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ST. LOUIS-Blue Cross & Blue Shield of Missouri is appealing a state court judge's ruling that its creation and operation of a for-profit subsidiary exceeds the plan's authority.

Separately, the Blues plan said it is negotiating a possible "business combination" with St. Louis-based BJC Health System, the largest health care provider in the St. Louis area. The court case is not expected to interfere with those discussions, a spokeswoman said.

If the Blues plan's appeal is unsuccessful, the lower court's decision could lead to the dissolution of the for-profit unit-called Right-CHOICE Managed Care Inc.-though Cole County Circuit Court Judge Thomas Brown III said the court will consider "reasonable alternatives."

Insurance Commissioner Jay Angoff and the Missouri Department of Insurance are not seeking to dissolve RightCHOICE, a department spokesman said. Instead, regulators are asking the Blues plan to designate a "reasonable," though unspecified, amount of assets to support expanded health care coverage for the state's underinsured, he said.

The department and the state attorney general's office, which is also a party in the case, had been negotiating with BC/BS of Missouri in May when the Blues filed suit, asking that the state offices be barred from taking any action against the health care organization.

In his Dec. 30 ruling, Judge Brown revised his Sept. 9 decision that had favored the Blues plan (BI, Sept. 23, 1996).

RightCHOICE, now the largest managed care provider in the state, serving 1.8 million members, was organized in 1994. The company's stock is traded on the New York Stock Exchange, with BC/BS of Missouri owning 80% of its outstanding shares.

RightCHOICE assumed the Blues plan's managed care business, while BC/BS continues to operate non-profit health plans, including traditional indemnity insurance programs, court papers show.

By continuing to operate in its new corporate structure, BC/BS of Missouri "has continued to act contrary to its purposes as a non-profit corporation operating as a health services corporation," Judge Brown ruled. In addition, the Missouri Blues' contention that the reorganization was necessary for its survival as a non-profit business "lacks factual support," he wrote.

The judge suspended further proceedings pending an appellate review of the judgment.

BC/BS of Missouri filed an appeal of Judge Brown's decision with the state appellate court in Kansas City on Jan. 9, and the Missouri Insurance Department and the attorney general's office responded with a cross-appeal last week.

The Blues plan said Judge Brown's decision is "not the final word. In fact, this is just the beginning of a legal process to clarify how Missouri law truly applies within the context of a dramatically changing health care industry."

Meanwhile, BC/BS and Right-CHOICE said last week it had reached an agreement with BJC Health System, which owns 13 hospitals and seven nursing homes throughout central Missouri and southern Illinois, to pursue an "in-depth analysis of a possible business combination or other form of strategic alliance or affiliation." The two parties agreed to negotiate on an exclusive basis through March 18. Talks between the two organizations had been rumored for several weeks.

BC/BS said integration of the two health care delivery and financing systems "may offer potential benefits for both organizations and their constituencies." The announcement notes discussions are still preliminary, and the structure and terms of any alliance have not been determined.

The BC/BS spokeswoman said "nothing in Judge Brown's ruling stops us from carrying out our day-to-day activities or exploring any business opportunities," though any eventual arrangement would require regulatory approval.

The Insurance Department spokesman said the department would not take action on any proposal until it receives a full application.