High court blocks sale to Anthem
Justices' unanimous ruling keeps insurer Kansas owned
Topeka ? The Kansas Supreme Court on Wednesday upheld a decision that knocked down a proposed merger involving Blue Cross and Blue Shield of Kansas — and ending a spirited public debate about the future of the state’s largest health insurer.
“This is probably one of the single most important things that has happened in Kansas in a long, long time,” said Dr. Bill Roy, a former congressman from Topeka and vocal opponent of the merger.
He said the high court’s unanimous ruling would save policyholders hundreds of millions of dollars in premiums during the next few years.
But Kansas Blue Cross officials said the company would have to make adjustments to remain competitive without the advantage of a big-monied partner. They don’t plan to seek another suitor.
“This was final,” said Graham Bailey, a spokesman for the Topeka-based company that provides private health care coverage to about 715,000 Kansans. “We are planning to go straight ahead as a single Blue Cross plan.”
The issue arose in 2001 when a multibillion dollar corporation — Anthem Insurance Cos. Inc. of Indianapolis — and Blue Cross of Kansas announced a proposed merger.
As required by law, the companies sought the approval of the Kansas Department of Insurance.
But former Insurance Commissioner Kathleen Sebelius — now governor — rejected the proposal, saying it would lead to higher premiums for Kansas customers. Her refusal was the first of its kind to slow Anthem’s buying binge of Blue Cross plans across the nation.
Anthem and Blue Cross sought to overturn Sebelius’ decision, arguing she had exceeded her authority by going into issues of the merger, such as management decisions by the companies, that under state law she was not allowed to consider.
But Wednesday, the state Supreme Court ruled the insurance commissioner had broad authority to deny acquisitions and affirmed her order doing just that.
“Protection of the public is a longstanding and important function of the commissioner,” the court said in an unsigned 65-page decision. “The commissioner is not required to wait until likely future harm to the public appears before locking the barn door; she may do so now as a preventative.”
Opponents of the merger were gleeful; Blue Cross said it was ready to pursue new growth strategies alone; and Anthem issued a statement that indicated it was through with Kansas.
Anthem says goodbye
Larry Glasscock, Anthem chairman, president and chief executive officer, said the court ruling would have no impact on Anthem’s projected earnings and that the company would “remain on our strategic course to grow our market share in existing markets, and continue to seek expansion through affiliations with other health plans that choose to partner with us.”
Anthem is the fifth-largest publicly traded health insurer in the country, insuring 11.7 million people in Blue Cross plans in nine states. The company has reported assets of $12.9 billion and 2002 revenue of $13.3 billion.
Michael Mattox, president and chief executive of Kansas Blue Cross, sought to assure Kansans that despite its desire to join Anthem, the company was in good fiscal condition.
“We currently have a strong, financially sound plan in Kansas today, but we need to find solutions to the challenges facing the health care marketplace in order to remain strong and competitive,” he said. “We’re anxious to get to work devising a new set of alternatives.”
Since announcement of the proposed merger, Kansas Blue Cross has lost 80,000 policies.
Under the proposed deal, Anthem would have paid $190 million for Blue Cross of Kansas and the Kansas company would have disbursed $320 million to 172,000 policyholders as part of transforming from a policyholder-owned company to one owned by stockholders. The transformation was approved by a nearly 2-to-1 margin by policyholders in an election in 2002.
But a coalition of doctors, nurses, hospitals, and advocates for lower-income groups opposed the deal, saying Anthem’s for-profit motives would result in reduced health care and increased premiums.
Sebelius agreed and rejected the merger, a popular decision some said smacked of politics. Two weeks after her ruling in February 2002, she announced her bid for governor, a race she eventually won.
Wednesday, Sebelius issued a statement; “I approached this transaction with an open mind and carefully weighed all the evidence before me. After weighing the evidence before them, the Kansas Supreme Court agrees that this takeover is clearly not in the best interest of the people of Kansas who would be forced to pay millions of dollars of additional health insurance premiums while the company reserves, now dedicated to Kansans, would be drained. This is the best outcome for the people of our state.”
Jerry Slaughter, executive director of the Kansas Medical Society, agreed the decision was good for Kansas.
“It keeps a pretty precious asset — a homegrown Kansas insurer — here,” he said.
The court had the option of returning the case to the commissioner’s office — an outcome some industry officials and analysts predicted as the most likely.
Sebelius’ successor as insurance commissioner, Sandy Praeger, a former state senator from Lawrence, praised the court’s decision for clarifying the commissioner’s authority. She also pledged to work to help Blue Cross.
“It’s incumbent upon this office to work with Blue Cross as they move forward so that they can remain a strong, viable company serving the needs of Kansans,” she said.
Praeger has said in the past that she agreed with Sebelius’ rejection of the merger, but on Wednesday said if another proposed merger was made, it would require a fresh look.
“We’d gather new information and have new hearings. We’d be starting over with a new proposal, and nothing in this decision would really be carried forward except for the notion of our ability to regulate,” she said.
But Bailey, the spokesman for Blue Cross, said the company no longer was seeking suitors.
“This shuts the door on any Anthem activity,” Bailey said. “We will not be entertaining any offers from Anthem. We will not pursue any other affiliation activity.”
|2001May 30: Blue Cross and Blue Shield of Kansas announces plan to become a wholly owned subsidiary of Anthem.Dec. 4-14: Hundreds of policyholders turn out to make their views heard at public comment meetings in Hays, Garden City, Wichita, Pittsburg and Topeka.Dec. 24: Lawrence Memorial Hospital Chief Executive Officer Gene Meyer says he opposes the deal, saying it’s not in the best interest of Kansas patients.Dec. 31: Analysis by a Kansas Insurance Department team determines significant premium increases as a result of the deal would outweigh any benefits.2002Jan. 3: Kansas Medical Society, Kansas Hospital Assn., Kansas State Nurses Assn. and Kansas Association for the Medically Underserved voice opposition to the deal.Jan. 7: The Lawrence school district adds its voice to the chorus against the deal. Without taking a formal vote, the school board accepts the decision of a committee that explored the issue.Jan. 8: Lawrence City Commission votes unanimously to oppose the sale.Jan. 7-9: In three days of public hearings, Kansas Insurance Commissioner Kathleen Sebelius hears arguments for and against the sale.Jan. 14: Promised an average cash payment of about $1,500 each, policyholders of Blue Cross and Blue Shield of Kansas vote in favor of a deal that would allow the company’s sale. The final tally was 63,504 policyholders for the sale and 36,618 opposed, or 63.4 percent to 36.6 percent.Jan. 18: Blue Cross of Kansas and Anthem begin a statewide newspaper, radio and television advertising campaign to respond to media coverage and critical comments made by opponents of the transaction.Jan. 25: Anthem offers $25 million to establish a fund that would help stabilize premium rates for small businesses if the transaction is approved.Feb. 11: Sebelius denies takeover of Blue Cross of Kansas by Anthem.Feb. 19: Blue Cross appeals to state district court.June 7: Shawnee County District Judge Terry Bullock rules Sebelius erred in her decision to block the sale and ordered her to reconsider.June 10: Sebelius appeals to the Kansas Court of Appeals, says she’ll ask that the case be transferred to the Kansas Supreme Court.June 21: Supreme Court agrees to take the case, cutting about a year from the appellate process.2003Feb. 4: A coalition of hospitals and health-care consumers joins forces to oppose the proposed sale.March 5: Kansas Supreme Court hears arguments in the case.Wednesday: Supreme Court overturns Bullock’s order and upholds Sebelius’ decision. Blue Cross of Kansas announces merger with Anthem is off.|