STATE OF MAINE
DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION
BUREAU OF INSURANCE
34 STATE HOUSE STATION
AUGUSTA, MAINE 04333-0034

The Maine Ambulatory Care Coalition, a membership organization representing Maine’s Federally Qualified Health centers, including rural health centers and programs serving migrant and homeless populations, and an intervenor in this proceeding , provides this Closing Statement to urge the Superintendent to disapprove the Conversion Plan ("Plan") submitted by the Applicants because the Plan is neither complete nor "fair and equitable".

FACTS

Blue Cross Blue Shield of Maine ("BCBSME"), a Maine Nonprofit hospital and Medical Service Organization, has been engaged for several decades in the business of providing health insurance to subscribers and enrollees statewide. During the past several years, BCBSME sustained substantial operating losses and its capital surplus has been reduced significantly, although BCBSME continues to meet the financial standards of the State of Maine and the Blue Cross Blue Shield Association required for continued operation.

BCBSME negotiated and entered into an Asset Purchase Agreement, dated July 13, 1999, with Anthem Insurance companies, Inc. ("Anthem"), an Indiana mutual insurance company (the "Asset Purchase Agreement"). The Asset Purchase Agreement provides for the payment of a purchase price of $120, 000,000 and provides that such practice price is subject to downward adjustment for any losses sustained prior to closing and to defray transaction and other costs.

REDACTED

Pursuant to an order entered by the Superintendent of Insurance, the Maine Ambulatory Care coalition was granted to right to participate as an intervenor in the proceedings to review the Conversion Plan. In permitting the Maine Ambulatory Care Coalition to intervene in this proceeding, the Superintendent of Insurance recognized the central and essential role of Federally Qualified health centers in the delivery of health care services to health insurance policyholders and enrollees of health maintenance organizations.

In the second half of 1999, BCBSME incurred unexpected expenses and experienced net losses for the year of approximately $17,600,000. Management of BCBSME attributes the losses to some $10,000,000 of unbudgeted expenses to eliminate prospective Y2K computer problems, to increases in pharmacy benefit costs and to increases in medical claims. In accordance with the terms and provisions of the Asset Purchase Agreement, management of BCBSME calculated the adjustments to be made to the purchase price for the assets of BCBSME and determined that the net purchase price to be paid for the assets of BCBSME is approximately $81,700,000. (McGinty Prefiled Testimony, p. 11.)

REDACTED

In this proceeding, management of Anthem has refused to make any binding commitments to contribute any capital to Anthem BCBSME in excess of the minimum amount required to secure a Certificate of Authority to permit the operation of Anthem BCBSME in the State of Maine. Mr. Hoyer has testified that there is a substantive and fundamental difference between a subsidiary corporation’s "access" to capital of a parent corporation to make capital contributions to a subsidiary corporation. Tr. 4/5/00, p.m., pp. 20 and 21.

Federally Qualified Health centers (FQHCs) are community-operated programs providing

primary health and other health care services to populations underserved due primarily to poverty, lack of health insurance and geographic isolation. They are 501(c)(3) organizations providing services regardless of people's ability to pay with a publicized sliding fee scale for that purpose. In most instances, Maine's FQHCs are the only provider of primary care services in the community and they serve all the community, including those who are covered by Medicaid, Medicare and commercial insurance. Collectively, these programs serve over 70,000 patients with approximately 32,000 of those covered by commercial insurance.

Since FQHCs receive a portion of their operating funds from the federal Bureau of Primary Health Care, they meet strict programmatic requirements, including evaluations of financial stability and governance of their programs. Collectively, the health centers employ approximately 80 physicians and 40 physician assistants (PAs) and nurse practitioners (NPs). While most have one or more full time physicians, a few smaller sites are staffed primarily by NPs or PAs with a contracted physician providing oversight. Generally, the NPs and PAs have their own panel of patients with consultation with or referral to a health center physician when necessary.

FQHCs have long been recognized and protected as Maine’s safety net providers in Maine statute. Title 24, Subchapter 1, § 2324 requires non-profit hospital organizations to provide coverage for outpatient services provided at FQHCs, although the language references "incorporated non-profit health centers" rather than FQHCs since the statute language was enacted in 1979 and the term FQHC is a relatively new one. While BC/BS has reimbursed health centers for not only physician services, but for the services of NPs and PAs as well, they have been required to do so by this statute. There was no evidence provided that indicated that the current relationship between FQHCs and BCBSME would not change after the sale to Anthem absent any statutory or regulatory requirements.

In fact it was stated that in states other than Connecticut under their Medicaid operations Anthem only contracts with providers in FQHCs, not with the locally operated corporation itself. In addition, providers/clinicians in Anthem's provider directory are not specifically identified as FQHC providers/clinicians.

CONVERSION STATUTE

BCBSME has elected to sell its assets to a business subsidiary of Anthem and has elected to satisfy the Maine statutory requirements for such proposed transaction by preparing a "Conversion Plan" and submitting the Conversion Plan for review by the Superintendent of Insurance. The provisions of the Conversion Plan govern the proposed conversion of BCBSME, a Maine nonprofit hospital and medical service organization, to a stock insurance company and establish the requirements for the scope, content and review of the Conversion Plan.

A Conversion Plan submitted pursuant to the Conversion Statute, must include "an appraisal of the fair value of the aggregate equity of the converted stock insurer to be outstanding upon completion of the conversion plan . . ." 24 M.R.S.A. 2301 9-D-1. To the extent that the appraisal report identifies a range of values for the converted stock insurer, the Conversion Plan must include "the methodology for fixing a final value coincident with the completion of the transaction provided for in the conversion plan." 24 M.R.S.A. 2301 p-D-1. The required appraisal:

• must be prepared by persons independent of the organization (submitting the appraisal and the Conversion Plan), experienced and expert in the area of corporate appraisal and acceptable to the Superintendent;
• must be in form and content acceptable to the Superintendent; and
• must "contain a complete and detailed description of the elements that make up the appraisal, justification for the methodology employed and sufficient support for the conclusions reached in the appraisal."

24 M.R.S.A. 2301 9-D-1(2)

The statute also requires that the appraisal must enable determinations of value for purposes of determining the amount of cash or other assets that subscribers or the charitable trust are entitled to receive under provisions of the Conversion Plan as requi4red by paragraph E of the Conversion Statute. 24 M.R.S.A. 2301 9-D-I(i). The referenced provisions of paragraph E of the Conversion Statute require that shares of capital stock of the stock insurance company (the stock company that exists after the conversion of the nonprofit hospital and medical services organization) shall be transferred to the charitable trust that is to be organized in connection with the conversion of the nonprofit hospital and medical services organization and the Conversion Plan, without any requirement that the charitable trust pay anything for the shares. 24 M.R.S.A. 2301 9-D-E(3)

Paragraph E of the Conversion Statute, 24 M.R.S.A. 2301 9-D-E, provides that the Superintendent "may not issue final approval of a conversion plan unless the Superintendent finds" that:

• the terms and conditions of the Conversion Plan are "fair and equitable" (24 M.R.S.A. 2301 9-D-E(1)), and in determining whether the terms of the Conversion Plan are "fair and equitable" the Superintendent is required to consider, among other things:
• whether the Conversion Plan complies with the provisions of the Conversion Statute and any rules adopted by the Superintendent under the Conversion Statute, and
• whether the Conversion Plan "would adversely affect, in any manner, the services to be rendered to subscribers;"
• the Conversion Plan is approved by the vote of not less than 2/3 of the members of the Board of Directors of the nonprofit hospital and medical services organization; and
• the Conversion Plan complies with all applicable law.

ARGUMENT

The Superintendent may not issue final approval of the Conversion Plan for the reasons set forth below:

1. The conversoin plan does not include the fair value appraisal requierd by the conversion statute and, and thereofer, is materially deficient.
2. We have read the closing statements of Consumers for Affordable Health Care, Maine Medical Association and Maine Osteopathic Association and agree with their findings and conclusions relating to valuation.
3. REDACTED
4. The superintendent cannot make any finding that the conversion plan is fair and equitable.

Paragraph 9-D E of the Conversion Statute requires that the Superintendent make the finding, as a prerequisite to any final approval of the Conversion Plan, that the terms and provisions of the Conversion Plan are "fair and equitable." Paragraph 9-D L of the Conversion Statute, in turn, requires that in making any such determination that the Conversion Plan is "fair and equitable", the Superintendent must consider whether the Conversion Plan would adversely affect, in any manner, the services to be rendered to subscribers. The Superintendent cannot make any finding that the terms of the Conversion Plan are "fair and equitable" for several reasons as noted below.

Statewide Network. Anthem’s unwillingness to commit to always providing statewide coverage and maintaining a statewide network clearly adversely effects services rendered to subscribers. Maine citizens, particularly those in rural areas, depend on BCBSME for their health insurance. Currently, people living in Aroostook County, the citizens living on the island of Vinalhaven, and the residents of Greenville have access to and many of them are subscribers to health insurance provided by BCBSME. However, these are not areas that most insurance companies are anxious to cover when they do business in Maine and they are not the areas in Maine that are the most profitable to serve. While BCBSME may not be required by statute to have a statewide network, it does have a charitable mission and is accountable to the Attorney General and the Legislature. That accountability ensures they will provide coverage statewide.

Since in the proceeding Anthem was not willing to commit to maintaining a statewide network and to providing health insurance coverage statewide, the Superintendent cannot find that there will be no adverse effect on policyholders and the conversion cannot therefore be approved. To be able to approve the sale, the Superintendent would need to require as a condition of the conversion that Anthem has and will continue to have an adequate statewide network and that it will provide health insurance statewide as long as it continues to do business in the state. Given the likely structure of Anthem, this condition to maintain a statewide network must also include the requirement that Anthem provide sufficient capital to Anthem Maine to support this statewide coverage. To ensure that Anthem continues to meet this condition, an annual report should be made by Anthem to the Superintendent of Insurance and that report should include providers and subscribers listed by town and comparisons for each for the prior three years. This report should be made public and the Superintendent should determine annually if the requirement is met and require Anthem to take steps to do so if it is not.

Policy and Practices. Since no information concerning Anthem health care delivery policies and practices is included in the Conversion Plan and the Superintendent determined in most instances that matters concerning Anthem policies and track record related to provider contracting are irrelevant to this proceeding, adequate and necessary consideration of the question of whether the Conversion Plan "would adversely affect, in any manner, the services to be rendered to subscribers" was precluded.

The services to be rendered to subscribers of BCBSME and other nonprofit hospital and medical services organizations are the health care services that are to be provided by and through physicians and other health care professionals, hospitals and other providers. Paragraph 9-D E (1) of the Conversion Statute makes clear that any adverse affect on the delivery of health care services would have to be viewed as a material factor in determining whether the Conversion Plan is "fair and equitable." Since the statute also requires that the Superintendent must give notice to and permit subscribers to participate in the required adjudicatory hearing, there is virtually no room to conclude that the Superintendent can make a finding that the implementation of the Conversion Plan will not adversely affect the delivery of health care services to subscribers, without a full and complete review of the issues in the adjudicatory hearing. The Superintendent’s prehearing orders denying access to information and documents concerning Anthem’s health care delivery policies and practices, often renewed in the course of the adjudicatory hearing, have precluded any meaningful review of the issues related to the delivery of health care services.

Under the standards and review process established by the Conversion Statute, the BCBSME health care delivery policies and practices to date, whatever they are, should be recognized as the base line from which one is to determine whether there will be any adverse change as the result of the conversion transactions under review. Because discovery of information and documents concerning Anthem health care delivery policies and practices has been denied, because the Superintendent has deemed most issues of Anthem health care delivery policies and practices irrelevant to this proceeding and because the Superintendent has in most instances prohibited review of the issues in the adjudicatory hearing, there is not sufficient information in the record concerning such policies and practices. Without sufficient record to provide support, the Superintendent cannot make any finding that the implementation of the Conversion Plan, and the attendant transfer to Anthem of substantial authority and control of the delivery of health care services would not "adversely affect, in any manner, the services to be rendered" to the existing 440,000 subscribers of BCBSME.

CONCLUSIONS

For the reasons noted above and for those included in the closing statements of consumes for Affordable Health Care, Maine Medical Association and Maine Osteopathic Association, the Superintendent should not approve the Conversion Plan. However, if the conversion is to be approved, there are several conditions that should be placed on the sale in addition to those noted above.

The Federally Qualified Health centers (FQHC) are important components of Maine’s safety net. It is the FQHCs as entities, not the employees, who have the ability to commit the corporation to a specific contract, including the services the FQHC will provide and the conditions under which it will provide those services. While we certainly understand that it may be appropriate to have providers co-sign the contract, it is also critical that the FQHC itself and all of its providers, including physicians, nurse practitioners and physician assistants, be identified in Anthem’s provider handbook since this is the only way that subscribers can easily identify that they have access to FQHC services, which is particularly important as it relates to issues of women’s health. For instance, if a FQHC has a male physician and a female nurse practitioner, but only the physician is listed in the handbook, women either won’t have or won’t know they have access to a female provider. If the conversion is approved, Anthem should be required to contract with FQHCs, should be required to pay for services of NPs and PAs in FQHCs at the same level as physicians and should be required to list both the FQHC and the physicians, NPs and Pas in the provider handbook.

In discussions, Anthem seems unclear as to whether they accepted the Federal Tort Claims Act (FTCA) for coverage for FQHCs without conditions. It is important that this coverage be accepted to ensure that fragile health care systems do not have to bear additional costs if they are using FTCA coverage. Therefore, we suggest that as a condition of the sale, Anthem be required to accept this coverage.

Anthem did not clearly indicate whether they do or would likely require JCACHO accreditation for FQHCs. JCACHO accreditation is oriented towards larger ambulatory care programs and it is very expensive for small sites to obtain and maintain this accreditation. FQHCs already have comprehensive oversight from the Bureau of Primary Health Care (BPHC) as a condition of receiving their funding and we feel strongly that JCACHO or other accreditation should not be imposed upon them. Therefore, we suggest as a condition of the sale that as long as FQHCs have received grant funds and therefore are subject to oversight by the federal government, it should not be required to have accreditation from a third party.

Since a relationship between Maine BC/BS and FQHCs is currently required by statute, there have not been concerns about details of their HMO certificate of authority as it relates to their plan for their relationships with essential community providers. FQHCs are clearly essential community providers in this state and therefore, if the sale is approved, before Anthem is granted a certificate of authority or is able to assume BC/BS’ certificate of authority, we request that it submit a plan for dealing with essential community providers and that plan would need to be approved by the Superintendent.

It seems clear from the proceedings that the decision making relating to coverage and quality issues will be made at a centralized level within Anthem and it has been stated that an advisory committee will be established at the state level. Currently, BCBSME has a charitable mission and can be held accountable for that charitable mission by both the Attorney General and the Maine Legislature, but this will not be the case once BCBSME is sold. Therefore, we feel that Anthem’s plans both as they relate to its own board of directors and its Maine Advisory Board is inadequate. In the first instance, Anthem is only committing they will have a representative from Maine on its board for one two year term. If the conversion is approved, it should only be done so on the condition that Anthem always has a representative from Maine on its Board of Directors.

In the second instance, Anthem is proposing that their Advisory Board be selected by the board of what is now BCBSME. Given the change, it is critical that any such Advisory Board have a broader representation than that of the current BCBSME board and it not be selected by a self perpetuating process. Therefore, we suggest if the conversion is approved, it should be a condition that a state level Advisory Board be established with its members including one from each organization granted intervenor status in the transaction with six additional members appointed for staggered two year terms by the Attorney General. Members appointed by the Attorney General should include representatives of underserved populations and various geographic regions. Also, if the conversion is approved, we suggest that Maine representatives to other advisory groups within Anthem , such as an advisory group to Anthem East, be selected by the Maine advisory group.

The Board of Anthem Maine and executive officers should be required to consult with the Advisory Board in person or by telephone e conference call at least once quarterly during the first twenty-four months following the establishment of the Advisory Board and, thereafter, at a reasonable time in advance of any decision to make any material changes in operations, including, without limitation, significant changes in (1) product portfolio, (2) employment levels, (3) community benefits, (4) medical management, (5) network access, (6) provider contracting, (7) benefit offerings, and (8) any drug formulary. Prior to the implementation of any such operational change, Anthem Maine should submit a detailed communication plan to the Superintendent and the Advisory Board for notifying affected policyholders, enrollees, health care providers, employees and members which shall explain in lay terms the impact of such changes and provide clear information about their options, rights and alternatives. Anthem Maine should include with its notice any plans of action it may anticipate implementing to avoid or minimize its disruption in patient care. In addition, there should be a reasonable means of informing the public periodically as to the work of the Advisory Board. The Advisory Board should be entitled to review all information that is reasonably germane to its work, including otherwise confidential proprietary information, but Anthem Maine may require members of the Advisory Board to execute and strictly comply with standard confidentiality agreements with respect to such information.

We have read the closing statement of Consumers for Affordable Health Care and agree with its conclusions relating to conditions that must be placed on the conversion is if it is approved. Specifically, we agree that Anthem should be required to commit 200 to 250% of its company action level to risk based capital. Anthem should be required to maintain all aspects of BCBSME’s current operations including products and medical policies for not less than five years. Anthem should be required to maintain BCBSME’s statewide provider networks in perpetuity and Anthem’s drug exclusionary policy must be rejected.

We have read the closing statement and brief of the Maine Hospital Association, April 14, 2000, confidential version, and agree with much of it, including several of the proposed standards and requirements that the MHA urge be incorporated into any final order of approval. These standards are necessary to fulfill one or more of the several statutory provisions of the conversion statute and the Insurance code, and the specific review criteria laid out in the Superintendent’s notice of November 4, 1999.

In addition to the conditions we requested, we agree with MHA that: The Superintendent should expressly require that Anthem Maine remain a Maine domiciled corporation and that intervenor parties and the public be notified and given right to be heard should Anthem Maine prospectively seek to change its domicile. The Superintendent must impose conditions and requirements on the approved conversion to protect patients by assuring payments to hospitals in the event of insolvency. However, we would exchange the word "providers" for "hospitals". Anthem should be required to continue to offer full range of individual and small group products and to undertake adequate marketing of products.

Finally, during the proceedings there was discussion by the intervenors concerning the potential for Anthem de-mutualizing and going public. Therefore , the Superintendent should stipulate that should Anthem de- mutualize at any time in the future, they shall promptly file with the Superintendent and the Advisory board a copy of any plan of de-mutualization together with a specific statement detailing the impact of such de-mutualization on the policyholders, employees, and contracting providers of Anthem Maine. The Superintendent should retain the authority to disapprove any acquisition of control arising from such de-mutualization if, in addition to the other criteria set forth in Maine statute, the treatment of Anthem Maine policyholders is such as to be unfair and prejudicial.

Dated: April 14, 2000

Respectfully submitted,

_______________________

Bonnie Post, Executive Director

Maine Ambulatory Care Coalition

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