February 29, 2000
|Robert Frank, Esq.
Harvey & Frank
2 City Center
P.O. Box 126
Portland, Maine 04101
Jeffrey M. White, Esq.
One Monument Square
Portland, Maine 04101
Re: Standards and Requirements Sought by MHA in the Course of the BOI Proceedings
Dear Bob and Jeff:
Attached please find a copy of Steven Michauds letter to Messrs. Vangeison and
McGinty, along with the referenced document, "Standards and Requirements Sought by
MHA for Purposes of Protecting Subscriber, Provider and Public Interests in BOI Approval
of Anthems Purchase and Operation of Maine Blue Cross Blue Shield". The
attachment should prove self-explanatory. Mr. Michaud wanted to express his sentiments
directly to BCBSME.
Steve, Sandy Parker and I welcome your thoughts on the appropriate roles, respectively,
for the principals and counsel as MHA seeks to explore earnestly a means by which its
concerns can be addressed through a side agreement or directly in the course of the
pending administrative proceeding.
Further, lest there be any perception on the part of the Superintendent or the parties
that MHA has a hidden agenda, we are copying the designated representatives of each of the
parties as well.
Very truly yours,
John P. Doyle, Jr.
cc: Mr. Steven Michaud
Sandra Parker, Esq.
Alessandro Iuppa, Superintendent (via mail and email)
Judith Chamberlain, Esq. (via mail and email)
William Laubenstein, Esq. (via mail and email)
Keith Vangeison, BCBSME (via email)
Francis McGinty, BCBSME (via email)
Martin Robles, Esq. (via email)
Michele M. Garvin, Esq. (via email)
Gordon H. Smith, Esq. (via email)
Michel LaFond, Esq. (via email)
Gregory A. Brodek, Esq. (via email)
Joseph P. Ditre, Esq. (via email)
Robert I. Goldman (via email)
Bonnie Post (via email)
John Dieffenbacher-Krall (via email)
Donald E. Quigley, Esq. (via email)
Kellie P. Miller, M.S (via email)
Edward Miller (via email)
JPD\G:\MHA\2000\ANTHEM\FrankWhite0229.doc (February 29, 2000 1:27 PM)
February 29, 2000
|Keith Vangeison , President & CEO
Blue Cross Blue
Shield of Maine
2 Gannett Drive
So. Portland, Maine 04106
Mr. Frank McGinty
Senior Vice President
Blue Cross/Blue Shield of Maine
2 Gannett Drive
So. Portland, Maine 04106
Re: Blue Cross/Anthem Proceedings Standards and Requirements
of Concern to MHA
Dear Keith and Frank:
The MHA Board of Directors and I have appreciated the forthright approach you have
taken throughout BCBSMEs consideration of its sale and conversion, and your
willingness to meet with us on many occasions. This approach has been consistent with the
origins of Blue Cross and the positive and supportive relationship that Maines
hospitals and BCBSME have maintained for over 60 years.
Consistent with this history, I share with you the enclosed delineation of Standards
and Requirements sought by MHA for purposes of protecting subscriber, provider and public
interests in the pending Bureau of Insurance proceedings relating to Anthems
proposed purchase and operation of Maine Blue Cross Blue Shield. This material will also
form the backbone of MHAs filing due later this week setting forth the particular
issues of concern to it.
I am hopeful that my providing this information to you will foster a positive and
productive dialogue among MHA, BCBSME and Anthem, and lead to a mutually acceptable set of
approval standards by which these concerns can be addressed and resolved in advance of the
public hearings in early April. Here, we have noted favorably the approach taken in New
Hampshire whereby a set of similar stipulations was appended to the New Hampshire
Commissioners Approval Order dated October 26, 1999.
Based upon the level and extent of concern expressed by our Board, we are prepared to
advocate strongly for each of these in the context of the pending BOI proceedings. At the
same time, we recognize that the forum provided for administrative proceedings can
sometimes inhibit the level of civil discourse and cooperation necessary to forge a
mutually acceptable outcome. Accordingly, I welcome your response on how you propose to
proceed in discussing these important issues.
Further, lest there be concern on the part of any party to the pending administrative
proceeding that MHA has any hidden agenda, MHAs counsel in the proceeding is at the
same time sharing this letter and our attached issues with the Superintendent, with your
counsel, with local counsel for Anthem, and representatives of the other parties to these
I look forward to your response and suggestions on how best to involve Anthem in these
proposed discussions as well.
Steven R. Michaud, President
cc: Alessandro Iuppa, Superintendent
Judith Chamberlain, AAG
William Laubenstein, AAG
Jeffrey White, Esq.
Robert Frank, Esq.
John P. Doyle, Jr., Esq.
Gordon Smith, Esq.
Martin Robles, Esq.
February 29, 2000
Standards and Requirements Sought by MHA for Purposes of Protecting
Subscriber, Provider and Public Interests in BOI Approval of Anthems Purchase and
Operation of Maine Blue Cross Blue Shield
The following are standards or requirements that MHA will advocate
be incorporated into the Superintendents final order approving Anthems
purchase, conversion and ongoing operation of the Maine Blue Cross Blue Shield Plan
(BCBSME). These standards and requirements arise from a variety of sources, including the
October 26, 1999 Final Order adopted by the New Hampshire Insurance Commissioner, and
points that are of concern to MHA members or have arisen in other states.
- Require that Anthem Blue Cross Blue Shield be a corporation domiciled in Maine, both
initially and permanently thereafter.
MHA urges that this is necessary to ensure that any future regulatory or receivership
proceeding will be subject to local jurisdiction and direct oversight by the Maine Bureau
of Insurance. Tufts proceedings have been subject to supervision by the New Hampshire
Department, and Harvard Pilgrim by the Massachusetts Department. Anthems Form A
September 15, 1999 filing notes that Anthem Health Plan of Maine, Inc., d/b/a Anthem/Blue
Cross Blue Shield of Maine, will be domiciled in Maine. Anthems February 1, 2000
filing, at page 7, characterizes Anthem/BCBSME as a Maine domiciliary corporation. MHA
seeks approval requirement memorializing this and requiring approval for any change.
- Require Anthem Parent to Guarantee Satisfactory Performance of All insurance and
provider contracts and other obligations of Anthem Blue Cross Blue Shield.
MHA believes this is necessary to avoid potential for uncompensated losses to Maine
citizens arising out of the business failure of the Maine corporation.
In its February 1, 2000 BOI filing, Anthem stated as follows in response to
Question 7(D), page 15:
As stated above in the response to Section 4203(3)(R), at the Closing Anthem will
cause Anthem BCBS to have capitalization equal to at least 100% of the NAIC Risk Based
Capital standards for Managed Care Organizations. In addition, the provider contracts of
BCBSME to be assumed by Anthem BCBS contain "hold harmless" provisions to
protect enrollees and covered persons. Finally, in connection with the maintenance of the
right to use the Blue Cross and Blue Shield name and mark, Anthem will certify to the
Blue Cross and Blue Shield Association that it guarantees to the full extent of its assets
all of the contractual and financial obligations of Anthem BCBS to its customers.
MHA seeks to better understand the nature and scope of the guarantee the Anthem
parent provided to the Anthem Maine obligations and the extent to which this will provide
appropriate protection and comfort to Maine providers that Anthems obligations to
them will be met. These provisions may afford partial substitution for direct parental
- Prohibit or Limit Anthem Ability to Upstream or Transfer Maine Resources to other States
Prohibit (or impose appropriate limitations on) the transfer of any assets of the
Maine corporation, including the earnings of the Maine corporation, to cover losses in
Anthem plans in other states. MHA counsel is further reviewing potentially applicable
provisions of Section 222 of Insurance Code and provisions of Chapter 180 of BOI
regulations and will develop further detail on this concern.
- Require Anthem to Continue Distinct Contracts with Distinct Providers
Require that Anthem obtain absolutely separate provider contracts with each
distinct economic unit. For example, if a radiology group that is the designated provider
of such services for a particular hospital declines to sign an Anthem contract, MHA seeks
to assure that Anthem cannot impose upon the hospital contractual provisions that dock the
hospital a percentage of its payment in order to cover Anthems incremental costs of
paying the radiologists as out-of-network providers. All contracting should be on an arms
length basis that respects the separation of these distinct entities.
Anthem filings regarding provider contracts to date are unclear to MHA. September
15, 1999 Form A filings, pp. 22-23 state, among other matters, the following:
Provider contracting. Anthem/BCBSMEs contracting philosophy will be to
maintain the most cost-effective provider networks in the local marketplace through a
combination of enhanced fixed-price contracts with Hospitals an ancillary providers, broad
risk-sharing with physician groups, and continuous assessment and retooling of other
arrangements. Although Anthem/BCBSME expects to maintain contracts with most physicians
and professionals as well as Maines hospitals, there may be opportunities for
selective contracting in specific target areas.
The February 1, 2000 Anthem filing, part of Anthems HMO filing, states as
follows in response to a question about provider agreements:
Anthem/BCBS will continue to maintain the provider networks established by
BCBSME. A provider directory is included in BCBSMEs Access Plan, which is on file at
the Bureau of Insurance. Anthem/BCBS will comply with applicable modification notice
requirements with respect to network changes.
Anthem/BCBS intends to continue HMO operations currently carried on by
BCBSME, including BCBSMEs Access Plan, without material modification, unless prior
approval of such modification is obtained from the Bureau of Insurance, if required by law
[In response to another specific request about contracts, this response is
BCBSME Provider Contracts meet this requirement. Anthem/BCBSME will assume BCBSME
Provider Contracts, and intends to maintain the HMO operations of BCBSME without material
modification, unless prior approval of such modification is obtained from the Bureau of
Insurance, if required by law or regulation.
Anthems February 1 filing at page 6, in response to question 3(D), requesting
copies of contracts between providers, states as follows:
BCBSME provider contracts, which Anthem/BCBS will assume upon the closing of the
Acquisition, are on file at the Bureau of Insurance. Anthem/BCBS will maintain the HMO
operations of BCBSME, without material modification, unless prior approval of such
modification is obtained from the Bureau of Insurance, if required by law or regulations,
adhering to all pertinent rules and regulations.
MHA seeks to assure that the historic practice of BCBSME in continuing to contract
with distinct economic units will continue. As noted elsewhere, the New Hampshire Approval
Order requires Anthem to exercise all commercially reasonable efforts to maintain the
existing Blue Cross Network for thirty-six months.
- Require Anthem to Continue Certain Other Provider Contracting Practices of BCBSME
- Require Anthem to continue Blue Cross Blue Shields practice of providing periodic
interim payments (PIP) consistent with the timing and methodology historically utilized by
Blue Cross Blue Shield.
- Require that Anthem follow Maine Blue Cross Blue Shields established procedures
for defining, processing and paying "clean claims." To date, providers have had
a relatively positive experience with Blue Cross and Blue Shields prompt payment and
accurate processing of claims.
- Require that Anthem continue Maine Blue Cross Blue Shields practice of maintaining
a statewide network of providers consistent with historic levels of participation.
Anthem filings suggest that Anthem will continue for now the existing provider
agreements. MHA seeks a protective window of three years in light of the problems that
have arisen from failure and problems of other payors in Maine. Paragraph 11 of New
Hampshire Approval Order requires Anthem to maintain, for 36 months, a network of
comparable size, scope and types of providers.
- Require Anthem to Maintain BCBSME Access and Prevention Initiatives
Require that Anthem continue Blue Cross Blue Shields current level statewide
initiatives, and accompanying economic commitment, to improve access and promote healthy
communities for at least ten years. Acquisition Agreement committed maintenance of effort
at $500,000 per year level for limited timeframe.
- Require Anthem to Continue to Offer Full Range of Individual and Small Group Products
and Require Appropriate Marketing of Products
Require that Anthem continue to offer individual and small group products and to
market them as aggressively as their other products. The February 1 filing of Anthem for
an HMO Certificate of Authority responds to issue 2-A N relating to the offering of
coverage for purchase by individuals, as follows:
In accordance with this requirement, Anthem/BCBS intends to comply with applicable
requirements to continue to offer the individual HMO basic and individual HMO standard
Superintendent Iuppa has long been concerned that carriers are not actively
marketing individual and certain other coverages. Further, the basic and standard packages
of benefits are ones that Chapter 750 now mandates all carriers to offer, but the market
is not responsive to. MHA seeks to assure Blue Cross tradition of fostering access is
maintained and preserved. New Hampshire Order, paragraph 9, obligates Anthem to maintain
existing products for thirty-six months unless plan filed with and approved by New
- Prohibit "Most Favored Nation" requirements in Anthem provider contracts.
The U.S. Department of Justice has opposed MFN clauses in a variety of settings over
recent years on grounds that these stifle competition and constitute an unfair exercise of
market power. MHA is informed that Anthem has utilized such clauses in contracts in other
states. MHA is concerned that such clauses would inhibit the ability of their members to
work with local employers and other groups in developing and implementing creative
contracting approaches. The New Hampshire Approval Order prohibits Anthem from enforcing
such clauses prior to July 1, 2000. MHA seeks a longer term prohibition for at
least the first three years of Anthems operation.
- Require Anthem to maintain reserve funds in Maine adequate to pay claims and all related
provider obligations for at least the time period equivalent to the notice period required
to terminate contracts by either party.
Under the current HMO law, providers must give 60 days prior to any termination.
Conversely, baseline surplus requirements applicable to HMOs under Chapter 191 are limited
to 30 days of medical payments. Still other regulatory requirements impose other surplus
or reserve requirements. The February 1 filing references various
statutory and regulatory requirements, and demonstrates the disparate nature of these. For
example, page 14, referencing Section 3-A, refers to a deposit relating to "uncovered
expenditures" of the greater of $100,000 or 102% of liability for uncovered
Part (III) of Anthems filing for Certificate of Authority, relating to surplus,
references the surplus of the greater of $1.0 million, 2% of annual premium revenues,
three months uncovered health expenditures, or another calculation involving 8% of health
care expenditures or 4% of hospital expenditures. pp. 15-16. Part IV, referencing Chapter
191, part 7(B), page 20, references an amount of $1.0 million, the prior months
medical expenses, or the par value of stock.
Throughout, Anthem indicates that it will comply with all statutory requirements. As
noted, these vary significantly.
In fairness to providers and in order to afford appropriate protection to enrollees and
employers, the timeline for provider obligations should be symmetrical with the resources
provided by payors. Further, these reserves should be calculated in such a way that they
reflect claims received, claims incurred but not reported and a sufficient percentage
(90%) to offset amounts held as "pending." Anthem should also be required to
purchase a performance bond or provide other sufficient security to cover its obligations,
to the extent that parental guarantees and reserve funds are insufficient. MHA seeks
approval requirements geared to address each of these concerns
- Assure More Public Scrutiny of Financial Analyses and Further Public Input
Require that the Bureau of Insurance and its consultants make publicly available the
results of their financial analysis of the valuation of BCBSME for purposes of determining
the amount offunds going into the charitable trust. Allow additional public comment and
testimony to be given after all of the evidence and financial data has been submitted.
Currently, the public has been provided very limited information on which to base their
- Urge Full Consideration by BOI of Alternative Valuation Methodologies
Urge that the Bureau of Insurance and its consultants carry out the following steps in
their analysis of proper valuation of Maine Blue Cross Blue Shield:
- Consider all standard methodologies to value Maine Blue Cross Blue Shield for purposes
of the establishment and funding of the Charitable Trust, and fully articulate in a public
document the basis and rationale for the valuation utilized.
- If enrollment is a primary determinant, ask BOI to analyze and compare the per member
value assigned by Blue Cross with the per member value in the NylCare/Aetna and US
Healthcare/Aetna transaction and the CIGNA Healthsource transaction. .
- If discounted cash flow was considered, what were the assumptions about IBNR,
enrollment, administrative staffing, medical cost and inflation?
- The current sales agreement provides that the total consideration may be reduced by
subsequent events affecting target value and earnings of Blue Cross Blue Shield and the
value of Machigonne, Inc.s interests. As a matter of fairness and consistency, full
consideration should also be given by BOI to subsequent events that would increase the
value of the company. These and related factors should be taken into account in valuing
the total consideration, including decreased competition in the insurance market and
increased enrollment to BCBSME as a consequence.
- The current sales agreement does not set a minimum net worth for Maine Blue Cross Blue
Shield. A floor value should be established and considered by BOI.
- Blue Cross Blue Shield and their auditors are charged with producing the final
statements upon which any shortfalls will be calculated. The BOI should review those
statements to consider the manner in which they reflect values such as negotiation costs
and premium and expense accruals.
JPD\G:\MHA\2000\ANTHEM\List of Possible Conditions MHA draft 5doyle 0229CLEAR.doc
(February 29, 2000 8:38 AM)