Skip Maine state header navigation
September 15, 1999
BY HAND DELIVERY
Mr. Alessandro A. Iuppa
Superintendent of Insurance
Maine Department of Professional and Financial Regulation
Bureau of Insurance
124 Northern Avenue
Gardiner, Maine 04345
Re: Conversion of Associated Hospital Service of Maine (d/b/a Blue Cross and Blue Shield of Maine) to a Stock Insurer and Acquisition of its Assets by Anthem Health Plan of Maine, Inc. (d/b/a Anthem Blue Cross Blue Shield of Maine), a wholly owned subsidiary of Anthem Insurance Companies, Inc.
Dear Superintendent Iuppa:
I am pleased to submit herewith on behalf of Anthem Insurance Companies, Inc. ("Anthem") and Anthem Health Plan of Maine, Inc. (d/b/a Anthem Blue Cross Blue Shield of Maine) ("Anthem BCBSME"), which is to be formed as a wholly owned subsidiary of Anthem as part of the above-referenced proceeding, and Associated Hospital Service of Maine (d/b/a Blue Cross and Blue Shield of Maine) ("BCBSME") (together, the "Applicants"), one original and ten paper copies, and one diskette copy, of an Initial Consolidated Filing (the "Filing") regarding BCBSME's conversion to a stock insurer, Anthem BCBSME's proposed acquisition of the assets of BCBSME, and related transactions (the "Acquisition"). The Filing consists of the following documents, with exhibits thereto:
Joint Documents:
Blue Cross and Blue Shield of Maine Documents:
Anthem and Anthem BCBSME Documents:
Please note that the Comparative Premium Rate Analysis (a part of BCBSME's Plan of Recapitalization and Conversion) and the Financial Projections of Anthem BCBSME will be filed by supplement. Milliman & Robertson is currently working on the Comparative Premium Rate Analysis. The Applicants anticipate filing both documents by the end of this month.
Enclosed pursuant to 24-A M.R.S.A. § 601 are checks for the following fees: (1) $1,000.00 for Anthem BCBSME's Application for Certificate of Authority; and (2) $25.00 for amendment of BCBSME's Certificate of Organization.
The Applicants very much look forward to working with you and the Bureau staff in your review of all of these documents. As the Applicants initiate this process, there are several matters we raise for your information or consideration.
Simultaneous Proceedings
As you are aware, the Acquisition requires a proceeding in Superior Court in addition to the Bureau of Insurance proceeding. As part of BCBSME's conversion to a stock insurer pursuant to 24 M.R.S.A. § 2301(9-D), it must submit to the Attorney General a Charitable Trust Plan that will be reviewed by the Superior Court. 24 M.R.S.A. § 2301(9-D)(D) provides that "[t]he superintendent shall commence review of the conversion plan … upon receipt … of the Superior Court's approval … of the charitable trust plan or at such earlier time as the superintendent determines necessary." The Applicants respectfully request that the Superintendent exercise the discretion expressly given to him in Section 2301(9-D)(D) and begin his review of the Plan of Conversion and other documents forthwith, without awaiting the completion of the Superior Court proceeding.
The Superintendent can effectively begin review of many of the issues related to the Acquisition without the Superior Court's prior approval of the Charitable Trust Plan. The Acquisition also involves many approvals that Section 2301(9-D) does not contemplate, for that Section pertains simply to BCBSME's conversion to a stock insurer, only one part of the Acquisition process. For example, all of the issues regarding Anthem BCBSME's application for a Certificate of Authority and Anthem BCBSME's Form A are independent of any review of the Charitable Trust Plan. The review of the Plan of Conversion itself, to which Section 2301(9-D)(D) specifically pertains, also will involve investigation of many issues unrelated to the Superior Court proceeding. Hence, there is no reason to postpone consideration of the Filing.
Need for Prompt Proceedings on Applications
Given the complexity and expected length of the Bureau proceedings on the parties' Applications, it is imperative that the proceedings begin as soon as possible. There are good reasons to do so. Assuming the Applicants are ultimately successful in persuading the Superintendent to approve the Acquisition and related transactions, as the Applicants believe they will be, delay in reviewing the Filing would adversely affect Anthem, BCBSME, its subscribers, its employees, the communities it serves, and the State of Maine.
Risk of Loss of a Favorable Transaction. The Asset Purchase Agreement has several conditions to closing. Delay could result in one or more conditions not being satisfied, raising the risk that the transaction would not close and its benefits would be lost.
Risk to Charitable Trust of Price Adjustments. Anthem's offer to purchase the assets of BCBSME is quite sensitive to BCBSME's financial performance against forecast between January 1, 1999, and the closing of the transaction, dropping by up to six dollars for each dollar that BCBSME falls below forecast, up to a maximum reduction of $17,500,000. A longer review period increases the risk of a shortfall.
Risk to Charitable Trust of Lost Earnings. Assuming a moderately conservative investment policy, the Charitable Trust could be expected to earn at least $6,000,000 to $7,000,000 annually on a $90,000,000 to $100,000,000 base. Until the Charitable Trust is funded, however, this income will be foregone, causing a loss of earnings of at least $500,000 per month. This loss would be injurious to the public interest, and would not be recaptured. Thus, a delay of even 60 days will cost the Charitable Trust, and the people of Maine, $1,000,000.
Lost Premium Tax. BCBSME is currently exempt from paying the state's two percent premium tax on approximately $200,000,000 in annual indemnity health insurance revenue. This exemption will not apply to Anthem BCBSME, a for-profit domestic health insurer. Upon consummation of the Acquisition, the State of Maine will earn over $300,000 per month in insurance premium tax. These taxes, however, cannot be earned until after the conversion is complete.
Employee Risks. Delay in proceedings of this nature creates uncertainty for employees and provides greater opportunity for other employers to lure employees away from BCBSME, especially in light of the recent announcement by a national health carrier to expand its operations in Maine. Anthem BCBSME's ability to retain BCBSME's skilled and knowledgeable employees may be directly affected by the length and uncertainty of the proceedings regarding the Acquisition.
Competitive Effects and Loss of Momentum in the Marketplace. Protracted proceedings delay the beneficial effects of improved efficiencies and new products, which can not come about until after closing. In addition, the uncertainty created during a change-of-control transaction can cause turbulence and loss of productivity, adversely affecting the market competitiveness of the insurers involved in the transaction.
For all of these reasons, the Applicants respectfully request that the Superintendent begin review of all components of the Applications, including the Plan of Conversion, immediately.
Anthem and BCBSME acknowledge the Bureau's need to conduct a thorough and professional review, and believe that an appropriate balance can be achieved that meets the needs of the Bureau, the public, and the parties to the transaction.
Confidentiality
As a general matter, and except as otherwise requested, the Applicants do not ask for confidential treatment of the components of the Filing, which in most respects is filed as a public record. Applicants have attempted and will continue to attempt to limit any confidentiality requests to the bare minimum absolutely necessary to protect themselves. However,
The Financial Projections fall squarely within an exception to the definition of "public record" under the FOAA, and therefore should be given confidential treatment and be exempt from disclosure. Specifically, 1 M.R.S.A. § 402(3) exempts from disclosure several types of records, including "records that would be within the scope of a privilege against discovery or use as evidence recognized by the courts of this State in civil or criminal trials if the records thereof were sought in the course of a court proceeding." Id. § 402(3)(B). The scope of this exemption includes any privilege recognized by Maine law and the rules that courts and statutes have developed to define the scope of a particular privilege. See Moffett v. City of Portland, 400 A.2d 340, 346-47 (Me. 1979). The Financial Projections fall within both a privilege from discovery and an evidentiary privilege-both Maine Rule of Civil Procedure 26(c)(7) and Maine Rule of Evidence 507 protect entities' trade secrets. The Supreme Judicial Court of Maine has held that Rule of Evidence 507 is within the scope of this exemption from the FOAA. See Guy Gannett Pub. Co. v. University of Me., 555 A.2d 470, 472 (Me. 1989).
To govern trade secrets in Maine, Maine has adopted the Uniform Trade Secrets Act, codified at 10 M.R.S.A. § 1541-1548. That Act provides that:
"Trade secret" means information, including, but not limited to, a formula, pattern, compilation, program, device, method, technique or process that: (A) [d]erives independent economic value, actual or potential, from not being generally known to and not readily ascertainable by proper means by other persons who can obtain economic value its disclosure or use; and (B) [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
10 M.R.S.A. § 1542(4). According to this definition, the Financial Projections are "trade secrets," and therefore are exempt from disclosure under 1 M.R.S.A. § 402(3)(B). Rule 26(c)(7), moreover, references protection of not only "trade secrets", but also "other confidential research, development, or commercial information."
The Financial Projections meet both parts of Maine's trade secret test set forth above and at 10 M.R.S.A. § 1542(4). The information submitted to be protected has independent economic value from not being generally known or ascertainable by persons who could obtain economic value from its disclosure or use. The information is valuable to Anthem and BCBSME, respectively, because the companies will use it on an ongoing basis to assess and develop products, services, pricing schemes, and marketing strategies. If known to competitors, this information could enable them to determine specific information about the profitability, cost, and pricing of products and services and give them an unfair ability to restructure their own business to undermine Anthem's future business. In addition, the information has been maintained as confidential and has not been released to anyone other than the Applicants' officers and advisers. The Financial Projections have never been publicly disclosed.
For similar reasons, the Confidential Appraisal Materials, which contain financial and enrollment projections and membership breakdown, are proprietary and constitute a trade secret of BCBSME. In addition, the appraisal firm, Houlihan Lokey Howard & Zukin ("Houlihan Lokey"), has advised BCBSME that the methodology, analytics, observations, assessments and data in, as well as the format of, its Valuation of BlueCross BlueShield of Maine (the "Valuation") are proprietary. Houlihan Lokey's engagement agreement provides that any summary of, or reference to, the Valuation or any oral presentation with respect thereto, any submission of the Valuation, in whole or in part, to the shareholders of the Company or others, or any reference to Houlihan Lokey, will be subject, in each instance, to its prior review and written approval. Its engagement agreement also provides that neither Houlihan Lokey's oral conclusions nor the Valuation will be used for any purpose other than
For these reasons, the Applicants respectively request that the Superintendent treat the Financial Projections and the Confidential Appraisal Materials as confidential documents, exempt from disclosure under the FOAA.
Notice of Pending Proceeding
The Applicants have filed a Proposed Notice of Pending Proceeding and Prehearing Conference, with a Joint Motion in support thereof. The Proposed Notice includes establishment of a date for an initial prehearing conference, preferably during the week of October 24, after affording prompt Notice and an initial 30-day intervention period.
In light of the business and financial risks and costs of delay to the Applicants, BCBSME's employees, the Charitable Trust, and the people of Maine, the Applicants are anxious to begin this proceeding quickly and respectfully request that the Superintendent review the Proposed Notice and the Joint Motion and issue an Order thereon as soon as possible. We have attached a proposed Order for your convenience and would be happy to discuss any of these documents with you at your earliest convenience.
* * *
The Applicants thank the Bureau in advance for its time and consideration in evaluating this transaction.
Very truly yours,
James B. Zimpritch
Enclosures
cc: David R. Frick, Esq.
Edward J. Kane, Esq.
Douglas R. Fauth, Esq.
Martin J. Robles, Esq.
Robert S. Frank, Esq.