Skip Maine state header navigation
BCBS/Anthem Non Confidential HEARING QUESTIONS
Posed by Superintendent Iuppa
Questions relating to Conversion Issues
What professional services did BC use in order to complete its process of selecting an acquirer? [Direct to Mr. Ryan]
What services did Salomon Smith Barney provide in the course of its engagement? [Direct to Mr. Ryan]
Describe the details of the conversion plan. [BC Panel]
How will the conversion plan affect services rendered to BC subscribers? [BC Panel]
Will BC insureds in rural areas experience changes to the network currently available?
What efforts will be made to assure that the network remains adequate for a statewide service area? [BC Panel]
Will there be changes to the fee structure for the services provided to BC insureds? [BC Panel]
Will hold harmless provisions exist in all contracts with providers and hospitals? [BC Panel]
The CPRA mentions that better investment returns can be achieved from a change in the invested asset structure. What are these anticipated changes, and how do the changes enhance investment returns?
Does the conversion plan provide any type of unfair advantage to the management personnel of BC?
Will any member of the BC management team be provided any type of benefit as a result of the conversion plan that the individual would not have been provided if this transaction were not contemplated?
[Describe the severance packages currently in place for BC's management and how the terms of the severance packages were determined?
Please describe any work you have performed on behalf of BCBSME related to the transactions that are the subject of these proceedings?
Is the conversion of BCBSME into a for-profit stock company a necessary prerequisite to the asset purchase agreement with Anthem?
At what time did BCBSME seek firm offers from potential acquirors or affiliation partners? (Feb. or Mar. 1999)
What was your position with BCBSME in 1997?
What is your current position?
Questions Relating to Valuation Issues - Karen Foster:
Calling your attention to Attachment A on page 9 of your pre-filed testimony, I note that you appear to round some numbers to the nearest million, some to the nearest hundred million and some to the nearest ten thousand dollars. Why is this?
Ms. Foster, I would like to ask you a number of questions regarding the Table of Estimated Transactions Expenses that appears on page 11 of your prefiled testimony.
With respect to the line item "Legal and Consulting Expenses", $1,786,994 shown as expenses through February 29, 2000, do you have an itemized list of what the expenses were and who they were payable to? Please provide that list?
What is the basis for the $1,310,000 estimated for legal and consulting fees for the March-June time period?
What is the basis for BCBSME's legal and consulting fees being properly chargeable as transaction expenses that will reduce the amount payable to the Charitable Foundation?
Are any of Anthem's legal and consulting fees being charged as transactions Expenses that will reduce the amount payable to the Charitable Foundation?
Please describe those efforts made by the Applicants to control or manage legal and consulting costs?
With respect to the line item "Notice of Hearing", what is the basis for the $35, 800 estimated expenses for the March-June 2000 time period?
With respect to the line item, "Trust Administration", $500,000 in trust administration expenses is estimated. What trust is being referred to? What administrative expenses are being referred to? What is the basis of the $500,000 estimate? Could you please direct me to where in the filing, this expense is discussed and designated as a transaction expense properly chargeable to the charitable foundation?
With respect to the line item, "Miscellaneous", what expenses are included in this category? Could you please direct me to where in the filing, these expenses are discussed and designated as properly chargeable to the charitable foundation? What is the basis for the numbers for the expenses to date and projected?
Questions relating to Valuation Issues - Frank McGinty
The APA includes tax refunds allocable to BC as "excluded assets." What is the basis for the refunds? What is the expected amount of the tax refunds?
It has been stated that BC' federal income tax refunds are under administrative appeal as part of a current IRS audit. What is the status of the audit and appeal? Who generated the appeal?
What is the amount of BC' "Aggregate Tax Liability" as described in the APA at Section 2.02(b)? If a final figure is not available, what is your best estimate?
What is the amount of BC' "Closing Tax Reserve" as described in the APA? If a final figure is not available, what is your best estimate?
Calling your attention to Page 4, lines 15-22 of your prefiled testimony, you indicate it is the view of BCBSME's Board and Management that, in its current form and situation, BCBSME cannot realistically hope to be a successful competitor over the long term. Is that correct?
As of what date was HLHZ valuation of BCBSME?
Do you have any estimates as to how the valuation value of BCBSME has changed between that date and the present?
Pertaining to the chart on pages 10 and 11 of your prefiled testimony, I have several questions:
You indicate the fair market value as of July 13, 1999 is $73.1 million? Is this correct?
You adjust the HLHZ valuation figure of $102.5 million by $17.5 million to reflect financial shortfalls. Is this an accurate fair market value adjustment?
You adjust the HLHZ figure by $5.0 million to reflect medicare liability? Is this an accurate fair market value adjustment?
Are the transaction expenses actually double counted in your analysis, being in both the financial shortfalls and the transaction expense adjustments? What are the implications on your stated values?
Are you aware of any agreements, understandings, or commitments between the applicants which provides BCBSME assurances that any future capital shortfalls will be provided by Anthem?
Valuation Issues - Questions for Stephen Dibenedetto (Salomon Smith Barney)
Please explain the general approaches to valuation that you performed on behalf of BCBSME?
What was the numerical conclusion you reached and how does that compare to the purchase price in the Asset Purchase Agreement?
What are the implications of the purchase price adjustments indicated in the Asset Purchase Agreement and how do they affect your earlier conclusions?
Are you aware of certain changes in the health insurance market in Maine since your valuation? What are the implications on the current valuation of BCBSME?
Are you aware of the financial performance of BCBSME since your valuation?
What are the implications on the current valuation of BCBSME?
Valuation Issues - Questions for Kevin Collins (HLHZ)
In the application of both the Public Company Evidence and the M & A Transaction Evidence, the multiples selected were, in every instance, less than the median and sometimes close to the low. Could you provide additional insight into the multiple selection process?
What do you consider the requisite elements in enabling a valuation subsequent to July 1999? Specifically, are operating gains or losses and/or changes in surplus valid additions or subtractions to the valuation? Are the buyers transaction costs an appropriate deduction? How should contingent liabilities be treated?
In your opinion, has the performance of BCBS, subsequent to your valuation, tended to enhance or diminish the value of BCBS?
HLHZ's report contains an overview of the healthcare industry and the U.S. and Maine economies. Please comment on why you included these overviews. In what ways were these summaries used in reaching your conclusion as to value?
On page 3 of your report, HLHZ states that it relied on financial forecasts and projections by BC management without independent verification. Is it common for valuation experts to rely on information provided by management in arriving at an opinion of value?
In the course of its valuation work, did anything come to the attention of HLHZ that caused it to believe that the projections used by management were not appropriate or reasonable? If so, please explain.
Please explain how your review of BC's competition entered into your determination of value, including specific calculations, if any were effected in this regard?
One qualitative consideration is net operating loss carryforwards (NOLs). How did these affect the conclusion of value that you reached? Did the NOLs form any part of the specific calculations that HLHZ performed in reaching its conclusion as to value? If so, please explain. If not, why not?
In determining the representative levels set forth on page 27 and Exhibit 4 of the report, one notes that investment income was included in determining levels of adjusted earnings before interest and taxes (EBIT) and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). Why did HLHZ choose to include investments in these items, rather than valuing the investments separately at current market value?
HLHZ included the projected earnings of Machigonne, MPHP, and CMPHP (the affiliates) in determining representative levels of adjusted EBIT and adjusted EBITDA, rather than valuing these interests separately and adding them to the value of the BC entity. Why did HLHZ elect to use this approach rather than valuing the affiliates separately?
Of the three (3) formal approaches to value which can be used in valuation (the market, income, and asset-based approaches), which ones did HLHZ use and why?
In regard to the market approach, which valuation methods did HLHZ use and why?
What criteria were used in identifying comparable publicly traded companies for purposes of the market approach?
Please explain the concept of value indications using publicly traded companies.
In regard to page 34 and Schedule B of the report, how were multiples selected for purposes of arriving at indications of value in regard to the market approach based on publicly traded companies? What criteria were used? Were any of the selected multiples calculated? Please explain.
Exhibit 8B provides a calculation of adjusted enrollment based on certain adjustment factors. Please explain what those factors represent, how they were derived, and what information HLHZ used to support the factor applied by HLHZ.
How did HLHZ arrive at the indicated enterprise value range with respect to the market approach based on publicly traded companies (page 34, Schedule B)?
HLHZ subtracted the value of the surplus notes and the average line of credit from the indicated enterprise value range to arrive at an indicated equity value range. Please explain the reason for doing this.
HLHZ applied a 10% control premium to increase the indicated equity value range. What was HLHZ's rational for selecting a 10% premium? What was the supporting information that HLHZ used in selecting the control premium?
Please explain the methodology used by HLHZ in the market approach based on M&A transactions.
Is this methodology one that is commonly used in valuation work?
In using the market approach based on merger and acquisition (M&A) transactions, how did HLHZ go about selecting your comparable transactions? What criteria did HLHZ use? From what sources was the comparable transaction information obtained? Are these sources considered reliable and regularly used in valuation work?
What types of multiples were used in arriving at value indications based on M&A transactions? Why were these multiples used?
HLHZ used representative levels for revenues and enrollment as set forth on page 38 and Schedule C. Why were representative values used in lieu of actual values and how were they selected?
How was the indicated value range for enterprise value based on M&A transactions arrived at?
How was debt free cash flow determined?
Why was cash flow determined on a debt free basis?
One notes that investment and affiliate income was included with BC cash flows to arrive at aggregate cash flow, rather than valuing the investments and affiliates separately. Why in HLHZ's view was this appropriate?
How was the discount rate determined? Explain in general terms the idea behind weighted average cost of capital.
Please explain the terminal values summarized on page 41. What do they represent?
HLHZ used market multiples in arriving at a terminal value. Is this model one that is commonly used in providing valuation services? What are the advantages of using this model in comparison to using a model based on capitalized cash flows? Why did HLHZ chose this model instead of a capitalized cash flow model?
How did HLHZ arrive at the indicated enterprise value range set forth in Schedule D?
One notes that the debt was subtracted in the same manner as was done in the market approach. Why was this appropriate?
The range of values using the average of the indicated value ranges, as set forth on page 43 of the report, would have been approximately $96.4 million to $103.2 million. However, HLHZ concluded a fair market value range of $100 million to $105 million, which is higher than the mathematical value? Was this appropriate? Why did HLHZ conclude that the fair market value range was $100 million to $105?
Valuation Issues - Questions for David Bowerman (KPMG)
Please summarize the analyses performed by KPMG for the Maine Attorney General.
KPMG noted that HLHZ and SSB relied on projections provided by management. Is it unusual for valuation analyses to be performed with reliance on management's financial projections? Did anything come to the attention of KPMG to suggest that use of management projections on this occasion was inappropriate?
In comparing the financial projections used by SSB and HLHZ, KPMG noted that the ones used by HLHZ were more recent than those used by SSB. Was HLHZ's use of these more recent financial projections appropriate?
In the comparison of the HLHZ and SSB methodologies, KPMG observed that SSB valued BC's interest in Maine Partners Health Plan, Central Maine Partners Health Plan and Machigonnne, Inc., separately from the parent, BC. KPMG expressed that it prefers the approach taken by SSB. Please explain the difference between the two approaches and KPMG's preference.
HLHZ used the Capital Asset Pricing Model in arriving at a weighted average cost of capital and a terminal value using market multiples. Does KPMG agree that use of these concepts is an acceptable valuation methodology?
KPMG expressed the view that it would have been preferred to value the investment assets separately, because to combine the investment assets with operating assets in a discounted cash flow analysis tends to undervalue the investment assets. Please explain.
Would an undercapitalized subject company perhaps require a higher company risk factor in determining the discount rate, resulting in a lower value of the operating assets?
What did KPMG conclude regarding whether HLHZ performed a generally acceptable valuation analysis?
In light of that ultimate conclusion by KPMG, would it be fair to say either that the issue of valuation of investments was not material or that the different approach taken by HLHZ was one about which reasonable valuation experts might differ professionally under the circumstances?
KPMG commented in its report that HLHZ did not provide sufficient detail on how the magnitude of the control premium was determined. Does this observation mean that HLHZ was wrong in concluding that a 10% control premium was appropriate?
KPMG noted that HLHZ did not explain the factors used in arriving at amounts for adjusted membership. What is the significance of this observation?
What did KPMG note in regard to the subject companies performance after the HLHZ valuation date?
Given the change in market multiples as evidenced by KPMG's research and the decline in performance of BC, what would the probable effect be on fair market value if these multiples had been used by HLHZ in its report?
In reaching its conclusion that HLHZ performed a generally acceptable valuation analysis, would KPMG agree that the valuation provided by HLHZ is appropriate for evaluating whether the foundation will receive fair consideration in the proposed transaction?
If HLHZ were to perform a new valuation based on KPMG's market research and review of recent company performance, would the conclusion of fair market value reached be likely to be higher or lower than the one reached in the HLHZ report that KPMG reviewed? Please explain.
Questions relating to Valuation - Robert Strong (CAHC)
Did you perform an independent valuation of BCBSME?
The HLHZ valuation of market value was performed as of what date?
What is your opinion as to the change in value of BCBSME between that date and the present?
What is the single most important reason why you believe the valuation would be higher?
Are you aware of any changes in the financial results of BCBSME between the date of the HLHZ valuation and the present?
How do such changes impact the current value of BCBSME?
How do such changes impact your overall conclusion of higher value as expressed earlier?
Valuation Issues - Questions for Jay Boekhoff (Maine Medical Association)
Did you in your work on this matter, convert Anthem's proposed purchase price to a cost per member per month?
How did the resulting value compare to the rates indicated in comparable purchases you aware of?
What are the reasons, if any, which would cause this difference?
In your report, you indicate the revised fair market value of BCBSME as $83,732, 000, but do not indicate the proposed purchase price. Which number did you use in your analysis?
Comparative Premium Rate Analysis (Directed To M&R)
The CPRA references an underwriting gain target of 3%. Comment on how this is achievable.
The CPRA expresses a belief that AHP will be subject to the 2% premium tax. Has the Applicant sought an opinion from Maine Revenue Services? If not, what is the basis for your conclusion?
Also, State of Maine contract assumptions on premium tax are inconsistent with CPRA assumptions (although, AIC noted CPRA has most conservative assumption). Explain discrepancy.
How can the applicant substantiate the 0.35% claims savings described in the CPRA?
How can the applicant substantiate the admin expense savings described in the CPRA?
The CPRA projected a 2% difference between the rates expected to be charged by the successor company if the transaction is approved, and the rates BC expects to charge if BC remains nonprofit. Is that still your projection?
Will there be any difference between the rates expected to be charged by the Partners Plans if the transaction is approved, and the rates the Partners Plans expect to charge if BC remains nonprofit? (If the answer is "yes," follow up on amount & reason. If the answer is "no," follow up on reason. If the answer is "No clue," follow up on why not and on whether the Partners Plans have done any sort of planning. Verify whether BC provides actuarial services for the Partners plan and identify a better witness if we have the wrong one on the stand.)
Is the answer different for each Partners Plan?
What could cause the three year rate projections in the rate analysis to deviate?
Has AIC reviewed the rates for BC's various product lines? What is AIC's assessment of these rates?
What changes to rates for individual and med supp does AIC intend to make and over what time frame?
Comment on the fact that rate increases tend to lag behind medical cost increases. How does AHP intend to account for the inability to increase rates due to medical cost increases except on a reactive basis?
Liquidation/Dissolution
What specific liabilities will remain with AHSL? [Karen Foster]
Will AHSL be responsible for any insurance liabilities? [Karen Foster]
Will all of other employees of BC Maine automatically become employees of AHSL upon conversion? [Karen Foster]
Will any of these employees become employees of AHP, and, if so, at what time? [Karen Foster]
Approximately how many employees of BC will not become employees of AHP? [Karen Foster]
To the extent any employees of BC are terminated post-conversion, will such terminations be effected by AHSL or by AHP? [Karen Foster]
How many employees will AHP have at the time the APA and bulk reinsurance agreement are effectuated? [Karen Foster]
Who will be the officers and principle managers of AHP at the time the agreements are effectuated? [Karen Foster]
The Plan of Complete Liquidation and Dissolution of AHSL includes the creation of a liquidating trust. Why is the creation of this trust necessary? [Karen Foster]
What portion of the purchase price payable under the APA will be transferred from AHSL directly to the Foundation and what portion will be placed in the liquidating trust? [Karen Foster]
What liabilities will be paid by AHSL from the proceeds of the purchase price? [Karen Foster]
What is the estimated total amount of these liabilities? [Karen Foster]
What liabilities will be transferred into the liquidating trust? [Karen Foster]
How will all of the liabilities of AHSL be adequately provided for? [Karen Foster]
If the liquidating trust does not have sufficient assets to cover all liabilities, how will those liabilities be provided for? [Karen Foster]
At what time will the Foundation receive all of the proceeds payable under the APA and to which the Superintendent has determined the Foundation is entitled. [Karen Foster]
Will the total purchase price paid under the APA net of all liabilities of AHSL be at least equal to the fair market value of BC at the time of conversion? [Karen Foster]
Why wouldn't the creation of the liquidating trust be unfair or prejudicial to the Foundation as sole shareholder of AHSL? [Karen Foster]
The Liquidating Trust Agreement submitted with the Plan of Liquidation of AHSL lists among the assets of the liquidating trust insurance policies not transferred pursuant to the APA. What insurance policies are being referred to? [Karen Foster]
The Plan of Liquidation refers to a "3484 Trustee" who will administer the winding up of AHS. Who will this person be? [Karen Foster]
How was the Trustee selected and by whom? [Karen Foster]
When will the Trustee be appointed? [Karen Foster]
Will AHSL have any employees when the Trustee is appointed? [Karen Foster]
What will be the relationship between the Trustee, the employees of AHSL (if any) and the Foundation as sole shareholder? [Karen Foster]
How long will the liquidating trust be in existence? [Karen Foster]
Will the Foundation receive payments out of the liquidating trust prior to the trust's termination? [Karen Foster]
Who will decide when such payments will be made? [Karen Foster]
Will the Foundation have any control over, or access to, the assets of the liquidating trust? [Karen Foster]
Will each policyholder be entitled to the same services by the same providers for the same premium payment after the close of this transaction, if approved, as he or she was prior to the transaction closing? [Karen Foster]
If the transaction is approved, and a creditor was due money immediately preceding the close of the transaction, will the monies be available and paid during the normal course of business after the close of the transaction? [Karen Foster]
Who is responsible for payments to creditors? [Karen Foster]
Will every policyholder still be covered after the bulk reinsurance agreement becomes effective? [Karen Foster]
Is there any insurance contract that will not be assumed by AHP? [Karen Foster]
Will any existing BC subscribers have any services provided to them via AHSL or will all existing subscribers become subscribers of AHP?
What transaction expenses will be the responsibility of AHSL? What transaction expenses will be the responsibility of the foundation? Who will be responsible for the operating costs of AHSL and who will manage the assets and expenses?
Will an independent CPA firm perform an annual audit of AHSL?
Who will provide services to AHSL and what type of services?
Describe the role of AHS Liquidating Corp in the conversion plan?
Acquisition (Sections 222 And 3476)
What is the source of funds to be used to finance the proposed acquisition. Please specify the amount that come from cash on hand, issuance of debt, use of commercial paper or line of credit facilities, issuance of surplus notes, use of financial reinsurance, or any other financial mechanism. How will cash be generated? Will any debt be incurred by AIC in order to fund this transaction?
What measures does Anthem contemplate implementing to improve the administrative expense ratio of BC. What has Anthem's experience been in reducing administrative expense ratios for other BC affiliates?
What is the purpose of the Local Advisory Board? What authority will the Board have relative to AHP?
How long will the Local Advisory Board be in existence?
What entities/groups will be represented on the Local Advisory Board? Is there a particular cross-section you are looking for?
Please describe the selection process for Local Advisory Board members.
What procedure does Anthem follow for the centralization of investments for all of its affiliates?
How is investment income allocated to affiliates?
Describe the anticipated organizational structure of management structure in Maine post-closing?
Where will administrative decisions for the Maine affiliate be made?
Has Anthem or any of its health insurance subsidiaries or affiliates conducted internal, or engaged a consultant to conduct, an examination or evaluation of its own claims handling, payment procedures and/or practices over the past 2 years?
If so, describe any findings, reports, and recommendations resulting from the examination or evaluation.
What remedial actions did Anthem take in response to those recommendations?
The revised APA includes information on reinsuring Medicare risk and the cost of the reinsurance. Describe the type of reinsurance. Who is the reinsurance intermediary? What is the expected cost for this coverage?
What efforts were made to secure this reinsurance? Has this technique been utilized by Anthem in any other Blue Cross plan acquisition?
[If they tell us there is no coverage] What is the basis for the $5 million adjustment to purchase price.
In a separate document, Anthem provided two expense ratios: one with equivalents, one without equivalents. What is meant by equivalents? What constitutes the difference?
Please describe Anthem East? Is it operational?
What is the timetable for integrating the Maine plan into Anthem East?
Assuming approval of the proposed transaction, will Anthem infuse additional capital into AHP? If yes, what amount?
What is the targeted amount of RBC for AHP?
Please explain why the purchase or transfer to AHP of BC's contracts through bulk reinsurance will not substantially lessen competition in insurance or tend to create a monopoly in ME, or violate State or US laws relating to monopolies or restraints of trade?
What is the status of the HSR filing before the FTC? If not done, what is the process from here?
What is the risk in closing the transaction before final resolution of the HSR filing by the FTC?
Please summarize the current financial condition of AIC. What is the current level of policyholder surplus?
Please summarize the investment portfolio of AIC, including the amount of affiliated investments within the portfolio. What percent of the portfolio is in affiliated investments?
Does the degree of investment in affiliates cause concern to the Board of AIC.? Why or why not?
I would consider AIC's affiliated investments as illiquid assets, or, at a minimum, an asset not easily converted into a liquid asset. What effect will this degree of investment in affiliates have on AIC's ability to provide capital to those affiliates as needed?
What is the amount and type of borrowed funds reflected on your 1999 annual financial statement? What are the repayment terms? [the response should include surplus notes, lines of credit, letters of credit].
Have any payments been missed or deferred during the past three years on any outstanding borrowed funds?
Why did AIC issue the surplus notes reflected in its financial statement.
Have any of the rating agencies assigned ratings to AIC or any of the affiliates? If yes, which and what are the current ratings?
What are the historical ratings over past 5 years? Highlight any change in the ratings and reasons for change.
Does management expect any change to current ratings within the next year? Has management met with any of the rating organizations to discuss the proposed transaction, or its affect on existing affiliates?
Have any of the rating agencies required a target amount of capital and surplus for AIC to achieve or maintain a particular rating in the past three years?
What is AIC's internal target for ratings?
How can Maine policyholders be assured that AHP will have adequate financial stability? Both from the short term and the long term perspectives.
Will the same standards be applied to AHP? If no, please describe the deviations.
Describe the financial performance for AIC's Blue Cross affiliates over the past three years?
In light of the limited liquidity of AIC's asset base, please describe the prioritization for the funding of these affiliates at present, and how this may affect the future funding needs of AHP?
How will the recent acquisitions of the Colorado, Nevada and New Hampshire Blue Cross plans affect your future funding estimates and needs? (especially given their recent poor historical financial results)
Does AIC have any plans, or is it giving consideration to, any future acquisitions? Discuss.
One of the reasons cited for the recent $300 million issuance of surplus notes was to pay for the acquisition of AHP. Would prospective acquisitions necessitate issuance of additional surplus notes?
Does AHP plan to liquidate, sell assets of, merge, or make any other major change in the business or corporate structure or management of BC, MPHP, or CMPHP? [Frank McGinty]
BC anticipates effecting a sale leaseback transaction on its real estate in S. Portland. Comment on the status of this and the expected date this will occur. [Frank McGinty]
Does Anthem have similar intentions with respect to a sale leaseback? [Anthem panel]
Is it possible that a sale without a leaseback may occur? If yes, why the change? Where will AHP be located? [Anthem panel]
Have any agreements related to the sale leaseback been entered into? If yes, can they be assigned to Anthem? If not, what efforts have you taken to obtain the consent to an assignment? [Frank McGinty]
If any agreements have been entered into is there any scenario under which AHSL would assume some responsibility? If yes, please describe. [Frank McGinty]
With respect to other real estate, are there any assignability issues in terms of financing arrangements? [Frank McGinty]
Does BC have furniture and equipment or other assets of significance that it does not own? If so, are there assignability issues related to the financing of these assets? [Frank McGinty]
Has AIC reviewed the information systems of BC? What is AIC's assessment of these systems? Given the recent acquisitions, what process is being followed to integrate the information systems for AIC and its affiliates? What problems or concerns do you anticipate?
What changes are anticipated at the local, regional, and corporate levels? Are any enhancements or new systems expected in the next three years?
Has there been an assessment of the cost of these changes?
In a competitive health market environment, has AIC or its affiliates gone for profitability objectives or market share objectives over the past three years?
What is AIC's assessment of the current status of the health insurance market in Maine?
What will be the strategy for AHP: profitability or market share? [The Bet!]
Has AIC made an assessment of best practices currently engaged in by BC? If yes, describe what best practices will stay and what will change.
Describe the claims reserving practices of AIC. How does it compare with BC's current practices?
In recent experience (last 5 years) has AIC's claim reserving practices appropriately provided for actual claims paid (i.e. were there recurring claim reserve deficiencies or excessive redundancies)? If not, what changes were made to claim reserving practices to adjust for such deficiencies or redundancies?
Discuss the Anthem East regional concept and any plans for regional functions.
What are the benefits of the regional concept? What problems have resulted from regionalizing functions for AIC affiliates in other areas of the country?
At what size level (in terms of enrollment, annual premium, etc.) will "critical mass" be reached for Anthem East or any other AIC operating region?
Where do you anticipate most of Anthem East functions will be located? Will any Anthem East functions be located in Maine? Describe how AIC intends to keep transition costs at a minimum.
How has the integration of AIC's other acquisitions worked?
What were AIC's original time frames on attaining complete integration for some of the recent acquisitions? Were the original time frames achieved?
Describe the process AIC goes through in determining a transition plan.
What is the target for AHP? Over what time frame?
Discuss some of the cost advantages to date brought to AIC's acquired companies (especially acquisitions in OH, KY, CT) including, but not necessarily limited to unit cost synergies, medical cost savings from increased purchasing power (i.e. drugs, mental health services), increase negotiating leverage with providers, and enhanced claims management capabilities.
Define and discuss the process for reaching proportional employment at AHP. What are the benefits? What does this mean for Maine employees?
Which past AIC acquisitions have been followed by downsizing? Describe. Which ones have not.
Have any of AIC's acquisitions been followed by expansions?
Describe what has happened in the NH, CO, and CT transactions. How many people on the management teams prior to the closing of the transaction were members of the management team immediately after the closing of the transaction? How many people were not? How many people that stayed on board were still there in 6 months? One year? (as applicable)
In an attempt to get a picture of what the Maine plan may look like post-closing, please describe Anthem's experience in Connecticut. Were there any particular integration or transition problems that stand out? If so, what has AIC done to assure such problems would not occur in subsequent acquisitions?
Based on experience with past acquisitions, it appears there is a reasonable possibility that AIC will benefit from cost savings and synergies well beyond those illustrated in financial projections submitted with the application. Does AIC expect to realize additional cost savings and synergies beyond those assumed in financial projections submitted? Why or why not.
How has enrollment been affected?
How has the network that was previously in place been affected?
How has the plan performed since the acquisition? How much capital has AIC contributed to the plan?
Has the plan paid any dividends to AIC?
Has an insurance department performed an exam since the plan's affiliation with AIC? Detail any findings documented in the exam.
Has the plan had any litigation result from the change in ownership? Status or result?
Has the plan been fined by insurance regulators since its affiliation with AIC? How much and for what reason(s)?
For your recent acquisitions of BC plans summarize the type of transaction, any conditions required by state insurance regulators in the decision and order for approval, and the experience of the insurer since the transaction.
Has AIC provided any guaranty or commitment of capital to any of these plans?
Has AIC provided any unconditional parental guaranties to any of these plans?
Does AIC have any type of guaranties in place for any other affiliates?
Have any of AIC's affiliates been placed in rehabilitation or receivership by a state insurance department?
Have any affiliates been placed under administrative supervision by an insurance department, even if the administrative supervision was a verbal commitment between the insurer and the department?
Is any affiliate subject to reporting requirements in its state of domicile that are more stringent than any other insurer domiciled in the same state and conducting business similar to its business?
Are any federal or state agency actions pending against AIC or any of its affiliates?
How would you describe a good corporate citizen? What community support has AIC provided in the past? What types of community support will AIC/AHP provide in Maine?
Are you familiar with the Periodic Interim Payments (PIPs) utilized by BC? Do you intend to continue that practice?
Comment on AIC's intent to continue to provide services in rural areas in Maine. Does Anthem anticipate any changes to accessibility for services in rural areas? What practice utilized by AIC Ohio precipitated the Thompson v. ASA case?
Does Anthem anticipate providing the same senior products currently provided by BC? For how long?
Does AHP intend to have a Medicare Plus Choice program available in Maine? Does AIC or any of its affiliates offer this elsewhere?
What agreements, particularly service and management agreements, exist (whether in draft or finalized) between Anthem and MPHP?
What agreements, particularly service and management agreements, exist (whether in draft or finalized) between Anthem and CMPHP?
Who will be deemed to be in control of MPHP and CMPHP assuming an approval of this transaction?
Do MPHP and CMPHP have provider contracts separate from those between BC and providers? [Frank McGinty]
In regards to the BC-MN contract, will AIC consider this a "state" or "regional" activity? In either case, would AIC consider shifting the BC-MN work to another state or another region within the AIC structure?
Will AHP be able to continue to use the Blue Cross Association trademark? What documentation is available to support this? Applicants Exhibit # 26, letter from BSBCA September 22, 1999 to BC.
In comparing Anthem's initial filing in this proceeding to Anthem's March 14, 2000 response to the order on completeness, I note that the number of directors for whom biographical affidavits were provided has risen from 11 to 14. Has the number of persons actually on Anthem's Board increased from 11 to 14 since the initial filing was made?
If yes, why was this change made?
If no, what is the reason for the change in the filing?
I note the original filing lists James Perkins as a Director of Anthem, but that, unlike other persons, an updated biographical affidavit with respect to him was not filed on March 14 as part of your response to the order of completeness. Is Mr. Perkins still a director of Anthem? If so, why wasn't an affidavit provided?
Acquisition Questions for Anthem Panel (Larry Glasscock CEO; David Frick, General Counsel; David Smith CFO)
Have you had the opportunity to familiarize yourself with the financial condition and operations of BC?
Have you formed an overall impression of the financial condition of BC? What is that impression?
In the transactions in Kentucky, Ohio, Colorado, Nevada, Connecticut and New Hampshire, what provisions, if any, were made for representation of those plans on the Board of Anthem?
Is it currently a term of this transaction that one member of the current BC Board will be nominated for membership on the Anthem Board? Is that individual going to be a Maine resident?
The Articles of Incorporation for AHP indicate there will be seven initial officers and directors. Aren't all seven listed persons officers, directors, or employees of AIC?
If a representative of the Maine plan is going to be nominated for the AIC Board, is there anything that prevents one of these seven persons from being the nominee?
What assurances are there that the interests of the Maine plan will be truly represented?
Does Anthem have any plans for a New England Regional Board?
Does Anthem have any other plans for local provider/policyholder input into matters of corporate governance or management?
BC currently administers Medicare Part B in Maine on behalf of the federal government. Does Anthem anticipate continuing to provide those services? If yes, is federal approval or acknowledgement of that change in service provider necessary? If yes, has it been obtained?
If federal approval has not been obtained, has it been requested? If yes, what is the status of the request?
If not requested, why not and what process is anticipated to secure approval?
What would be the financial impact on AHP if federal approval were not obtained?
BC mentions various "clinical management, contracting, and other claims savings … initiatives" it was unable to implement due to resource constraints, and expects Anthem to be better equipped. For [Frank McGinty] Describe what initiatives were considered by BC and rejected due to resource constraints? Do you know whether Anthem plans to implement any of these?
In responding to Consumer question 37 regarding definitions and interpretations of certain terms like "medical necessity," Anthem said "As reported in its substantive response, this request is particularly irrelevant because Anthem is assuming the BC policies and, accordingly, any relevant definitions of the above terms would relate to those contracts." Does this mean Anthem intends to continue using the existing Maine forms indefinitely, with the current interpretations?
In Anthem's response to the Superintendent's question 52(g), it was explained that the Connecticut affiliate did not execute the intercompany agreement because the State of Connecticut disapproved it. Why? [#52(g)]
Since AHP will be a for profit entity, will its board and management be instructed that their primary duty of loyalty is to the policyholders of AIC (the parent)? If not, why not, and what alternative advice will they be given by their owners?
Is AIC's long-range intent to operate AHP as a profit center, i.e., with the primary goal of maximizing some combination of dividend flow and resale value? If not, how does it differ? If so, what combination of growth and income strategy is contemplated? How will those choices affect policyholders in Maine?
Does AIC believe that its status as a policyholder-owned rather than an investor-owned company has no relevance as to the types of profit-maximizing strategies its affiliates should pursue?
In Anthem's response to the Superintendent's question 51, it was explained that Anthem didn't discuss any financial arrangements with BC managers, but has simply agreed to honor the contractual commitments made by the BC, including severance, etc. Did Anthem conduct due diligence to ascertain what financial exposure those contractual commitments might entail? Did Anthem take into account this exposure when valuing the purchase, or was this an open-ended commitment? (Follow up as indicated by answer.)
Please describe Anthem's investment strategy. Is this the same strategy which will be used for AHP?
How will it differ from BC' current investment strategy?
Who is responsible for investment services for Anthem? Who will be responsible for AHP's investment services?
During 1999, how much did AIC spend on information systems, health care technology, and health management initiatives? What is the projected spending for 2000? How does AIC intend to increase surplus to $1.8B during 2000? [Michael Smith]
What was the dollar value of the savings achieved through the integration of operations that is referred to? Was this in 1999 or both in 1999 and 1998? What were the sources of the savings (staff reductions, office consolidation, etc.) [Michael Smith]
What does AIC target as an optimal RBC ratio? At what level would AIC look to generate more capital? How would you generate the additional capital? In your opinion, at what level would AIC's ratings be impacted negatively? [Michael Smith]
How do you believe AHPM will benefit from Anthem's investment policy? How long do you estimate it will take to make the necessary changes to BlueCross' investment portfolio? What is AIC's current investment yield? Do you believe that this can be maintained in the current marketplace? What would you estimate to be the average investment yield of AIC affiliates? [Michael Smith]
You testify that AIC maintains its subsidiaries at 100-125% of company action level risk based capital while AIC is at 293%. Given the volatility in the health insurance market, why do you feel it is prudent operating policy to run the subsidiaries at such a low RBC level. [Michael Smith]
Calling your attention to Page 3, lines 18 to 23, of your prefiled testimony, you have testified that Central Maine Health Care will acquire what is currently BCBSME's 50% interest in the Central Maine Partners Health Plan from Anthem post-closing. Although you have noted that Mr. Van Geisen has reflected this in his testimony as well, I believe that Mr. Van Geisen testified that Central Maine Health Care will purchase this interest from BCBSME, not Anthem. Are you confident that this purchase will not occur until after the close of the BCBSME-Anthem transaction and that Anthem, not BCBSME, will be the seller of the shares? Can you direct me to documentation to support your view? Do you believe Mr. Van Geisen is inaccurate in his characterization of the seller in the second transaction as BCBSME? [David Frick]
In your testimony you state your belief that the Medicare liability adjustment in quite advantageous to the Foundation. Why do you believe the foundation should bear the burden of Medicare risk in any form? You also state Anthem would be "pleased to reinstate the $5 million amount to the purchase price if the foundation were willing to assume the risk." Isn't that a decision outside the control of the Foundation now that the Superior Court has ruled that the Medicare risk was to be removed from the charitable trust plan? [David Frick]
You state in your prefiled testimony that if this transaction is approved (and I may be paraphrasing) that BC would be a subsidiary of an Indiana based for-profit company, why is that relevant? [Peter Chalke]
Questions relating to Bulk Reinsurance
What portion of BC's current business is subject to the bulk reinsurance agreement? Is the State of Maine contract included? Does the agreement include any new business written up to the date of closing?
Is any group or individual currently insured by BC outside the scope of the bulk reinsurance agreement? If so, please describe what group or category of individuals and the rationale for the exclusion.
When will the bulk reinsurance agreement be executed?
Summarize the components of the bulk reinsurance agreement.
Assuming the transaction is approved, what enrollee benefits and/or services will change after the bulk reinsurance agreement takes affect?
Does AHP plan to discontinue any BC product lines during the next three years? Why?
Are there any liabilities AHP will not be assuming from BC, other that those listed in Section 2.02(b) of the revised APA?
A condition to excluding the entire Medicare liability is a reduction in the purchase price to fund reinsurance to cover all Medicare related claims in excess of 3% of the Total Consideration (after all adjustments). The revised APA provided that if the reinsurance is placed prior to closing the transaction, the reduction will be the reinsurance cost or $5.0 million, whichever is less. However, if such reinsurance is not placed prior to closing, the purchase price reduction will be $5.0 million. Should such reinsurance not be placed prior to closing of the transaction, does AIC intend continue to attempt to secure such reinsurance? If, after closing, the cost of the reinsurance is less than $5.0 million, will the difference be given to the Foundation?
Per the revised APA, the sale of Patriot Mutual's 43% interest in Machigonne to AHP is no longer a condition to the transaction. However, should the sale of the remaining 43% interest in Machigonne fail to occur prior to closing of the transaction, $4.2 million will be deducted from the purchase price. If, after the close of the transaction, Patriot Mutual's interest in Machigonne is sold to AHP, does AIC anticipate a post-closing adjustment to the purchase price for the difference between the actual sales price and $4.2 million?
Will the bulk reinsurance agreement between BC and AHP substantially reduce benefits or service to policyholders of BC, MPHP AND CMPHP? [Ask MPHP and CMPHP reps to respond as well.] Omit - see q. 5
Will AHP be liable to the original insureds of BC for loss or damage occurring under policies reinsured in accordance with the original terms of these policies?
Discuss how assignability will work as a result of the bulk reinsurance agreement. What problems does the applicant expect to encounter?
How will AHP minimize disruption to enrollees during transition? Discuss premium check assignability (checks received made out to BC), contract assignability for critical vendors/services (i.e., lab work), assignability of benefit forms to providers. What has AIC and its affiliates' experience been in previous transactions?
The bulk reinsurance agreement is limited by its terms to policies and contracts which "have been issued by AHS to its policyholders on or before, and are in effect on, the Transfer Date and are transferable under Maine law." Have you done any analysis to determine whether there are any contracts that need to be transferred which might not be transferable under Maine law? (If there are any, how do they propose to effectuate the necessary transition?)
Is a notice similar to "Exhibit A" to the bulk reinsurance agreement going to be sent to persons covered by contracts administered but not insured by BC? (If not, how will they be notified of the change in administrator? If so, how will the form be modified?)
How will the transition of provider agreements be accomplished? Will providers have notice and opportunity to opt out?
How and when will producers and administrators be notified of the change? [Note that if the assumption reinsurance law applied, notice to producers would be mandatory.]
Questions relating to Certificate Of Authority - Regular (Non-HMO)
Who will be the board members of AHP? Have biographical affidavits been filed with the Bureau for these individuals? [Anthem Panel]
Has any member of the board of directors of AHP ever served as a director of officer of an insurance company place in receivership? [Anthem Panel]
Who will be the officers of AHP? Has any officer of AHP ever served as a director or officer of an insurance company placed in receivership? [Anthem Panel]
Who will be the direct owner of the stock of AHP? [Anthem Panel]
Will this entity own 100% of the stock of AHP? [Anthem Panel]
How long has this entity been in existence? [Anthem Panel]
Who is the ultimate controlling person of AHP? [Anthem Panel]
Who will be responsible for the day-to-day management of AHP? [Anthem Panel]
Will AHP enter into any service agreements with any of its affiliates? What services are proposed to be performed by such entities? [Anthem Panel]
With respect to those services to be performed for AHP by AIC, does AIC perform similar services for its other Blue Cross affiliates? [Anthem Panel]
Are there any Blue Cross affiliates of AIC with whom it has not entered into a management agreement? [Anthem Panel]
How are the costs or expenses determined for services provided under the service agreements? How are these costs/expenses allocated? How often is the allocation formula reviewed? [Anthem Panel]
Has there been or is there currently any litigation questioning the reputation of, competence of, honesty of, or experience of any of the applicant's directors, officers, or other managers? [Anthem Panel]
Has there been or is there currently any litigation questioning the reputation of, business operations of, illegality of, manipulation of, accounts of reinsurance of, or bad faith of any person affiliated with, directly or indirectly, the applicant's directors, officers, or other managers? [Anthem Panel]
Does the applicant intend to operate as a health insurer with an HMO line of business? [Anthem Panel]
Questions relating to Certificate Of Authority For HMO, Including All HMO Standards
Does Anthem intend to involve Maine health providers in the development of medical policy? [Dr. Scaletter]
Does Anthem intend to involve Maine health providers in coverage decisions, particularly the determination of medical necessity? [Dr. Scaletter]
Does Anthem intend to involve Maine health providers in the development of credentialing standards? [Dr. Scaletter]
Does Anthem intend to involve Maine health providers in quality management and utilization review? [Dr. Scaletter]
Does AHP intend to contract with all of BC's current providers as contracts come up for renewal? [Anthem Panel]
When do the BC provider contracts transfer or assign to AHP? [Anthem Panel]
Subrogation: Title 24-A M.R.S.A. SS 4243) states: An individual or group contract subject to this chapter may not provide for subrogation or priority over the enrollee of payment for any hospital, nursing medical or surgical services or of any expenses paid or reimbursed under the coverage, in the event the enrollee is entitled to receive payment or reimbursement from any other person as a result of legal action or claim, except as provided in this section. The coverage may contain a provision that allows the payments, if that provision is approved by the superintendent and if that provision required the prior written approval of the insured and allows such payment only on a just and equitable basis and not on the basis of a priority lien. [Anthem Panel] Do you intend to pursue subrogation actions? [Anthem Panel]
How would you obtain the insured's prior written approval? [Anthem Panel]
If so, how would you advise the insured of his rights? [Anthem Panel]
What if the insured declines an invitation to give written approval? [Anthem Panel]
Experimental and/or Investigational policy and procedure (see document #318). Do you intend to change this policy subsequent to the change of control? [Dr. Scaletter]
Does Anthem's policy on experimental and/or investigational provide an exception similar to that of BC? [Dr. Scaletter]
Does Anthem exclude any specific treatments as experimental? [Dr. Scaletter]
What company, if any, does Anthem use to assess "experimental" procedures? [Dr. Scaletter]
BC publication "How to Appeal Our Decision" states: " If you disagree with the decision on your appeal, can you appeal further? No, our decision on your second-level appeal is final. You cannot appeal further." [See Section 1 of Confidential Document # 528. Appendix to the Applicant's Response to the Superintendent's Order on Completeness.] Question to Anthem: As procedures are taken off the experimental list, how will Anthem notify members who have recently applied for these treatments that they are now available? [Dr. Scaletter]
Document 325 (confidential discovery response including Anthem East Integration Executive Steering Committee minutes), speaks of providing training and support to associates in each new Anthem entity on "Anthem processes and integrated systems." Can you assure me that the use of national or regional standards will not negatively affect Maine enrollees especially those located in the rural areas of the state? [Dr. Scaletter]
How does Anthem handle initial adverse utilization review determinations? What is Anthem's policy regarding what information must be gathered prior to rendering an adverse UR determination? [Dr. Scaletter]
Does Anthem have a national medical director, regional medical directors or local medical directors? Please describe their qualifications. [Dr. Scaletter]
Will Anthem retain the local BC medical director? [Dr. Scaletter]
Please describe Anthem's policy in regards to the rendering of adverse UR determinations where a specialist is requesting a procedure on behalf of a patient. [Dr. Scaletter]
Explain how Anthem ensures appropriate clinical peer review by different clinical peers through all levels of adverse UR determination review including initial review, review on appeal and review on second level grievance. [Dr. Scaletter]
Does Anthem employ a voluntary external review procedure nationally? If so, how does Anthem ensure review by an appropriate clinical peer not previously involved in reviewing the adverse UR determination at issue? [Dr. Scaletter]
What is Anthem's policy in regard to clinical review of coverage determinations involving clinical issues such as coverage denials based on permissible preexisting condition exclusions or experimental and investigational procedure exclusions? [Dr. Scaletter]
The BC prescription drug formulary is currently devised by a "Pharmacy & Therapeutics Committee" made up of practicing Maine doctors and pharmacists. Will the implementation of Anthem Prescription Management eliminate the function of BC' local Pharmacy & Therapeutics Committee? [Dr. Scaletter]
Is it Anthem's policy to provide all enrollees with a copy of any applicable prescription drug formulary at the time evidences of coverage are distributed? If so, how are updates communicated to enrollees? [Dr. Scaletter]
If Anthem elects to change its formulary (to the extent permitted by law), such that previously preferred drugs are no longer preferred, what is Anthem's policy with regard to identifying and notifying enrollees currently taking those drugs? [Dr. Scaletter]
If an enrollee with prescription drug coverage subject to a formulary presents a prescription for a non-preferred or non-formulary drug to a participating pharmacy, what will happen? If the prescription manager rejects the prescription, does Anthem view that denial as utilization review function? If not, why not? If the prescription manager cannot at that moment access the enrollee's clinical records or contact the ordering provider to ascertain whether or not a formulary exception is warranted, what will be dispensed or communicated to the enrollee? [Dr. Scaletter]
Where will utilization review work be done? If there is a change, when and how will this happen? [Dr. Scaletter]
Who will make medical decisions for AHP? [Dr. Scaletter]
If this transaction is approved, will policyholders/enrollees have access to the same providers and hospitals as they do currently? [Anthem Panel]
Are providers or hospitals attempting to re-negotiate contracts with the applicant as a result of this transaction? Describe the status of these re-negotiations. Describe any change to the current network in place. [Anthem Panel]
Approximately 72 contracts do not have successor language, so AHP will not be able to take these over without consent of the other parties. What is the status of these? [Blue Cross Panel]
Have any providers terminated contracts in anticipation of this transaction? [Ask of ME Medical Association rep also.] [Blue Cross Panel]
Questions relating to Patriot Mutual
What services does AHP intend to provide to the Patriot Cos. if this transaction is approved? Compare these services to those BC is currently providing to the Patriot Cos. [Larry Glasscock]
What will happen to the surplus notes issued to BC by the Patriot Cos.? [Larry Glasscock]
How will the cost of services provided to the Patriot Cos. be affected by the transaction? [Larry Glasscock].
How long will the contract for services be in effect? [Larry Glasscock]
Why did AIC specifically exclude the Patriot Cos. from this transaction? [Larry Glasscock]
AIC appears to have other affiliates that offer similar products. Did AIC consider acquiring the Patriot Cos. and moving their business into another AIC sub? [Larry Glasscock]
How does AIC and AHP intend to deal with renewal of Patriot Life and Patriot Mutual products in force with AHP customers? [Larry Glasscock]
Will such products be replaced, upon renewal, by AIC products? [Larry Glasscock]
Will AIC and AHP be willing to work with Patriot management to renew, or at least consider renewing such products with Patriot? [Larry Glasscock]