NOLA.COM: Inside the Collapse of the Blue Cross Merger

Dr. Steve Udvarhelyi, president and CEO of Blue Cross and Blue Shield of Louisiana, smiled confidently as he made the rounds in a crowded hallway at the Louisiana State Capitol.

It was the morning of February 5. That day, a state legislative hearing would bring tough questions about his $2.5 billion plan to sell Blue Cross to one of the nation’s largest insurers, Elevance Health. But there was reason to feel good.

Blue Cross and Elevance had some of the state’s most powerful lobbyists in their corner and had spent some $20 million to get the deal over the finish line. Votes from policyholders were piling up, and days earlier, Gov. Jeff Landry had touted some of the benefits of the sale in a speech to the state’s hospital executives.

Then came seven hours of pointed questions and unrelenting criticism. By the time Udvarhelyi and his colleagues emerged from the Capitol, the deal was on life support.

Eight days later, it died.

The state Senate hearing was a turning point in the 13-month process of trying to win the approval of Blue Cross policyholders and state insurance regulators to sell the 90-year-old Louisiana Blue Cross to Indiana-based Elevance, according to interviews with nearly a dozen people involved in the transaction.

It exposed how Udvarhelyi and his advisers were caught flat-footed by some of the political aspects of the deal, leading a chorus of lawmakers, statewide elected officials and the powerful Louisiana Hospital Association to voice their opposition.

The rationale Udvarhelyi had offered for the deal was that Blue Cross needed to sell to compete in a changing insurance market. Costs were piling up and Blue Cross wouldn't have the money to invest for the long term. But that was overshadowed by the complaints of policyholders, Elevance’s regulatory issues in other states and worries about political influence in a $3 billion foundation that would have resulted from the sale.

And days later, on Lundi Gras and Mardi Gras and with a two-day hearing with Insurance Commissioner Tim Temple set to begin on Ash Wednesday, Blue Cross board members decided that it was time to pull the plug.

“It was a combination of everything,” said a person close to the deal. “It was all fine and then all of a sudden it wasn’t.”

Blue Cross and Elevance declined to comment for this article or make Udvarhelyi and other executives available interviews. In the Blue Cross announcement last week, the company said the transaction was "on pause." 

But interviews with multiple people involved in the transaction or with close knowledge of the deal, who were not permitted to speak for attribution, said the acquisition attempt is effectively over — at least for the time being — and shed light on how it all fell apart.

A yearlong battle

Elevance and Blue Cross, which serves 1.9 million Louisiana residents, first announced the proposed acquisition in January, 2023. They spent months working towards closing the deal, preparing for regulatory scrutiny, meeting with stakeholders and, in August, addressing lawmakers.

Still, the deal drew critics, including Landry, who was then attorney general. Before the Insurance Commission could hold a hearing required to approve the deal, Blue Cross sought a delay.

By December, a revised deal was back on the table. The changes included offering the new governor, Landry, a change to appoint a board member to the foundation, known as Accelerate Louisiana, while Temple would get a nonvoting seat.

But the concerns remained. Policyholders complained about how much of the deal’s proceeds they stood to receive. Doctors and hospitals worried about negotiating reimbursements with a larger company.

Lawmakers — notably, many traditionally pro-business Republicans — feared rising health insurance costs.

The pivotal week

All of those concerns came to a head during the legislative hearing.

Though Udvarhelyi was serving as the public face of the transaction, the veteran insurance executive's expertise is in health care finance, not politics. Others on his team seemed more at ease with the jocular style of state lawmakers. They included Morgan Kendrick, Elevance Executive Vice President; Tim Barfield, a prominent businessman and former aide to Gov. Bobby Jindal who is now a Blue Cross board member; and Blue Cross Chief Strategy Officer Darrel Langlois, who was among those helping Udvarhelyi craft the deal to sell to Elevance.

The companies also had some of the state’s best-known and priciest experts on their side. Blue Cross had retained the McGlinchey law firm, lobbyists Southern Strategy and crisis communications firm Harris DeVille. Elevance had the Cornerstone Group doing its local lobbying and the Ehrhardt Group handling public relations.

On paper, the teams were formidable. But four sources close to the deal said the companies never closely coordinated messaging or marketing. Blue Cross and its team took the lead in governmental relations and assured officials and advisers with Elevance they had everything under control.

The hearing Feb. 5 shattered that presumption. State lawmakers took turns lobbing precise questions about the structure of the deal, what selling to Elevance could do to premiums and the set-up of Accelerate Louisiana.

They also took aim at the process used to solicit proxy ballots from policyholders, who needed to approve the deal, pointing to potential irregularities and raising allegations of vote steering.

“That was not your typical legislative hearing,” said a source close to the deal. “That was an organized action.”

When the Blue Cross and Elevance teams left, Barfield looked exhausted. Udvarhelyi appeared annoyed. Kendrick felt blindsided, according to four people who said Elevance officials had been assured repeatedly that everthing was in good hands.

Two days later, the joint senate Insurance and Health and Welfare committees issued a blistering report that challenged virtually every aspect of the deal.

A day after the committee report was issued, the powerful Louisiana Hospital Association came out against the deal. Popular talk-radio host Moon Griffon railed against it. Two dozen Republican senators sent a letter to Temple opposing the deal and stating, "there does not seem to be a single aspect of the proposal that we believe can be redeemed at this point."

On Friday, as New Orleans was shutting down for Mardi Gras and Baton Rouge was preparing for the Spanish Town parade, state Treasurer John Fleming added his name to the list of opponents. Attorney General Liz Murrill would follow.

“I think the hearing shed so much negative light on the deal, people started to jump in and pile on,” said state Sen. Patrick McMath, R- Covington, who chairs the Health and Welfare committee and organized the hearing.

Still, throughout the weekend, the deal was still on. Insurance regulators skipped parades to prepare for what was expected to be a marathon two-day hearing beginning Ash Wednesday.

The votes

As political pressure and the public relations battle had been intensifying, policyholder votes were rolling in.

In addition to Insurance Commission approval, a second hurdle for the deal was getting two-thirds of some 95,000 Blue Cross policyholders to give their assent.

On the same week as the legislative hearing, Barfield had provided testimony where he acknowledged that proxy votes weren’t looking great for Blue Cross, according to a transcript of his remarks.

“If these were the only proxies we got and nobody changed them, we would probably lose,” Barfield said of the votes at the time. He added that he thought the vote “was close” and that Blue Cross was losing by “a couple of percentage points.”

Blue Cross would not comment on Barfield’s testimony, but two sources familiar with the situation say the proxy votes had not shifted in Blue Cross' favor during the week leading up to Mardi Gras.

A last-minute call

By Lundi Gras, executives at the two insurers were nervous. Throughout that day and into Fat Tuesday, they went back and forth on calls and emails discussing whether they should proceed with the hearings, according to multiple sources familiar with the discussions.

Of particular concern was the proxy voting process. Legislators had questioned whether calls being made to solicit votes and marketing material sent to policyholders were biased in favor of the deal.

Regulators planned to grill Blue Cross officials about it.

Around 5:30 p.m. on Mardi Gras, Blue Cross called the Insurance Commission with questions about the withdrawal process. They also sought to understand their options related to the voting process if they decided not to go forward with the hearing, according to Insurance Commission spokesman John Ford.

Around 8 p.m. that night, as most of Louisiana was finishing up Carnival season and the courts of Rex and Comus were preparing to meet in New Orleans, the board of Blue Cross, the largest insurer in the state, held a conference call. The insurance commission hearings were just 12 hours away.

After nearly an hourlong discussion, they voted unanimously to withdraw the application that was required for the deal.

Shortly after the board vote, Blue Cross officials notified Elevance of their decision.

At 10:30 p.m., they called Temple’s office to say the deal was off.