Document 108 : Docket No. 99-14 : Hearing Decision : Bureau of Insurance

STATE OF MAINE

DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION

BUREAU OF INSURANCE

In Re:

Application of Associated Hospital Service of Maine d/b/a Blue Cross and Blue Shield of Maine to convert to a Stock Insurer
and Voluntarily Liquidate and Dissolve

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ASSOCIATED HOSPITAL SERVICES OF MAINE D/B/A/ BLUE CROSS BLUE SHIELD OF MAINE ‘S MOTION FOR SUPPLEMENTAL PROTECTIVE ORDER

In Re:

Application of Anthem Health Plan of
Maine, Inc. to Acquire the Assets of Associated Hospital Service of Maine d/b/a
Blue Cross and Blue Shield of Maine and
Related Transactions

Docket No. INS-99-14
(Consolidated)

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Blue Cross Blue Shield of Maine ((Associated Hospital Services of Maine d/b/a/ Blue Cross Blue Shield of Maine) requests the Superintendent to issue a supplemental protective order for limited portions of its responses to the Superintendent’s Second Information Request. All of the responses and documents that are the subject of this motion have been or are in the process of being provided to the Superintendent and the Attorney General, accompanied by a request for in camera treatment pending a decision on this motion by the Superintendent.

This information for which a supplemental protective order is sought are the following:

A. Security

1) BCBSME bank account numbers;

B. Extreme Competitive Sensitivity

2) Certain numerical salary and compensation information of identified BCBSME officers and employees;

3) Strategic business and financial documents of MPHP and CMPHP;

4) The financial terms of contracts between BCBSME and certain parties: Merck/Medco and Blue Cross Blue Shield of Minnesota;

5) Financial terms of BCBSME provider contracts and the requested listing of which terms have varied among providers;

6) That portion of BCBSME financial statements that reflect customer specific pricing and account information;

C. Bid Integrity

7) Documents reflecting the terms of affiliation proposals made to BCBSME, and BCBSME and its consultants evaluation of those proposals.

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Today, BCBSME is in the process of producing responses to over 100 questions in the Superintendent’s Second Request, and approximately 13,000 pages of documents. These responses and documents needed to be culled from sources inside and outside the company, number-stickered, preliminarily classified for confidentiality purposes, and photocopied in the span of a few days.

These discovery imperatives have not permitted the issues raised by the disclosure of this information to be fully briefed at this time. But the issues raised by this motion are of great import to the Company. BCBSME requests the Superintendent to set a prompt briefing and hearing schedule on this motion.

This memorandum outlines the basis for BCBSME’s motion.

ARGUMENT

The current protective order issued by the Superintendent on October 19, 1999 divides the universe of information to be produced by parties to this proceeding into two spheres: 1) non-confidential, and thus viewable by the public; and 2) confidential, viewable only by those who sign a confidentiality agreement restricting further use and further disclosure.

For the vast majority of the information to be generated, this protocol is well suited to the task. But the division of the information universe into two parts cannot fully reflect the fact that there is a spectrum of relevance in the information to the issues at hand, as well as a spectrum of business sensitivity if the information is inadvertently disclosed despite good faith efforts to comply with the current protective order. Some of the information produced goes to the very core of the statutory criteria that the Superintendent must apply in adjudicating the application. Other information may be pertinent to the subject matter (the normal criterion for discovery in judicial proceedings), but of marginal relevance to any matter likely to be genuinely at issue.

There is also variability in the level of confidentiality concerns associated with this information. Some information may be marginally confidential, in the sense that while the information is not known, there may be little harm to the source if it were known. Other information may if disclosed seriously compromise a company’s business interest.

There will always be uncertainty around the margins as to what it means to "use" confidential information. The Superintendent should rightfully expect that no party to the confidentiality agreement will ever disseminate discovery documents that are marked confidential. Nor presumably will a party to the agreement ever quote chapter and verse from a restricted document. But the human mind being what it is, once the information is mentally processed it is not easily erased from memory or business "world view". And while a person exposed to such information may not ever disclose it in the form it was received, such information even if not expressly disclosed can influence advice given to others, or may be shared in a summary form. This may not be conscious "use" of the information. And such "use" is highly unlikely ever to come to the attention of the parties whose information is "used" in this way. It is a concern that a protective order can never fully satisfy.

Finally, there is the risk that through accident, mistake or inadvertence certain information designated as confidential may be disclosed. This does happen, although often not acknowledged.

For most of the information produced, the current protective order strikes the correct balance between relevance, risk and protection. But BCBSME believes that there are certain limited categories of information where further protection is in order. The information in question – or at least the form in which it is revealed in some of the documents – is of marginal relevance, but the information is highly sensitive, and the inadvertent disclosure of such information could do serious harm to BCBSME. For such information, BCBSME requests that the Superintendent restrict either the form in which such information is produced, or the universe of parties that may view it (or both), and in some cases, restrict the view of the detailed information to an in camera review.

The remainder of this memorandum describes the information at issue, and BCBSME’s particularized request for further protection concerning this information.

A. Security

1) BCBSME bank account numbers

Certain of the requested financial information produced by BCBSME happens to list the numbers of BCBSME bank accounts. In this proceeding , no intervenor should have any need to know of these bank account numbers. Yet the inadvertent disclosure of such information could expose the Company to theft. The risk is small, but unnecessary. BCBSME requests that either such information be viewed on in camera but the Superintendent, or that BCBSME be permitted to redact such information from the copies submitted to intervenors.

B. Extreme Competitive Sensitivity

2) Certain numerical salary and compensation information of identified BCBSME officers and employees

Request No. 45 request BCBSME to list the compensation for each of its senior executives for the 1997, 19987 and 1999. Other requests seek information about agreements with company employees to retain their services for a period of time sufficient that would post-date the closing with Anthem Insurance Companies.

The historical salary information is of marginal relevance to any of the issues in this proceeding. More relevant are the generic form of retention agreements, as are the form "change of control" agreements, since the statutory scheme requires an inquiry into how compensation could change as a result of a conversion. There are, however, no agreements between current BCBSME officer and employees and Anthem Insurance Companies. There are also no agreements that condition an increase in compensation to a BCBSME officer or employee on a successful closing of the transaction with Anthem.

As a company in the process of being sold, BCBSME is extremely vulnerable to employee defection. The inadvertent disclosure of particularized compensation information to a competitor could significantly assist the recruiting efforts of a firm interested in hiring away key BCBSME employees at this critical time. Even the disclosure to others in the company could damage morale. There is little need to disclose officer or employee-specific numerical compensation information in this proceeding, but there are great dangers if the information is unintentionally disclosed.

Accordingly, BCBSME request that the historical salary information be viewed by the Superintendent in camera. BCBSME also requests that it be permitted to provide to intervenors the retention agreements and change of control agreements redacted so as to omit the names and numerical financial terms. The Superintendent’s order in this latter regard would be without prejudice to an intervenor making a particularized showing that the disclosure of the names and/or financial terms was necessary for the proper resolution of an issue in the proceeding..

3) Strategic business and financial documents of MPHP and CMPHP.

CMPHP and MPHP are parties to this proceeding, as are their principal non-insurance company shareholders. Even though these plans currently have distinct service areas, there is the prospect of rivalry among the plans and their non-insurance company stockholders for future expansion. BCBSME believes that these entities are represented in this proceeding by their regular counsel who advise them on other matters.

The documents request by the Superintendent include financial statements and projections for each of the Partners plans, and minutes of Partners’ board meetings. In BCBSME’s view, it would be inappropriate for Central Maine Health Care’s or Maine Medical Center’s counsel to see such information for their counterpart, especially when there is no need to do so. BCBSME requests that the Superintendent review such information in camera, and require disclosure to selected intervenors only if it proves necessary for the proper adjudication of an issue in genuine dispute.

4) The financial terms of contracts between BCBSME and certain parties: Merck/Medco and Blue Cross Blue Shield of Minnesota.

These precise financial terms of these documents should be of little or no interest to intervenors. Yet their inadvertent disclosure would be of great interest to competitors of Blue Cross. BCBSME request that BCBSME requests that the Superintendent review such information in camera, and require disclosure to selected intervenors only if it proves necessary for the proper adjudication of an issue in genuine dispute. Alternatively, BCBSME request that it be permitted to provide requesting intervenors with the agreements redacted to exclude their financial terms. The latter would be without prejudice to an intervenor making a particularized showing that the disclosure of the financial terms was necessary for the proper resolution of an issue in the proceeding..

5) Financial terms of BCBSME provider contracts and the requested listing of which terms have varied among providers

The Superintendent’s request requires BCBSME to disclose its provider contracts, including a listing of terms its standards contracts that from time to time have negotiated to suit the interests of BCBSME and particular providers.

A number of providers and their trade associations have intervened in this proceeding. Were they or their counsel privy to knowledge as to what hospital or physician reimbursement clauses BCBSME has been willing to negotiate, and on what terms, they would be hard pressed to affirm that such knowledge could in no way influence their negotiation or advice in negotiation on future contracts with BCBSME or with other providers. By contrast, the information is likely to be of little or no relevance to any issue contested by an intervenor in this proceeding.

BCBSME requests that in providing such information be viewed in camera by the Superintendent and the Attorney General. This stipulation, however, would be without prejudice to an intervenor making a particularized showing that the disclosure of the such information was necessary for the proper resolution of an issue in the proceeding..

6) That portion of BCBSME financial statements that reflect large-customer specific pricing and account information.

For information purposes, BCBSME has occasionally structured its internal financial reporting to include customer specific financial information on its contracts with certain large accounts. Some of the BCBSME financial information requested by the Superintendent contains information displayed in this form. The information is very sensitive competitively. If inadvertently disclosed, this information would permit a BCBSME competitor to learn almost precisely what BCBSME offered to win the bid of that customer. The financial terms on which BCBSME is serving a large customer is of little or no relevance to this proceeding. BCBSME requests that it be permitted to redact such information from copies submitted to intervenors.

C. Bid Integrity

7) Documents reflecting the terms of affiliation proposals made to BCBSME, and BCBSME and its consultants evaluation of those proposals.

Before negotiating the Asset Purchase Agreement with Anthem Insurance Companies, BCBSME considered various arrangements with other insurance entities, of which Anthem was one, and hired an investment banking firm, Salomon Smith Barney, to develop such proposals and evaluate them. Proposals made to BCBSME were made under explicit or implicit assurances of confidentiality. Salomon Smith Barney provided BCBSME with frank evaluations of these proposals as well as an assessment of BCBSME’s options, including negotiating options.

The Superintendent’s request requires the production of this information. While not necessarily conceding the issue, BCBSME recognizes that such information may be of some relevance to the valuation of BCBSME.

For BCBSME perspective, at this stage – after Anthem’s offer has been accepted, but before regulatory approvals and closing, and while amendments to the Asset Purchase Agreement are yet to be negotiated in the wake of the Attorney Generals’ requested modifications to the charitable trust plan – it would be inappropriate for Anthem to learn of BCBSME’s negotiating strategy and its alternatives at a point in time (early 1999) so near to the present.

BCBSME’s counsel has raised this issue with Anthem’s counsel, and the parties will be discussing this issue further in an effort to insure that all interests are recognized and safeguarded. At the moment however, there is no clear solution to the problem, and BCBSME needs to insure that pending a resolution another intervenor not disclose then information in a manner that might come to Anthem’s attention. BCBSME request that pending further motion to the Superintendent, which would be made no later than January 7^th, that dissemination review of this information be restricted to an in camera review by the Superintendent and Attorney General.

Date: December 17, 1999

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Robert S. Frank

HARVEY & FRANK

Two City Center

Suite 402

Portland, Maine 04112-0126

(207) 775-1300

STATE OF MAINE

DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION

BUREAU OF INSURANCE

In Re:

Application of Associated Hospital Service of Maine d/b/a Blue Cross and Blue Shield of Maine to convert to a Stock Insurer
and Voluntarily Liquidate and Dissolve

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and

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Certificate of Service

In Re:

Application of Anthem Health Plan of
Maine, Inc. to Acquire the Assets of Associated Hospital Service of Maine d/b/a
Blue Cross and Blue Shield of Maine and
Related Transactions

Docket No. INS-99-14
(Consolidated)

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CERTIFICATE OF SERVICE

The above signed person hereby certifies that on November 18, 1999, he caused a copy of the following document to be served by United States mail, first class postage prepaid, on each of the persons listed below.

James Zimpritch, Esq.

Judith Chamberlain, Esq.

Martin Robles, Esq.

William Laubenstein, Esq.

Gregory A. Brodek , Esq. (Maine Health Alliance)

Andrew B. MacLean, Esq. (Thomas D. Hayward, M.D., Maroulla S. Gleaton, M.D., and the Maine Medical Association)

Joseph P. Ditre, Esq. (Consumers for Affordable Health Care Foundation/Coalition)

Michele M. Garvin, Esq. (Central Maine Healthcare Corporation)

Robert I. Goldman (Maine Council of Senior Citizens)

Bonnie Post (Sacopee Valley Health Center, Regional Medical Center at Lubec, Eastport Health Care, Inc. and the Maine Ambulatory Care Coalition)

John Dieffenbacher-Krall (Maine People’s Alliance)

Donald E. Quigley, General Counsel (Maine Medical Center)

(Maine Osteopathic Association)

(Maine Lung Association)