Policy.

Kimmey was hired by the foundation after a nationwide search. Slavin, the foundations' chairwoman, said it was just luck that the board found a qualified candidate who also has intimate knowledge of health care in Missouri.

"Essentially, we were looking for someone with the expertise to run a massive foundation with significant assets," Slavin said.

Close relationship

In August, officials with the Missouri Department of Health and Senior Services outlined key areas of need to the foundation's board. Although the foundation is independent of state government, the health department hopes to work closely with the foundation.

Department spokesperson Nancy Gonder said the foundation can launch comprehensive, long-term programs to get at the root of health problems in Missouri to supplement and enhance the state's efforts.

"We certainly don't have enough money to address all health issues," Gonder said. "We hope we can be a partner with them in looking at what the needs are and addressing those needs."

Auner, the board member from Ironton, echoed that. "I hope that for the most vulnerable people in society -- poor children and the poor elderly -- we can fix the safety net in places it is broken," Auner said.

Although not an arm of government, the foundation is subject to significant public oversight.

The foundation's activities fall under Missouri's open meetings and open records statutes, which typically apply only to governmental entities.

"It is the only not-for-profit in the state subject to the Sunshine Law," Nixon said. "As part of the settlement, I put that in, and that's totally unique."

Also, the community-advisory commission that selects nominees for the board will issue annual reports on the foundation's activities and progress. If the foundation deviates from its mission, Nixon says he or future attorneys general can replace the board.

Restoring the purpose

Nixon sees the foundation as the restoration of the original purpose of Blue Cross: to benefit the public.

While the specific impact of the foundation on overall health care in Missouri remains to be seen, Nixon is optimistic, considering that income from the sale of RightChoice stock has already exceeded his wildest expectations.

"I think that the Missouri Foundation for Health and the good it will do will stand as one of the two or three most important things I have done in public service," Nixon said.

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