MANAGED CARE Blue Cross takes $3M+ loss on building sale BY STEVEN STYCOS

Blue Cross & Blue Shield of Rhode Island recently sold its headquarters building to former Providence mayor Joseph R. Paolino Jr., losing $3.3 million on the transaction. According to its third quarter filing with the state Department of Business Regulation, Blue Cross sold the building at 444 Westminster Street in downtown Providence to Paolino for $3.14 million. The report lists the building’s value as $6.43 million and indicates that BC&BS lost $3,291,814 on the sale.

Paolino insists that the sale price reflects the building’s actual value. Blue Cross refused comment. "We don’t discuss in the newspaper our business," says Scott Fraser, Blue Cross’s assistant vice president of public affairs. "We’re a private company."

But Blue Cross’s critics, who have hammered the huge health insurer for spending premium dollars on expensive advertising and generous corporate salaries while amassing hundreds of millions of dollars in reserves, call the sale another example of financial mismanagement. "With reserves of almost $300 million," comments Marti Rosenberg, executive director of the union and community group coalition Ocean State Action, "it seems they could have waited for a price that was more fair, and not taken a 50 percent loss."

According to deeds filed at Providence City Hall, Blue Cross sold the building August 7, 2003 to 56 Associates, a limited partnership controlled by Paolino, and then leased it back until January 31, 2005. When Blue Cross subcontracted its claims-processing to Perot Systems Corporation, Paolino says, it no longer needed such a large building. Within a year, the embattled insurer plans to move its administrative offices to a building it owns across the street from the Providence Civic Center, Paolino relates.

Paolino defends the price he paid for the building, saying that the City of Providence has over-assessed many downtown office buildings. To buttress his case, he lists several buildings recently sold at less than their assessed value. He also cites a March 2002 decision by Superior Court Judge Patricia Hurst that reduced the assessment of the Turks Head Building from $11 million to $5 million.

The Blue Cross building is assessed at $6.3 million, but Paolino is appealing the amount in Superior Court. The assessment should be $3.1 million, he says, because the building contains asbestos that will be costly to remove, and because the leases for Blue Cross and Perot expire in a year.

Rosenberg, however, says the building sale is "one example of many" pointing to the need for stronger regulation of Blue Cross, a nonprofit corporation. Attorney General Patrick Lynch, whose responsibilities include oversight of charitable assets, was not aware of the sale before learning of it from the Phoenix. But his predecessor, Sheldon Whitehouse, says there is little Lynch could do to block Paolino’s purchase under state law. Unless a conflict of interest could be shown involving the buyer, Whitehouse says, Lynch would have to prove "[that] no reasonable person would have agreed to the transaction. It’s not enough to say they could have done better."