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Patrick Springer, Published September 13 2009

Blues officers say they got audit 'wake-up', insurer says corrective steps taken to prevent problems

EDITOR'S NOTE: This story originally appeared in The Forum on July 20, 1995.

FARGO - Officers of Blue Cross Blue Shield of North Dakota made a public act of contrition Wednesday in the wake of an audit documenting lavish travel expenses and high-priced Washington consultants.

"We've gotten your wake up call, and believe me, we're wide awake," Blues chairman Richard Hall said, responding to Insurance Commissioner Glenn Pomeroy's earlier remarks that the audit should spark board action.

The report, made public Tuesday, examined the health insurer's operations for 1990-93 and highlighted questionable spending for executives' travel, annual board retreats at a Minnesota resort, and yearly payments of $80,000 to the Washington lobbying-and-consulting firm of former Sen. Mark Andrews.

During a press conference clearly aimed at trying to restore public confidence, Hall and Blues chief executive Michael Unhjem said corrective steps have been taken, including new policies regarding travel and entertainment expenses, and charitable contributions.

Unhjem reiterated apologies for what he called "incidents of non-compliance cited in this report," which included trips in which he billed the company for an $800 helicopter ride during a business trip to Hawaii.

Unhjem, whose 1993 salary and bonuses totaled $191,345, subsequently has repaid the helicopter bill, with interest, along with expenses he incurred on a trip to New York that included a $280 taxi bill.

The audit disclosures of lavish travel -- and the stormy public reaction -- are reminiscent of reports uncovering North Dakota Blues' board trips to Hawaii, which provoked a firestorm of criticism in 1986.

A plan, approved Friday in an emergency meeting by Blue Cross Blue Shield's board of directors, after reviewing a preliminary copy of the report, should prohibit future problems, Unhjem said. "From this point forward, there will not be these kind of issues," he pledged.

Among the steps taken:

- A beefed-up internal audit department that reports directly to the audit committee of the board of directors.

- The board also revised the company's travel reimbursement policy, requiring receipts for expenditures over $25. Personal entertainment will be reimbursed only when an employee entertains a "business-related individual."

- Compliance with the travel reimbursement policy is part of the Blues' corporate code of business conduct.

- The board also adopted a policy for corporate contributions. Priority will be given to events that promote physical activity and wellness, healthy lifestyles and education, organizations dedicated to curing illness and educating the public, and health care organizations.

Pomeroy said he is generally encouraged by Blue Cross Blue Shield's response to the report, which he said is the most extensive ever undertaken by his department of the company, which insures half the state's population.

"The tenor of the response today sounds on the whole positive, acknowledging that mistakes were made and even apologizing for some of them," Pomeroy said. "I think that's good. I think it means our report was right on the money."

Hall and Unhjem defended the annual board retreats and the board's attendance at a regional health financing conference, which combined, cost about $100,000 a year. Board members are unpaid, though are reimbursed for expenses, and the two events are educational, the pair said.

Yes, but should that include expenditures such as cocktails, golf, golf lessons, as documented in the audit -- for board members and their families? reporters asked.

"I don't think it should have been," Hall said. In light of the report, policies on acceptable expenditures for board retreats will be re-examined, he said. "We're taking this report very seriously."

Unhjem and Hall said the report must be taken in the context of an organization with annual premiums of $415 million and an annual operating budget of $54 million. The company ranked second among 68 in the nation in areas including market share, financial strength and customer service.

"Four years worth of vouchers, the department reviewed every one of them," Unhjem said. "They found a handful of errors." Unhjem reiterated that the company's monthly administrative expenses, $9.14 a member, are the lowest in an eight-state region, and the Blues last year refunded $11 million to subscribers.

But Pomeroy said that regulators must remain vigilant. He noted recent Senate subcommittee investigations into a handful of East Coast Blue Cross organizations plagued by gross mismanagement and profligate administrative spending.

While the North Dakota Blues problems were not nearly so severe, Pomeroy said, "These plans need to be watched carefully because a corporate culture can develop."