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Blue Cross and Blue Shield program moves forward
Eileen Smith leads the initiative for UW Medical School
By Dian Land
 With all legal challenges to the sale of stock from Cobalt Corporation finally removed, the two Wisconsin medical schools have begun moving forward to execute the state insurance commissioner's order to use the funds for education, research and public health.
Cobalt Corporation was formed in March 2001 when Blue Cross & Blue Shield United of Wisconsin converted to a for-profit health insurance company. The transfer of the proceeds from the sale of the stock to the medical schools is meant to compensate for the years when, as a non-profit company, Blue Cross & Blue Shield did not have to pay taxes. When all or a portion of the 31.3 million common shares of Cobalt stock are sold the schools will split the proceeds, which could amount to between $150 million and $300 million for each, depending on the value of stock at the time of the sale.
At University of Wisconsin Medical School, Eileen Smith will head the initiative school leaders believe will be profoundly transforming. A former senior administrator at University of Wisconsin Hospital and Clinics who was integrally involved in its transition to a public authority, Smith was appointed by UW Medical School Dean Philip Farrell, MD, PhD.
"This Blue Cross & Blue Shield gift is so important to the future of the state of Wisconsin and to the Medical School that we knew we had to recruit a person who was proven in terms of talent, performance, sensitivity, and both organizational and communication skills," Farrell says. "In my mind, there was no one else for the job but Eileen Smith."
In 22 years at UW Hospital, Smith directed human resources, quality improvement, risk management, patient relations and other functions. With former hospital president and chief executive officer Gordon Derzon, she oversaw the complicated, three-year process of changing the hospital from a state entity to a public authority.
During those years, Farrell and Smith also served together on the board of directors of the Madison Ronald McDonald House, a home away from home offering lodging for families of children being treated at UW Children's Hospital and other Madison hospitals. Smith is now president of the board.
Smith began the Blue Cross & Blue Shield assignment last October, and now is devoting all her energies to it.
"This is an extremely challenging initiative, in some ways as challenging as the reorganization of the hospital was, or more so," Smith says. "Once again we are bringing together many elements to build an infrastructure and a process that will serve us well in making sound decisions."
With the assistance of an ad hoc screening committee, Smith has begun the meticulous process of screening potential members of the Public and Community Health Oversight and Advisory Committee (PCHOAC), who will be selected by the UW Board of Regents. Each medical school is required to create a PCHOAC comprising four university members, four public members and one member appointed by the insurance commissioner.
The committees will approve the use of the public health funds, which must total 35 percent of the total funds generated by the proceeds of the conversion. The PCHOAC will also review, monitor and report to the Board of Regents on funds committed for medical research and healthcare provider education, representing 65 percent of the proceeds.
The Blue Cross & Blue Shield gift offers a unique opportunity to advance the health of the people of Wisconsin, Smith says. "It also challenges us to attempt to make sure that the proceeds support Medical School initiatives that have the greatest potential to improve the public's health," she says. "We will strive to ensure that the decision-making process for use of these funds is fair and understandable and follows the requirements specified in the insurance commissioner's order."
Smith expects the PCHOAC screening and selection process will be completed by the end of the summer. The first major task of the committee will be to participate in the development of a five-year expenditure plan for distribution of the proceeds.
A brief overview of the Blue Cross and Blue Shield gift
- In 1999, Blue Cross and Blue Shield United of Wisconsin (BC/BS) submitted an application to the Wisconsin Office of the Commissioner of Insurance to convert to a for-profit stock corporation. BC/BS proposed to transfer 100 percent of its value to a new public health foundation. Over time, the foundation would sell its shares in the converted BC/BS and divide the proceeds equally between University of Wisconsin Medical School and the Medical College of Wisconsin.
- A consumer coalition contested the BC/BS proposal, arguing for the creation of an independent public health foundation to determine how the proceeds should be spent.
- In March 2000, the insurance commissioner approved the conversion proposal with several modifications meant to provide for public participation in, or accountability for, management of the conversion funds.
- Major modifications by the insurance commissioner to the BC/BS proposal included:
- Establishment of the Wisconsin United for Health Foundation Board. The board's primary purpose is to provide a vehicle to realize the full value of BC/BS and transfer those funds to the medical schools. The foundation will also review and approve the revised five-year expenditure plans submitted by the medical schools to ensure compliance with the insurance commissioner's order.
- Thirty-five percent of the funds generated by the proceeds of the conversion must be directed toward improving public health in the state. These funds must be distributed in collaboration with community organizations. The schools may use the remaining sixty-five percent for research and healthcare provider education. Funds cannot be used to replace resources otherwise available.
- The governing board of each medical school is required to create a nine-member Public and Community Health Oversight and Advisory Committee (PCHOAC), consisting of four university members, four public members and one member appointed by the insurance commissioner. In collaboration with its respective medical school, the committee will direct and approve the use of the public health funds. The committee will also review, monitor and report to the governing boards on funds committed for medical research and healthcare provider education.
- On March 21, 2002, the Wisconsin Supreme Court denied the petition for review filed by the consumer groups, ending all legal challenges involving the conversion.
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