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	) ) ) ) ) ) ) )
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)	) ) ) ) ) ) ) ) ) ) )	ANTHEM’S RESPONSE TO INTERVENORS’ OPPOSITIONS TO ANTHEM’S OBJECTIONS TO INTERVENORS’ DESIGNATIONS OF ISSUES           March 21, 2000

 

Introduction

 

On March 10, 2000, Anthem filed objections to Intervenors’ Designations of Issues ("Anthem’s Objections"). Anthem set forth two basic objections, namely that certain of the issues identified in the Maine Medical Association’s ("MMA"), MHA, Inc.’s ("MHA") and Consumers for Affordable Healthcare Coalition’s ("CAHC") either (1) did not fall within the relevant statutory criteria, or (2) were so vague that it was impossible to determine what issues that intervenor would not be addressing at the hearing. (See Order on Applicants’ Request to Compel Responses to Discovery Requests at 1: "[I]n recognition of the need for information prior to the hearing as to the issues to be addressed, the Superintendent hereby ORDERS as follows: . . . The designation shall provide a detailed summary of the specific issues which each intervenor will address. The issues identified must fall within the general standards set forth in the Notice of Hearing") (emphasis added).

BCBSME joined in Anthem’s Objections, as well as filed a supplemental response pointing out the additional reasons why the Applicants have no burden to prove that BCBSME could not survive in the absence of this transactions.

On March 16 the MHA, and on March 17 the MMA and CAHC, filed responses to Anthem’s Objections. For the reasons set forth below, Anthem respectfully requests that the Superintendent sustain its objections. In order to ensure that the hearing in this matter will maintain the proper statutory focus, Anthem requests that the Superintendent issue an order confining the issues to only those that are properly within the scope of the process.

For ease of review, Anthem sets forth below a summary of the intervenors’ arguments, and Anthem’s response.

MMA Issue

Commercial Insurance market. Whether Applicants have failed to demonstrate that BCBSME could not financially recover and operate successfully now that Tufts Health Plan of New England (TNE) is in liquidation and Harvard-Pilgrim Health Plan is in receivership. Given the shrinking number of competitors, BCBSME can "grow" out of its financial difficulties without selling, and a sale of assets is not required to enable the continued operations of BCBSME.

Anthem’s Response

As previously noted, the Applicants have no duty to prove that BCBSME cannot survive unless this transaction is approved. At the March 17 conference of counsel, all of the intervenor representatives present, including representatives from MMA and MHA, conceded that Applicants have no such burden.

Notwithstanding this concession, however, the MMA continues to argue the issue is relevant. (MMA Response at 2.) If BCBSME were facing imminent financial failure, that would be informative to the Superintendent as he balances the potential prejudice or unfairness of the transaction to policyholders (e.g., the Superintendent would be weighing any "prejudice" from the transaction against the prospect that, without the transaction, BCBSME would fail).

MMA Issue

Anthem East. Whether Anthem had failed to meet its burden to describe the integration of its current operations with those of BCBSME. At present, "Anthem East," or the "East Region" does not exist in practice and Anthem has not provided sufficient information describing how the operations of the several participants in the East Region would be integrated without creating the integration problems experienced by other health plans that have expanded substantially through acquisitions.

 

MMA Issue

Integration. Whether Applicants have provided sufficient evidence to meet their burden of proof to demonstrate that integration of Blue Cross plans in Connecticut, New Hampshire and Maine would lead to administrative efficiencies or superior operations. Given the difficulties experienced by other plans in attempting to integrate purchased plans (Harvard-Pilgrim, for instance), the lack of specificity on this point is an issue.

Anthem Response

In its Objections, Anthem pointed out that Anthem has no statutory burden to integrate BCBSME into a region, and no statutory obligation to prove that "integration of Blue Cross plans in Connecticut, New Hampshire and Maine would lead to administrative efficiencies or superior operations."

 

 

Similarly, certain aspects of BCBSME’s financial results are, of course, relevant to other issues (e.g., to the valuation of the Company’s assets). Anthem’s own financial strength is relevant to certain issues – e.g., Anthem’s capital surplus and continued positive financial results, compared to BCBSME’s, are relevant to policyholder and creditor interests, because Anthem is obviously in a much better position to withstand poor financial results than BCBSME, to keep the to-be-formed Anthem Health Plans of Maine well-capitalized, and to assist in returning the Company to profitability.

These two issues address the same point.

Anthem believes that administrative efficiencies and superior operations will result from the transaction, and acknowledges that the existence and benefits of regional support and administrative efficiencies may be relevant evidence to consideration of some express statutory criteria, but it disagrees that there is any distinct statutory standard that must be satisfied with respect to those factors.

 

 

Will BCBSME be more financially sound if this transaction is approved? We believe it will. Are there administrative and functional efficiencies to be gained from regional coordination? We believe there are. But that does not change the fact that the relevant statutes do not impose any obligation to integrate regionally or to prove with any precision the level of administrative and functional savings that should result from that integration.

As reflected in the Anthem East Executive Integration Steering Committee minutes, Anthem’s integration plans are a work in progress and the Superintendent, and others, can see from those documents, and will hear at the hearing, that Anthem is taking the steps it deems appropriate to plan for the acquisition of BCBSME and how the organization will fit into the Anthem family of Blues. The MMA’s suggestion that Anthem must "prove" more should be rejected.

MMA Issue

Provider Agreements. Whether, based upon the review of Anthem provider contracts in Kentucky, Connecticut, Ohio, and Indiana, providers would face contract terms that are unfair, onerous and discriminatory, leading to potential de-enrollment which would jeopardize the health of enrollees and be unfair and inequitable to enrollees. . . .

Anthem Response

In its Objections, Anthem pointed out that it is assuming all of the provider contracts and, accordingly, BCBSME’s contractual obligations will be unaffected. That should end the analysis of the only potentially applicable statutory criterion. Anything more is an improper attempt by the MMA to impose conditions on future contracts that are nowhere required by statute.

The MMA responds that any "new" HMO would have to "submit proposed forms of provider contracts for review by the Superintendent." (Id. at 3.) But Anthem Health Plans of Maine is assuming all of BCBSME’s existing provider contracts and the Superintendent is aware of all of the contractual provisions of the current BCBSME contracts because they are on file with the Bureau. BCBSME has no duty to file potential changes to those contracts that it may make in the future and no such burden should be placed on Anthem to do so in this transaction.

This "issue" is best characterized as a request that the Superintendent permit the MMA to tie approval of the proposed transaction to future provider contract negotiations. There is no such statutory requirement. The issue should be stricken.

MMA Issue

Lack of Data Management Systems. Whether Anthem has failed to demonstrate that it has adequate information systems or data management systems to provide data to physicians to allow them to properly manage risk. Failure to provide adequate data to manage "downstream" risk would jeopardize the financial security of medical practices, putting physicians at risk of losing their practice, further jeopardizing plan enrollees.

Anthem Response

In its Objections, Anthem pointed out that, for many of the same reasons articulated above concerning the MMA’s "Provider Agreements" issue, this issue does not belong in this proceeding.

Anthem has repeatedly stated that it is assuming the present provider agreements and that, when those agreements come to an end, the Company will negotiate in good faith with the providers to enter into future contracts. That is all the "guarantee" that the providers now have from BCBSME, and that is all that should be required of Anthem. But more importantly, nothing more is required in any of the relevant statutory criteria.

The Superintendent has regulatory oversight to address the relevant statutory inquiries and approve or disapprove the present transaction. The Superintendent also has ongoing oversight authority to review future actions taken by Anthem Health Plans of Maine, or any other Maine insurer. These are, and should remain, separate functions. Anthem respectfully requests that the Superintendent limit the hearing in this matter to the issues that will result from the current, proposed transaction and leave for another day the future actions that Anthem Health Plans of Maine may take.

MMA Issues

Payments to providers. Whether any sale of the assets of BCBSME should be condition[ed] upon an agreement to pay providers under the terms of existing or new provider agreements so long as obligations exist under said agreements. In other words, if the contracts should be terminated by Anthem, the Company should pay for covered services provided to enrollees during the notice period preceding termination and should be required as a condition of the purchase to provide sufficient security to cover said obligations, to the extent that guarantees of the parent company are insufficient.

Access to Capital. Whether Anthem will provide sufficient working capital to enable Anthem BCBSME to adequately provide services and coverage to present and new policyholders and to cover obligations to providers. To date, Anthem has provided no confirmation that such capital would be made available. Without such assurances, enrollees are at risk of Anthem BCBS[ ]’s failing and leaving enrollees without coverage.

Transfer of Capital. Whether, given the precarious state of the health care delivery and financing system in Maine, provision should be included in the sale ensuring that capital earned [in] Maine [will] not be transferred out of state to cover plan losses in other Anthem states. Such transfers would be unfair to enrollees and in violation of the Maine Insurance Code and Bureau Rules.

Anthem’s Response

In its Objections, Anthem noted that the MMA’s wording of the payments to providers issue was unclear. In its response, the MMA described the issues this way:

The basic issue identified is whether Anthem will provide to Anthem BCBSME adequate capital to assure that the alleged financial problems of BCBSME will be alleviated and that anthem BCBSME will be sufficiently capitalized to be able to provide health care services to enrollees. . . . It is not clear that mere confirmation by Anthem that it will provide capital required to meet minimum statutory and Blue Cross Association requirements is sufficient to permit or persuade the Superintendent to approve the several transactions.

(Id. at 4.) Anthem still does not fully understand this issue. There is no statutory criteria that requires Anthem to commit to providing capital in excess of the statutory and BCBSA requirements. Likewise, there are no provisions requiring Anthem (or any other insurer) to provide a bond, security, or other guarantee for payment of provider services.

 

 

In its response to Anthem’s Objections, the MMA combined its designation of three issues (Payments to Providers, Access to Capital, and Transfer of Capital) into one response. For the Superintendent’s convenience, Anthem herein sets forth herein each of the designated issues.

 

Moreover, the practical implications of these issues are clear. It is illogical to suggest that the Superintendent (1) should require capital to be infused into Maine from Anthem (presumably from subsidiaries in other states), while at the same time (2) prohibiting any transfer of capital from Anthem Health Plans of Maine, Inc. to its parent company (and hence to its other subsidiaries).

These issue are not within the relevant statutory inquiries and should be stricken.

* * * *

 

 

In its conclusion, the MMA argues that "[e]fforts to eliminate consideration of the issues [designated by MMA] before the presentation of evidence and closing arguments is inappropriate." (Id. at 5.)

But now is precisely the time that the scope of the hearing should be determined – before the hearing, before the intervenors go through the expense and effort of preparing prefiled testimony, and before the parties are forced to spend valuable hearing time addressing issues that are not within any of the relevant statutory inquiries.

The proposed transaction is complicated, there are many relevant statutory inquiries and, accordingly, much pertinent documentary and testimonial evidence for the Superintendent to consider at the hearing. Although the providers undoubtedly would like to obtain future contract concessions from Anthem by using approval of this transaction as leverage, that is not the purpose of this proceeding.

B. MHA, Inc.

In its response to Anthem’s Objections, the MHA makes several introductory arguments. First, MHA requests that the Superintendent reject the "procedurally rigid approach" that Anthem and BCBSME have suggested in their objections. (MHA Response at 2.) But requesting compliance with the Superintendent’s designation order and limiting the hearing to topics that are within the statutory criteria is not "procedurally rigid." Rather, these steps need to be taken to keep the focus of the hearing within the scope of the Superintendent’s statutorily-mandated review.

The MHA next suggests that "the applicants have an obligation to participate constructively in a thorough consideration of the appropriate and legitimate public policy questions that MHA and other intervenors have raised." (Id.) Anthem agrees that it has the obligation to participate in the "appropriate and legitimate" issues in this proceeding. But the "appropriate and legitimate" issues in this proceeding are those set forth in the relevant statutory criteria. Anthem has participated constructively in that legitimate process by responding to more than 300 multi-part information requests. Anthem’s Objections seek to further this process by focusing the hearing on those same relevant criteria.

The Applicants’ burdens in this transactions are set forth in Title 24-A; Anthem and BCBSME have been working toward satisfying those burdens for the seven months that this transaction has been before the Superintendent; and the MHA cannot bring issues into this proceeding that are otherwise irrelevant simply by saying that this is a "significant" transaction.

Finally, the MHA appears to confuse the Superintendent’s order granting them intervention, with the ability to designate whatever issues are important to them. Being granted status as an intervenor does not create the right to alter the relevant statutory inquiries.

Each of the MHA’s specific responses to Anthem’s Objections is discussed in turn.

MHA Issue

Require Anthem Parent to Guarantee Satisfactory Performance of All insurance and provider contracts and other obligations of Anthem Blue Cross Blue Shield.

Anthem Response

Please see Anthem’s response to MMA’s issue regarding provider agreements. The relevant statutory criterion is whether the transaction will adversely affect BCBSME’s contractual obligations. Anthem Health Plans of Maine is assuming all of those obligations.

The criteria cited by the MHA reflect no further obligation. For example, Superintendent Criterion 4 inquires whether Anthem Health Plans of Maine has proposed plans to make changes that would be unfair or prejudicial to "policyholders or enrollees." The MHA is neither.

As a catchall, the MHA suggests that even if their issues are not within the relevant statutes, the Superintendent somehow has the authority to "adopt rules" in this proceeding beyond those contemplated in Title 24-A. This is incorrect. The Superintendent has authority to adopt rules in a rulemaking proceeding. This proceeding, on the other hand, involves a transaction for which the Legislature has developed very specific set of statutory criteria and procedures for approval.

 

 

The MHA also states that this transaction is "worthy of several additional examinations beyond those the Insurance Code routinely applies to health insurers." (Id. at 6.) As with the MMA’s inference that the inquiries in Title 24-A are meant only for insignificant transactions, the MHA’s assertion that this transaction warrants the Superintendent developing "special" criteria is without legal basis.

Finally, the MHA asserts that the Superintendent should take into account other "adverse experiences of Maine hospitals at the hands of other HMOs." (Id. at 7.) There is no such statutory requirement.

MHA Issue

Prohibit or Limit Anthem Ability to Upstream or Transfer Maine Resources to other States.

Anthem’s Response

Please see Anthem’s response to MMA’s issue regarding capital transfers. MHA suggests that "it is fit and proper for the Superintendent to consider whether there ought to be additional constraints on the local Anthem entity’s ability to transfer or upstream Maine-derived funds to its parent . . . ." (Id. at 8-9.) It would be wholly inappropriate to place "additional constraints" on Anthem beyond those that govern every other insurer in Maine, particularly when the logical implications of restricting capital transfers are considered.

MHA Issue

Require Anthem to Continue Distinct Contracts with Distinct Providers.

Anthem’s Response

In its Objections, Anthem pointed out that this issue appears to be designed to gain concessions in this proceeding concerning future provider contracts. The providers do not currently have a guarantee concerning future contract terms with BCBSME, and they are not entitled to such a guarantee under the statutory criteria relevant to this proceeding. The Superintendent’s Criteria cited by the MHA in its response are not to the contrary. Rather, they focus on potential prejudice to policyholders or enrollees. MHA also cites Superintendent Criteria nos. 23 and 24, dealing with the proposed bulk reinsurance agreement and BCBSME’s plan of voluntary dissolution. Neither supports the MHA’s contention that it is entitled to turn this proceeding into a session for negotiating future provider contract terms.

MHA Issue

Require Anthem to Continue Certain Other Provider Contracting Practices of BCBSME.

Anthem Response

This issue is not related to any relevant statutory inquiry. The MHA further suggests that the Superintendent condition his approval on Anthem’s agreeing in essence to extend the pre-existing termination dates for the provider contracts for three years from the date of the transaction. The MHA members have no such guarantee even from BCBSME. For the reasons set forth above, it would be inappropriate to attempt to tie approval of this transaction to future contract concessions for the members of the MHA.

MHA Issue

Require Anthem to Maintain BCBSME Access and Prevention Initiatives.

Require that Anthem continue Blue Cross Blue Shield’s current level statewide initiatives, and accompanying economic commitment, to improve access and promote healthy communities for at least ten years. Acquisition Agreement committed maintenance effort at $500,000 per year level for limited timeframe.

 

Anthem Response

In its Objections, Anthem noted that, under the APA, Anthem has committed to maintaining charitable contributions at $500,000 for two years. (See APA §5.15.) BCBSME is not currently required by the Bureau to maintain specified levels of charitable contributions or other initiatives. The MHA is essentially requesting that the Superintendent order a change in the Asset Purchase Agreement and require Anthem to spending an additional $4 million in charitable contributions.

In its response, the MHA suggests that the Superintendent should revisit this contractual term under Superintendent Criterion nos. 10 and 23. Those criteria relate to subscriber services and BCBSME’s plan of voluntary dissolution – neither relates to requiring specific future charitable contribution levels.

MHA Issue

Require Anthem to continue to Offer Full Range of Individual and Small Group Products and Require Appropriate Marketing of Products.

Anthem Response

In its Objections, Anthem reiterated that it has no current plans to eliminate products that BCBSME now offers, but that the Company should not have constraints placed upon it that other insurers doe not have.

The MHA now cites Chapter 344 as calling for a "special" condition, to be placed on Anthem alone, that it must, no matter the circumstances, offer a specific range of individual and small group products. None of the relevant statutory criteria support the imposition of such "special" conditions.

MHA Issue

Prohibit "Most Favored Nation" requirements in Anthem provider contracts . . . . for at least the first three years of Anthem’s operation.

Anthem Response

 

In its Objections, Anthem noted that this issue again does not deal with any of the relevant statutory inquiries and, in any event, pointed out the applicable law of the First Circuit, upholding such clauses as furthering competition and ensuring the best value for consumers.

In response, the MHA points to Superintendent Criterion number two. The referenced statutory inquiry focuses on whether the transaction itself, or the plan of bulk reinsurance, will lessen competition. That has nothing to do with provider contracting.

MHA Issue

Assure More Public Scrutiny of Financial Analyses and Further Public Input.

Anthem Response

In its Objections, Anthem explained why it is inappropriate to delay this transaction following the upcoming hearing by seeking further public input.

In its response, the MHA suggests only that the Superintendent should withhold judgment on this until "after all the evidence is presented." (Id. at 16.)

The Superintendent has already taken public comment all over the State. Applicants should not be harmed by the undue and unwarranted delay suggested by the MHA.

MHA Issue

Urge Full Consideration by BOI of Alternative Valuation Methodologies.

Anthem Response

In its Objections, Anthem explained that the Applicants have complied with the statutory requirement for an independent appraisal by submitting the appraisal of Houlihan Lokey. BCBSME has also provided the Salomon Smith Barney fairness opinion to the Superintendent. The Superintendent himself has retained Arthur Andersen as a valuation consultant, and the Attorney General has retained KPMG, which has issued a report addressing valuation.

The MHA offers no specific response to support its request for "alternative valuation methodologies", and nothing to rebut Anthem’s Objections.

 

 

C. CAHC

In its Objections, Anthem pointed out that the CAHC’s designations are so broad that they offer no meaningful insight into what the CAHC’s issues are. In response, the CAHC simply argues that its designations are sufficient.

The Superintendent’s order recognized that the Applicants have a legitimate need for information prior to the hearing to assist both the Applicants in preparing, and the Superintendent in running the hearing. To make the designations meaningful, the Superintendent directed the intervenors to "provide a detailed summary of the specific issues which each intervenor will address." (Order at 1.) The CAHC’s designations do not come within the letter or spirit of the Superintendent’s order.

 

Conclusion

For the reasons set forth above and in Anthem’s Objections, the "issues" identified by the intervenors, and addressed herein, should be stricken.

DATED: March 21, 2000

 

 

_____________________________

 

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.

 

 

CERTIFICATE OF SERVICE

The undersigned hereby certifies that on March 21, 2000 a copy of Anthem Insurance Companies, Inc.’s Response to Intervenors’ Oppositions to Objections to Intervenors’ Designations of Issues was served by United States mail, first class postage prepaid, email, or, where indicated, by hand delivery, on each of the persons listed below.

Robert S. Frank, Esq.

Harvey & Frank

Two City Center

P.O. Box 126

Portland, Maine 04112

e-mail: frank@harveyfrank.com

 

(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

 

(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

 

(Office of the Attorney General)

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

 

(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.

John Doyle, Jr., Esq.

Attorneys for MHA, Inc.

150 Capitol Street

Augusta, Maine 04330

e-mail: sparker@themha.org

 

jdoyle@preti.com

(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)

 

 

 

 

 

 

 

 

DATED: March 21, 2000

 

 

_____________________________

 

 

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

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