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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| IN RE: APPLICATION OF ANTHEM HEALTH PLAN OF
MAINE, INC., TO ACQUIRE 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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ANTHEM INSURANCE COMPANIES, INC.’S FIRST
SUPPLEMENT TO RESPONSE TO SECOND DISCOVERY REQUEST OF SUPERINTENDENT OF INSURANCE
December 23, 1999 |
Applicant Anthem Insurance Companies, Inc., on behalf of its subsidiary to be formed,
Anthem Health Plans of Maine, Inc., d/b/a Anthem Blue Cross and Blue Shield (collectively
"Anthem"), hereby submits its First Supplement to the Second Discovery Request
of the Superintendent of Insurance, dated December 3, 1999, as follows:
The following responses by Anthem are subject to the objections and clarifications
previously filed by Anthem on December 10 & 17, 1999. To the extent that any
additional responsive documents are located in the future, Anthem reserves its rights to
object to producing such documents to the extent covered by the attorney-client and or
work product privileges.
- Please provide all Exhibits and Schedules to the Asset Purchase Agreement not
provided to date including, but not limited to:
- All written materials, including but not limited to management communications,
workpapers, Board minutes, internal memoranda, et cetera regarding the condition to
closing that Purchaser acquire Patriot Mutual’s interest in Machigonne, Inc. as
identified in Section 8.03(n).
| Response: |
In its initial response to this question in
the Superintendent’s Discovery Request, Anthem referenced that certain documents
responsive to the request were privileged. To supplement this response, the following
constitutes Anthem’s privilege log for this response:
- e-mail written by internal counsel dated 11/8/99 to David Frick, Jim Parker
and John Kreitler regarding discussions with the Attorney General and proposed next steps
- e-mail written by John Kreitler to internal counsel dated 4/19/99 regarding proposal
for and negotiations toward possible purchase of BCBSME
- e-mail dated 1/20/99 written by internal counsel to David Frick, Mike
Smith (at that time SVP-Finance), Patrick Sheridan (then CFO), Cindy Miller (VP and Chief
Actuary), Douglas Gettelfinger (VP-Tax) and John Kreitler regarding the first draft of
Anthem’s response to Salomon Smith Barney’s request for proposal.
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- Please provide additional support for the $5.00 reduction in purchase price per one
dollar shortfall in financial projections including:
- Example of the "Benchmark Earnings" amount assuming a June 30, 2000 close
date,
- Example of the "Closing Earnings" amount assuming the Financial Projections
are realized (that is, are "Closing Earnings" annualized?),
- Rationale for using a multiple earnings adjustment to the purchase price based on a
short-term, retrospective (at closing) measurement period,
- Rationale for using the Earnings Shortfall adjustment per Section 2.07 of the Asset
Purchase Agreement in addition to the Book Value Shortfall adjustment, and
- Discuss how; as described in Anthem’s response to the First Discovery Request,
"Anthem’s assessment of the content and trends reflected in the Benchmark
Projections developed by BCBSME" support the $5.00 per $1.00 Earnings Shortfall
adjustment.
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Response: |
The Benchmark Earnings will be the
annualized pretax income of the Business based on the period between the start date of the
Financial Projections, and the Closing Date, as shown on the Financial Projections. The
Closing Earnings will be the annualized pretax income of the Business based on the period
between January 1, 1999 and the Closing date, as shown on the Closing Income Statement,
with certain Y2K expenses added in accordance with the definition of "Closing
Earnings" in the Asset Purchase Agreement.
The rationale for using the Earnings Shortfall Adjustment and the Book Value Shortfall
was that a reduction in anticipated earnings (also reflected as a reduction in projected
net worth or book value) from those shown in the Financial Projections will reduce the
value of the Business from that which was assumed by Anthem in negotiating the purchase
price. The purchase price Anthem was willing to pay was based on industry multiples of
anticipated earnings with the requisite balance sheet. It was agreed to use a $5.00
reduction for reduced earnings and $1.00 reduction for reduced book value, capped,
however, at a maximum of $17.5 million. The same methodology was used in the agreements by
Anthem to acquire the Blue Cross and Blue Shield plans in Colorado and New Hampshire.
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- Please describe, in detail, and provide workpapers and supporting documentation,
regarding Purchaser’s agreement to establish a Local Advisory Board as identified in
Section 5.11(b) of the Asset Purchase Agreement. Specifically, but not by way of
limitation, please include as a part of the response (i) the stated purposes of the Local
Advisory Board; (ii) the term of existence of the Local Advisory Board; and (iii) other
specific details regarding such Local Advisory Board.
| Response: |
Attached hereto (AN-01648 to AN-01649) is a
draft of the charter for the Local Advisory Council reflecting the Council’s purpose,
objectives, structure and membership responsibilities. |
- Please provide copies of completed statutory Risk Based Capital worksheets
supporting statutory Risk Based Capital calculations for the following companies as of the
following Annual Statement dates:
- Anthem Insurance Companies, Inc. (IN) as of December 31, 1998, December 31, 1997 and
December 31, 1996.
- Anthem Health Plans, Inc. (CT) as of December 31, 1998 and December 31, 1997.
- Community Insurance Company (OH) as of December 31, 1998, December 31, 1997, and
December 31, 1996.
- Southeastern United Corporation (KY) as of December 31, 1998, December 31, 1997, and
December 31, 1996.
- Blue Cross and Blue Shield of New Hampshire as of December 31, 1998, and December 31,
1997.
- Matthew Thornton Health Plan as of December 31, 1998, and December 31, 1997.
- Blue Cross and Blue Shield of Colorado as of December 31, 1998, and December 31, 1997.
- HMO Colorado as of December 31, 1997 and December 31, 1998
| Response: |
CONFIDENTIAL RESPONSE REDACTED. |
- Please provide copies of completed worksheets supporting Blue Cross Blue Shield
Association (BCBSA) capital benchmark calculations for all companies referenced under Item
#18 as of the corresponding Annual Statement dates referenced under Item #18.
| Response: |
CONFIDENTIAL RESPONSE REDACTED. |
- Please provide copies of all Actuarial Opinions and supporting Actuarial Memoranda,
including Asset Adequacy Analysis performed in support of such Memoranda, for all
companies referenced under Item #20 as of December 31, 1998.
| Response: |
The final portion of the response to the
request, the Actuarial Opinion as of December 31, 1998 for Matthew Thorton Health Plan, is
attached (AN-01966 to AN-01968). |
Financial Projections / Analyses
- Please provide pro-forma and projected Anthem balance sheets and income statements,
both consolidated and at the Blue Cross company level and on a GAAP and statutory basis,
comparable to those provided regarding Blue Cross and Blue Shield of Maine. The
projections at the consolidated level should include operations from the anticipated
mergers with the New Hampshire, Colorado, and Maine Blue Cross plans.
| Response: |
CONFIDENTIAL RESPONSE REDACTED. |
- Please provide, on both a GAAP and statutory basis, company level and consolidated
financial projections demonstrating Anthem’s proposed capitalization and capital
adequacy for the Indiana parent company and all current and pending Blue Cross
subsidiaries in Ohio, Kentucky, Connecticut, New Hampshire, Colorado, and Maine. Include
in such projections comparisons of each Blue Cross plan’s capitalization compared
with regulatory and / or rating agency prescribed capital benchmarks such as statutory
Risk Based Capital requirements, BCBSA capital benchmarks, and S&P capital adequacy
benchmarks.
| Response: |
CONFIDENTIAL RESPONSE REDACTED. |
- Please provide documentation of the proposed share service, regional, and state
administrative management structure proposed for Blue Cross and Blue Shield of Colorado.
| Response: |
Anthem is in the process of developing a
shared service, regional and state administrative management structure for Blue Cross and
Blue Shield of Colorado and will provide the Bureau with documentation as soon as it is
available. |
- Please identify all civil actions, other than claims disputes, involving Anthem
Insurance Companies, Inc. or any of its insurance subsidiaries or affiliates initiated
from January 1, 1997 to the present. For each action identified, set forth the names of
the parties, the jurisdiction of the action, the Docket number (if any), the status, the
amount set aside in reserve to cover the contingent liability, and, if settled or subject
to judgment, provide a copy of the relevant legal documentation evidencing the final
outcome of the action. Please include a summary of the issues in dispute.
| Response: |
CONFIDENTIAL RESPONSE REDACTED. |
- CONFIDENTIAL REQUEST – REDACTED.
| Response: |
CONFIDENTIAL RESPONSE REDACTED. |
DATED: December 23, 1999
________________________________________
James B. Zimpritch, Esq.
Jeffrey M. White, Esq.
Catherine R. Connors, Esq.
Attorneys for Anthem Insurance Companies, Inc.
PIERCE ATWOOD
One Monument Square
Portland, ME 04101
(207) 791-1100
CERTIFICATE OF SERVICE
The undersigned hereby certifies that on December 23, 1999 a copy of the
Non-Confidential Version of Anthem Insurance Companies, Inc.’s First Supplement to
Response to Second Discovery Request of the Superintendent of Insurance was served by
electronic mail, or, where indicated, by hand delivery, on each of the persons listed
below. Additionally, the Non-Confidential Version of Anthem Insurance Companies,
Inc.’s First Supplement to Response to Second Discovery Request of the Superintendent
of Insurance along with the responsive documents were served this day via hand delivery on
those parties so indicated.
Robert S. Frank, Esq.
Harvey & Frank
Two City Center
P.O. Box 126
Portland, Maine 04112
e-mail: frank@harveyfrank.com
(via hand delivery w/responsive documents)
(Blue Cross/Blue Shield of Maine)
Judith Chamberlain, Esq.
State of Maine
Department of the Attorney General
6 State House Station
Augusta, Maine 04333-0006
e-mail: judy.chamberlain@state.me.us
(via hand delivery w/responsive documents)
(Bureau of Insurance)
William H. Laubenstein, Esq.
State of Maine
Department of the Attorney General
6 State House Station
Augusta, Maine 04333-0006
e-mail: bill.laubenstein@state.me.us
(via hand delivery w/responsive documents)
(Office of the Attorney General)
Gregory A. Brodek, Esq.
Duane, Morris & Heckscher, LLP
15 Columbia Street, 4th Floor
Bangor, Maine 04401-6355
e-mail: gabrodek@duanemorris.com
(Maine Health Alliance)
Joseph P. Ditre, Esq.
Consumer Health Law Program
One Weston Court, Level One
P.O. Box 2490
Augusta, Maine 04338-2490
e-mail: jditre@mainecahc.org
(via regular mail w/responsive documents)
(Consumers for Affordable Health Care Foundation/Coalition)
Michele M. Garvin, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
e-mail: Mgarvin@Ropesgray.com
(Central Maine Healthcare Corporation; Central Maine Partners Health Plan)
Robert I. Goldman
Maine Council of Senior Citizens
27 Bowery Beach Road
Cape Elizabeth, Maine 04107
e-mail: Rgoldma1@maine.rr.com
(Maine Council of Senior Citizens)
Bonnie Post
Executive Director of the Maine Ambulatory Care Coalition
P.O. Box 390
Manchester, Maine 04351
e-mail: bdpmacc@mint.net
(Sacopee Valley Health Center, Regional Medical Center at Lubec, Eastport Health Care,
Inc., and the Maine Ambulatory Care Coalition)
John Dieffenbacher-Krall
Executive Director
Maine People’s Alliance
192 State Street
Portland, Maine 04101
e-mail: MPA@gwi.net
(Maine People’s Alliance)
Gordon H. Smith, Esq.
Maine Medical Association
30 Association Drive
P.O. Box 190
Manchester, Maine 04351
e-mail: gsmith@ctel.net
(Thomas D. Hayward, M.D.,
Maroulla S. Gleaton, M.D.,
And the Maine Medical Association)
Donald E. Quigley, Esq.
General Counsel
465 Congress Street, Suite 600
Portland, Maine 04101-3537
e-mail: quigld@mail.mmc.org
(Maine Medical Center)
Sandra L. Parker, Esq.
Attorney for MHA, Inc.
150 Capitol Street
Augusta, Maine 04330
e-mail: sparker@themha.org
(MHA, Inc.)
Kellie P. Miller, M.S.
Executive Director
Maine Osteopathic Association
693 Western Avenue
Manchester, Maine 04351
e-mail: meosteo@mint.net
(Maine Osteopathic Association)
Edward Miller
Executive Director
American Lung Association of Maine
122 State Street
Augusta, Maine 04330
e-mail: emiller@mainelung.org
(American Lung Association of Maine)
DATED: December 23, 1999
_____________________________
James B. Zimpritch, Esq.
Jeffrey M. White, Esq.
Catherine R. Connors, Esq.
PIERCE ATWOOD
One Monument Square
Portland, Maine 04101
(207) 791-1100
Attorneys for Anthem Insurance Companies, Inc.
