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> Document 734 : INS 99-14 : Hearing Decision
STATE OF MAINE
Introduction Almost 9 months ago, Anthem and BCBSME entered into an Asset Purchase Agreement ("APA") for the sale of substantially all of the assets of BCBSME. The agreement followed an effective, controlled auction process by which BCBSME and its financial advisor, Salomon Smith Barney, sought to attain the highest price possible for the business, while also attracting the most desirable company to continue its Blue Cross and Blue Shield mission. This auction process was, in turn, preceded by an extended period during which BCBSME, with the assistance of qualified consultants, considered all alternatives to the financial and competitive dilemmas it faced. Those financial dilemmas were serious then, and are more so today. Since the execution of the APA, BCBSME missed, by a significant margin, its financial projections. The company’s financial reserves have suffered serious depletion. As of June 30, 2000, the Bureau’s recognition as statutory surplus of approximately $9 million of unrealized real estate gain is scheduled to end, and the company could fall below the BCBS Association action level, endangering BCBSME’s right to use the Blue Cross and Blue Shield names. If use of the "Blue" name were transferred to another insurer, it could be expected to quickly displace much of BCBSME’s existing market share and further, seriously erode its business. Anthem, however, stands ready to stabilize BCBSME’s weak financial position by injecting approximately $11 million into the Maine subsidiary immediately upon closing. Furthermore, Anthem is a financially strong company, with ample reserves, excellent management and a solid track record of operating BCBS subsidiaries elsewhere. It can also provide the resources necessary to develop data and disease management systems required to compete in the health insurance market of today – investments BCBSME cannot make standing alone. Even if BCBSME were able to meet its current financial projections – characterized at the hearing as optimistic – BCBSME simply will not have adequate capital to invest in the information technology necessary to compete and serve subscribers in the 21st century. The transaction proposed by the Applicants clearly provides the best option to stabilize BCBSME and allow it to continue to serve the needs of hundreds of thousands of subscribers in Maine. The deal offered by Anthem is the best financially, and it funds the charitable trust at a level in excess of the value of BCBSME. The transaction should not result in disruption to subscribers and, given Anthem’s operating model, it provides for local decision-making on the matters that are most critical to BCBSME subscribers. No product or service area changes are planned, and if any were to occur in the future, they would reflect decisions made by local Maine management. Anthem is, at its core, a Blue Cross and Blue Shield company, and the traditions and values inherent in the "Blue" name can be expected to continue after the proposed transaction is concluded. The governing statutory standards by which the Superintendent must evaluate this transaction provide, among other things, that no adverse impact to subscribers and the public result from the acquisition. The record overwhelmingly and inexorably leads to the conclusion that those constituencies will realize substantial benefits from the transaction, and adverse impacts would result if the sale is not approved. The Superintendent should, therefore, apply the statutory standards and approve the conversion and change of control with no material conditions. The remainder of this and BCBSME’s closing statements address those standards which generated the most attention at the hearings.
The current financial condition of BCBSME has been noted. Its reserves for the protection of policyholders are depleted. The company has suffered net losses of more than $80 million over the last 4 years, including a $17.2 million loss (in contrast to a $6 million projected gain) in 1999. The company faces well-capitalized, aggressive competitors who continue to underprice the market -- circumstances which have caused BCBSME to sacrifice market share even to survive. BCBSME’s December 31, 1999 statutory surplus of $30.3 million is only about 85% of one month’s claims and administrative expenses. Realistically, BCBSME has no long term prospect for "going it alone" as a single state insurer. Even Intervenor MHA, Inc., the association of Maine’s hospitals, recognizes this fact. In late February 2000, the MHA Board declared: "Blue Cross of Maine had no other choice than to find a buyer that could provide the capital the company needs to compete in the state’s rapidly changing insurance market." Anthem is that buyer. The MHA also concluded that "a proposal to establish a new insurance company in Maine is unrealistic given the growing presence of powerful, well-funded national competitors such as Aetna-U.S. Healthcare and CIGNA." Anthem’s historical financial performance has been strong, and its current financial condition is excellent. Its surplus at the end of 1999 was $1.6 billion on a GAAP basis, and $1.4 billion statutory, with both of those amounts expected to be at $1.6 billion as of March 31, 2000. Its NAIC Risk Based Capital ratio has remained consistently above industry averages, with adjusted capital and surplus as a percentage of Company Action Level Risk Based Capital standing at 293% as of December 31, 1999. Anthem’s investment portfolio of $2.8 billion at December 31, 1999 contributes to its financial strength and the liquidity of its surplus. Anthem and its rated subsidiaries also enjoy excellent marks from rating agencies: Standard & Poors, A; A.M. Best, A-Excellent; and Duff & Phelps, A+. Anthem’s financial strength obviously does not jeopardize the interests of BCBSME’s policyholders. To the contrary, Anthem will provide substantial benefits, including:
In light of the foregoing, the policyholders of Anthem Health Plans of Maine will be substantially more secure that their benefits will be paid, and that Anthem Health Plan of Maine’s obligations will be met, than are the current policyholders of BCBSME. The statutory test of "no prejudice" has not only been met, but far exceeded. The Superintendent should not, therefore, impose on Anthem parental guarantees or other requirements which are unnecessary, limit the benefits of a flexible capital policy, and are not imposed on Anthem’s Maine competitors. Given the statutory standard, there would be no legal basis to exploit this transaction as an opportunity to impose conditions on Anthem which were not imposed on BCBSME, and which BCBSME could never have met prior to the sale.
The business plans of Anthem Health Plans of Maine are described in the Form A. They were the subject of extensive testimony by all Anthem witnesses at the hearings. As reflected in that record, these plans will bring financial stability, continue the Blue Cross Blue Shield tradition, and maintain existing policy benefits and provider networks to current BCBSME policyholders. Under the Amended Bulk Reinsurance Agreement, Bill of Sale and Assumption of Liabilities, immediately after the closing, all of the policy and contract holders of BCBSME will become policy or contract holders of Anthem Health Plans of Maine, with no break in benefits and services. Anthem Health Plans of Maine will assume the obligations of BCBSME under the policies and contracts. Similarly, all of the policy and contract holders of Maine Partners Health Plan and Central Maine Partners Health Plan will continue, without interruption in service or benefits, as policy and contract holders of those HMO’s. As noted in Mr. Frick’s direct testimony, and on examination of the Anthem witnesses at the hearing, Anthem Health Plans of Maine expects to offer the same range of products after the acquisition as those currently offered by BCBSME, and expects to continue to offer products on a statewide basis. No significant changes to BCBSME’s product families -- HMO, POS or indemnity -- are planned beyond any changes previously identified by existing BCBSME management. No changes in existing product portfolios have been recommended by the Anthem East integration steering committee, beyond the suggestion for a consistent naming convention to reduce confusion. Decisions concerning product offerings essentially will be made at the local level, meaning that local Maine management will have the principal role in determining appropriate products for Maine subscribers in the future. The Attorney General, prompted by some unknown number of Maine legislators, has suggested that the Superintendent impose a requirement that Anthem offer the "same products to the same geographic region" currently served by BCBSME. In a constantly changing health care environment, a requirement that BCBSME’s current offerings be frozen in place would injure Anthem Health Plan of Maine’s ability to develop and design the products most suited to its customers’ needs, and most responsive to changes in health care and products offered by competitors. Moreover, there is no statutory basis to impose this condition. It does not currently apply to BCBSME or its competitors in Maine, and the record is devoid of any evidence to suggest potential prejudice would result from the transaction. The condition would be discriminatory, and the suggestion that it is necessary is refuted by Anthem’s track record in offering a broad range of products in all states where it operates, and in meeting rural health care needs in those states. Anthem clearly recognizes the need to provide adequate provider network coverage in Maine, including in rural areas of the State. Given its operations in other states with significant rural populations, it has experience in meeting the needs of rural policyholders. It maintains broad provider networks in all of the states in which it operates Blue Cross Blue Shield plans. The summary of some of Anthem’s activities, awards and recognitions in other states speaks to its commitment to providing quality service to all Anthem subscribers and living up to its corporate mission to "improve the health of the people [Anthem] serve[s]." Anthem Health Plans of Maine will assume BCBSME’s contracts with all providers in its Maine network, thus assuring continuity of the provider network, including in rural areas, at the time of the sale. Under Anthem’s operating model, future decisions concerning network adequacy, quality and provider contracting will be made at the local level, by Maine management. Local management has the accountability for assuring access for all members, including those who live in underserved or rural healthcare areas; and Anthem will look to its local management to continue and preserve the access that has been created in the BCBSME network. Local Maine management will also be responsible for decisions concerning relations and contracts with Federally Qualified Health centers. Anthem will, of course, comply with all applicable state and federal laws concerning relations with FQHC’s. It is anticipated that existing arrangements with Maine FQHC’s will continue after the sale, with local management having responsibility for the relationship thereafter. As explained by Anthem’s Chief Executive Officer, Larry Glasscock, Anthem’s operating model is based on the fundamental axiom that health care is a local activity. Local and state operations, including the anticipated operations of Anthem Health Plans of Maine, focus on those activities which most directly impact subscribers, including benefits design, sales, customer service, underwriting, quality improvement, provider contracting, network management and medical management. In addition, Anthem has committed to establishing a local advisory board comprised of Maine residents to keep AHPM management apprised of local concerns. A regional management team, working largely from offices in the three states in the Anthem East region, will manage activities which support local operations. Shared service activities, such as human resources, finance, information technology, and legal and public affairs, are managed centrally, but provided throughout the company by employees located in Anthem’s local service areas. Limited corporate functions, such as investment management, payroll, treasury and compensation and benefits design, are provided at the Anthem corporate level. This approach is reflected in Anthem’s plans and commitments for maintaining a substantial employment base, as well as major office facilities, in Maine. As noted by Mr. Parker, the APA provides that Anthem Health Plans of Maine will offer employment to all individuals employed prior to the closing by BCBSME, and it contains Anthem’s commitment to achieve, within three years of the closing of the transaction, Maine employment levels of which are substantially proportionate to employment levels in other geographic areas in which Anthem operates, based on levels of membership. The local nature of health care in Anthem’s organization is also reflected in the way medical care decisions are made. Dr. Robert Scalettar, Anthem’s Corporate Medical Director, described Anthem’s policy, with individual medical care decisions made at the local level. Anthem’s Application for Certificate of Authority to Operate a Health Maintenance Organization stated Anthem’s intent to carry over BCBSME’s existing Quality Improvement Program and Standards, Access Plan, provider credentialing standards and utilization standards. Anthem also anticipates that a Maine physician will act as the Medical Director for Anthem Health Plans of Maine, and that matters such as medical management will occur at the local level, with the Maine Medical Director and other personnel in Maine working in conjunction with participating Maine physicians. Development of medical policy also includes input from physicians from each state. This means that physicians in Anthem Health Plans of Maine’s network with required clinical expertise will provide input into Anthem’s overall medical policy. Dr. Scalettar described at length the development of medical policy and the opportunity for local provider input. Several intervenors seemed to argue at the hearings against approval of the transaction on the ground that insurance premiums may increase in the future. This argument is misdirected. Future premium levels for all insurers will be driven primarily by the cost of medical care, including prescription drugs and fees paid to providers such as hospitals and physicians, which account for the vast majority of the costs underlying premiums. Pricing actions of competitors and control of administrative costs will also affect premium levels. BCBSME witnesses testified how it has been forced to implement substantial premium increases in the past two years due to increasing medical costs and past underpricing of its products in an attempt to meet below cost pricing by aggressive competitors seeking to gain market share. The relevant premium analysis for this proceeding is dictated by 24 M.R.S.A.§2301 (9-D)(H), which requires a comparison of relative premium levels of BCBSME with and without conversion. That comparison, in the form of an independent comparative premium rate analysis, was performed by Milliman & Robertson, Inc. and was addressed in the testimony of Ronald G. Harris, F.S.A., at the hearing. The reasonableness of the assumptions underlying the analysis are unchallenged. Both Mr. Harris and the Maine Medical Association’s witness, Jay Boekhoff, testified that those assumptions, including those for claims-related expenses and administrative cost savings, were conservative and reasonable. The conclusion of the CPRA was that, in the worst case, application of the premium tax to all of Anthem Health Plans of Maine’s business, could increase premiums by 2%. The far more likely scenario, however, is that the premium tax will not apply to the company’s managed care business, resulting in a premium impact of much less than 2%. Furthermore, Mr. Smith’s testimony indicates that far greater administrative savings are likely, further reducing or negating entirely the effect of the premium tax to the extent that it is applicable.
Patriot will not be acquired by Anthem Health Plans of Maine in the transaction. Since Patriot has been controlled by BCBSME, which is to be liquidated, Anthem and Patriot have entered into a Memorandum of Understanding which ensures the continued sound operation of Patriot and the orderly succession of its management independent of BCBSME. The Memorandum provides:
The provisions of Patriot’s succession plan, attached to the Memorandum of Understanding, further make it clear that: (1) at least by the closing, Patriot will cease to have common directors or officers with Anthem Health Plans of Maine, Machigonne or Northern General Services; and (2) a Patriot committee of non-BCBSME directors will develop a business plan, ultimately to be filed with the Bureau of Insurance, addressing the long term operations of Patriot. In the interim, Patriot intends to operate independently, consistent with its existing business plan. By these provisions, both the independence and uninterrupted operation of the Patriot business have been assured.
IV. JOINDER IN BCBSME’S CLOSING STATEMENT Additional issues are discussed in BCBSME’s closing statement. Anthem joins in the arguments made in that statement. DATED: April 14, 2000 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 April 12, 2000 a copy of Anthem Insurance Companies, Inc.’s Closing Statement was served by email, fax, United States mail, first class postage prepaid, 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) 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: April 14, 2000 _____________________________ James B. Zimpritch, Esq. Jeffrey M. White, Esq. Catherine R. Connors, Esq. PIERCE ATWOOD Portland, Maine 04101 (207) 791-1100 Attorneys for Anthem Insurance Companies, Inc. Last Updated: August 22, 2012 |
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