It has been a frustrating year so far for Anthem, the Indianapolis-based insurance giant.
The collapse earlier this month of its proposed merger with Blue Cross and Blue Shield of New Jersey represents a major setback in Anthem's effort to establish an East Coast beachhead (June 16, p. 22). The original deal also would have included Blue Cross and Blue Shield of Delaware, but both plans called off their merger in April.
Meanwhile, Anthem is waging a battle with hospitals in its own back yard. The mutual insurer canceled all its hospital contracts in Indiana in order to renegotiate more favorable terms. But efforts to seal new pacts have moved sluggishly.
Still, Anthem's strong regional presence in Indiana, Kentucky and Ohio, where it runs Blues-licensed plans, and improvements in earnings at its Indiana and Ohio plans has won it an A rating from A.M. Best Co. The Oldwick, N.J.-based insurance rating company recently affirmed the "excellent" rating.
The demise of the New Jersey deal "does impede their strategy of evolving beyond the Midwest," said Manny Nowacki, a vice president with A.M. Best.
But Anthem's proposed merger agreement with Blue Cross and Blue Shield of Connecticut provides another avenue for staking out that territory, he said.
Last week, Anthem executives were in Hartford, Conn., to defend the merger during several days of public hearings sponsored by Connecticut's insurance department.
The proposed New Jersey Blues-Anthem merger hinged on the Blues' conversion to mutual status. That effort hit a roadblock last December when state Attorney General Peter Verniero ruled that the Newark, N.J.-based Blues plan is a charity under New Jersey laws. As such, the Blues plan could be required to move assets to a charitable organization as a condition of mutualization.
A state court subsequently upheld the attorney general's ruling on the Blues' charitable status, a position the plan vehemently contests. Ultimately, the New Jersey plan's troubles derailed its agreement to acquire Blue Cross and Blue Shield of Delaware.
"We're very disappointed that the legal and regulatory environment in New Jersey was not such that we could move forward with our proposed merger," said Don Stengele, an Anthem spokesman.
The $6 billion insurer intended to acquire the $1.3 billion New Jersey plan in a noncash transaction.
"That was an opportunity to grow by one-sixth," Stengele noted.
Despite the setback, both companies are pressing ahead.
The New Jersey plan recently proposed buying Lawrenceville, N.J.-based Physician Healthcare Plan of New Jersey, a financially troubled provider-owned HMO and PPO operator with slightly more than 4,000 enrollees.
Anthem, meanwhile, is trying to see its proposed merger with the 877,000-enrollee Connecticut Blues plan to fruition.
In March, the Connecticut plan's 100,000 policyholders overwhelmingly approved the merger, said Albert F. May Jr., a plan spokesman.
But opponents already have threatened to sue.
Phil Wheeler, president of Citizens for Economic Opportunity, a coalition of community, religious and labor organizations, said his group was one of 12 organizations denied an opportunity to directly question officials at last week's hearings. The coalition plans to sue because "we think that's illegal," he said.
Stengele said the company is discussing possible business opportunities with several East Coast organizations, adding that it would be premature to reveal their names.
Back on home turf, a number of hospitals in Anthem's Indiana network are up in arms over a new contract that the insurer is attempting to put in place (See related story, p. 106). Those terms include a prudent-purchaser provision, entitling Anthem to receive the best discount that a hospital gives any of its payers, and a quality assurance program, requiring hospitals to supply outcomes data.
And, in something akin to a line-item veto, Anthem wants the ability to renegotiate provisions of a contract without having to cancel the entire agreement.
Madison, Ind.-based Kings Daughters' Hospital, for one, has not agreed to Anthem's terms and, barring a last-minute agreement, will drop out of the network on Aug. 1.
"For me, the biggest issue was the unilateral right to amend any part of the contract at any time," said Roger J. Allman, the hospital's president.
"Some people have called this Anthem's take-it-or-leave-it contract, and that's anything but the truth," Stengele responded. He said Anthem is willing to make accommodations based on hospitals' capabilities and market conditions.
It's been difficult moving to a new type of contract in what has been "one of the last strongholds of traditional indemnity insurance," he said. "I think it would be fair to say it's going slower than expected."