Initial Filing

IN SUPPORT OF APPEAL FROM THE COMMONWEALTH COURT ORDER OF DECEMBER 28, 2007, WHICH UPHELD

OF THE INSURANCE COMMISSIONER M. DIANE KOKEN DISMISSING THE CHALLENGE OF ROBERT B. SKLAROFF, M.D.

The Order of the Commonwealth Court [“Court”] dated December 28, 2007 is final and immediately appealable {Tab A}. The Court has jurisdiction of this matter because this Order is appealable [P.R.A.P. 301], based on an opinion and order of the Commonwealth Court {Tab B}.

This Order upheld the 11/27/1996 Decision and Order of Linda S. Kaiser, then-Insurance Commissioner of the Commonwealth of Pennsylvania {Tab C} that (1)—approved the transfer of control of certain insurance company and HMO subsidiaries of Medical Service Association of Pennsylvania d/b/a Pennsylvania Blue Shield [“PBS”] and Veritus, Inc. d/b/a Blue Cross of Western Pennsylvania [“BCWP”] {collectively, the “Consolidating Companies”} to a new corporation, Highmark, Inc. [“Highmark”], pursuant to a plan of consolidation; and (2)—approved the proposed bylaws for Highmark. In this Decision and Order, the Commissioner also held, as a matter of law, that she lacked jurisdiction to review (1)—the consolidation of PBS and BCWP; (2)—whether a single corporation could legally operate both a hospital plan and a health service plan; and (3)—whether the Certificates of Authority held by PBS and BCWP were property rights which would pass, by operation of law, to Highmark upon consolidation and, therefore, would not require issuance of a new Certificate.

That Order which dismissed a duplicate filing for Reconsideration (after the initial one had been adjudicated but before prior counsel had filed a motion to withdraw) provides the outline which is being invoked herein for, otherwise, it had restated (and preserved) essential appellate considerations while abiding by a 10-page limitation. And, as per request, the filing by Capital Blue Cross has been abstracted (not withstanding its author’s concern regarding “theft”), both with regard to antitrust concerns and its “standing.” {Only the references to the appended documents and this last sentence have been changed, when compared with the original filing.}

The Scope of Review [2 Pa.C.S. § 1551(a)] related to Quasi-Judicial Orders includes questions involving the validity of a statute, the jurisdiction of the government unit over the subject matter of the adjudication, and questions which the petitioner could not, by the exercise of due diligence, have raised before the government unit. In this case, the validity of no statute has been challenged, although jurisdictional concerns [supra] are ripe for adjudication. There are no questions which this petitioner would want to raise in addition to those which have already been aired before the Commissioner (at myriad times, during these lengthy proceedings).

The Standard of Review includes procedural aberrations (e.g., arbitrary rejections of discovery requests) and erroneous legal interpretations (e.g., classifying a subsidiary as an “already affiliated” entity, immune from antitrust analysis); all discretionary concerns are to be depicted narrowly as subset-issues related to challenges to the Department’s decision-making.

One of the questions raised addresses the very nature of the proceedings, i.e., whether they were to have been predicated on the absence (prior to issuance of the Decision and Order) of a “hearing pursuant to Section 504 of the Administrative Agency Law” (as was mandated prior to transfer to the Insurance Department by this Court, pursuant to the en banc 8/12/1997 Order), or whether they were to have been perceived as an appeal of an agency order (following issuance of the Decision and Order). Therefore, it is anticipated that the Standard for Review will also encompass all subsidiary concerns derivative of the Court’s posture after this matter was initially transferred from its jurisdiction (at its behest) on 8/12/1997.

[It is recognized that many sub-questions are encompassed within this filing, but it is felt that they cannot be ignored, inasmuch as the core-concerns were articulated at the onset (1996) and the subsequent-concerns accumulated—to a significant degree—while the former festered.]

AND NOW, this 28^th day of December, 2007, after having considered petitioner Robert Sklaroff’s application for reargument and the answers filed by respondent and Intervenor, Highmark Inc., the application is denied.

{The two procedural concerns raised by the Commissioner (need for brevity/clarity and alleged absence of compelling rationale) are encompassed in those of Highmark, Inc. The former are disposed-of herein, and the latter are addressed at the end of the filing; nothing has been changed in the substance of the original filing (other than what was mandated); it has been reformatted.}

{The “brevity/clarity” concern is encompassed in the terse statements of conceptual issues, and they are all “compelling” for, if nothing else, “the intermediate appellate court has so far departed from accepted judicial practices or so abused its discretion as to call for the exercise of this Court’s supervisory authority” [see Highmark’s filing, p. 13, citing § 210 Pa. Code § 63.5.]. Documentation of these concerns (already elucidated supra, on page 2, in bold-print), is distilled throughout this brief, space-permitting. If the Court wishes additional briefing, it will be given; certainly, the Capital Blue Cross attorneys have devoted significant scrutiny to these issues.}

a. Did the Commissioner have jurisdiction over the consolidation and, thus, inappropriately disregard the lack of validity of the PBS Corporate Membership’s consolidation-approval vote (and thereby also refuse to probe other facets of the flawed approval process)?

b. Does Highmark illegally hold dual-certification, lacking authority to operate as a single entity under the Certificates of Authority of both a hospital plan and professional health service plan (due inter alia to the absence of previously-adopted enabling legislation)?

c. Did Highmark illegally “inherit” (having passed “by operation of law”) Certificates of Authority held by PBS and BCWP?

d. Did the Presiding Officer exclude vital antitrust concerns from being addressed during the hearing (inter alia presuming KHPW to be “already affiliated”), gutting this effort?

e. Did the Presiding Officer preclude Sklaroff from optimizing his testimony regarding his concerns regarding the lack of Highmark’s compliance with PBS’s Social Mission?

f. Did the Highmark bylaws compromise the capacity to optimize achievement of the traditional PBS Social Mission by precluding meaningful patient-advocacy by physicians?

g. Did the Highmark witness prove the antitrust violation, testifying that, when she worked for PBS, she dealt with a relevant product service area as being “health insurance” and a relevant geographic area as being definable as that of the BCWP (i.e., the western 29 counties)?

h. Was the Commissioner’s 5/26/2006 Order defective inter alia because (1)— it ignored the bias of her Presiding Officer; (2)—it contained an incomplete and flawed factual analysis; and (3)—it failed to address all key-points in Sklaroff’s two Post-Hearing submissions (Brief and Reply to the Briefs of Respondents Highmark and the Department)?

The 11/27/1996 Order of the Insurance Department [“Department”] promptly yielded the creation of Highmark on 12/6/1996 after consolidation of PBS & BCWP. One day earlier, on 12/5/1996, Robert B. Sklaroff, MD [“Sklaroff”] inter alia filed litigation in this Court, attempting to forestall that eventuality. This Appeal represents the culmination of a lengthy process which—a half-decade ago—included a full, public, adjudicatory adverse-party hearing which this Court (en banc, on 8/12/1997) had mandated. It is now necessary to review all facets of this process, including issues over which the Commissioner [Kaiser then, Koken later] contended she lacked jurisdiction, prominently oversight of the consolidation process itself (which no other governmental entity has scrutinized, as the Department continues to recognize).

Commissioner Koken ruled (in her 1/14/1999 Opinion and Order) that she had jurisdiction to determine only: (1) whether the change in control of the subsidiaries should have been allowed to occur; (2) whether Highmark’s bylaws are legally appropriate and permissible; and (3) whether Highmark should be granted a Certificate of Authority.

The details of how that process transpired are recounted inter alia in the Commissioner’s Order and in the Preliminary Brief appended to the Petition for Review; indeed much elaborative conceptual data (particularly in its Introduction) has been included in the latter (including anticipated counter-arguments to be promulgated by Department and Highmark) to afford the maximum opportunity to elucidate herein detailed concerns regarding what has transpired.

Minimal involvement in this review-process was provided by the other petitioners— the Pennsylvania Society of Internal Medicine [“PSIM”] and the Pennsylvania Medical Society [“PMS”]—and the limited-intervenors—the Insurance Federation of Pennsylvania and the Pennsylvania Health Law Project [through the Mon(onogahela) Valley Uninsured Group].

Formation of Highmark was based on an invalid vote of the PBS Corporate Members to accept the plan of consolidation, both because the number of affirmative votes fell one vote shy of the 75% needed to change the bylaws (as a prerequisite) and because material information was concealed from the PBS Members (prior to the vote). The Commissioner failed to oversight the consolidation process, while recognizing that adopting this posture failed to serve the public.

The Legislature neither authorized nor contemplated the capacity to be dually-certified as a hospital plan and professional service plan, whether it be dubbed a “health plan” (a phrase illegally derived from a statute’s title) or an “HPCA Corporation” (a catchall-phrase undefined in any statute). A PBS-monograph cites legislative opposition, a statute expressly prohibits it, and functional contradictions preclude one entity from abiding by the thrust of both laws. Highmark was to function autonomously, to serve two “masters” harboring contrasting concerns and con-ducting dissimilar operations; unlike other states, no enabling laws had been previously enacted.

Before currently-held Certificates (by PBS and BCWP) were transferred to Highmark, the Department should have subject the surviving entity to a public hearings process through application for a fresh Certificate of Authority, oversighting the plans of the “inheriting” entity.

The Commissioner mandated the database that had been available to Ms. Kaiser was the only information that could be weighed through this process; post-consolidation data could not be invoked (proving creation of a monopoly) to buttress any arguments against this decision.

During the pre-hearing process, because many key-arguments were inexplicably rejected, myriad fundamental decisions require review, ranging from the exclusionary discovery process to the exclusion of an already-affiliated HMO from antitrust calculations (a few weeks pre-trial). Despite this posture, it was shown that the consolidation destroyed the PBS’s “Social Mission.”

1. The 1997 Transfer-Order noted a proper hearing hadn’t been conducted; a decade hence, a proper hearing still hasn’t been conducted. Asserting retroactively the case had been transferred “for post-approval adjudication” is phraseology that was added to the 1997 Kaiser Decision.

The Presiding Officer failed to recognize that this was to be a de novo process. Indeed, by transferring the case back to the Department, the Court had challenged the legitimacy of the (“Informational Hearing”) process that had transpired, for it had violated the Administrative Agency Law [§504]. Thus, although the Court did not render an interim decision to undo the consolidation, it did mandate that the Department conduct a proper hearings-process.

This denotes/connotes the conclusion that its actions had previously been suboptimal, violating statute. Thus, this de novo process should have been conducted as the original process should have been conducted, namely, with the burden of proof being accepted by the applicants (PBS and BCWP), not Sklaroff. In fact, in an earlier discussion, the Presiding Officer mistakenly legitimized what had been done (and not done) by the Department when it was concluded (incorrectly):

…the formal aspects of the current case prevent the open process sought by Dr. Sklaroff. That process already took place in the Department’s review of the applications. This hearings office is not the place, and the hearings process is not the method, for review of application materials, except insofar as the materials are relevant to specific objections.

Even Highmark [#6 of its submission] admitted that this was to be a de novo hearing:

This is a de novo hearing, but only to the extent necessary to establish the factual basis of petitioners’ claim that they have legally cognizable rights under the Administrative Agency Law that were adversely affected by the Commissioner’s Decision and Order.

2. Despite the lip service paid to “no special deference to the prior administrative decision,” and the proceedings being “de novo” with “no deference” given to the Kaiser Order and not being an “appeal” of the Kaiser Order, there can be no doubt that the appellate review standard was applied. There is no statement or any indication of any independent analysis or review by Commissioner Koken; rather, she found only that there was no evidence submitted to reject Commissioner Kaiser’s analysis. The failure to do so establishes that the Koken 2006 Order did not comply with the requirements of the Insurance Holding Companies Act for determining whether there is an illegal anticompetitive effect on account of the consolidation of BCWP and PBS to form Highmark.

Plaintiffs in the two cases cited by the Court when affirming the shift of burden-of-proof had not challenged the legitimacy of any original order, nor had any court previously recognized any original order had been adjudicated in violation of the Administrative Agency Law [§504]. Holding a proper de novo hearing requires the Department to harbor the burden-of-proof.

1. The Commissioner had jurisdiction over the consolidation, because the Pennsylvania Insurance Holding Companies Act requires that the Insurance Commissioner approve all changes in control of domestic insurers or HMOs.

According to the Insurance Holding Companies Act [40 Pa.C.S. §§ 991.1401 et seq.] {IHCA}, “insurers” do not include non-profit corporations operating hospital plans (e.g., non-profit Blue Cross plans) and non-profit corporations operating professional health service plans (e.g., non-profit Blue Shield plans); insurance holding companies are also excluded, but HMOs and stock insurance companies are included. Thus, Commissioner Kaiser concluded that she had authority to approve or disapprove the change of control of the six Subsidiaries, but not over the change in control of the holding companies, PBS or BCWP {Opinion, at ¶ 24}. As a result, she incorrectly analyzed the transactions involving the Subsidiaries not as acquisitions of those Subsidiaries (or parts thereof) by Highmark but, rather, as a merger/consolidation of the Subsidiaries’ shares owned by BCWP and PBS {see also, discussion of antitrust aberrations}.

By excluding from consideration the huge market shares that BCWP and PBS themselves held, she concluded there was no substantial evidence the acquisition’s effect would be “to lessen substantially competition in insurance in this Commonwealth or tend to create a monopoly” {1996 Kaiser Opinion, at ¶243}. This approach wrongly ignored the actual anti-competitive potential of the transaction and was inappropriate under the Act’s standards.

The Act states that acquisition of a Blue Cross or Blue Shield plan is exempt there-from, but it does not state that an acquisition by a Blue Cross or Blue Shield plan is exempt.

The Act excludes Blue Cross and Blue Shield plans from the definition of “insurer,” but it does not limit its sweep solely to acquisition by insurers. Rather, it encompasses acquisition by a “person” of a “domestic insurer.” Unlike the definition of “insurer,” the definition of “person” does not exclude Blue Cross and Blue Shield plans. Explicitly, in the instant case, Highmark was that “person” and, therefore, was subject to the Act.

2. If the Act were read as exempting acquisitions by non-profit medical and hospital service associations, the Act still applies because Highmark was not organized under the statutes creating either type of association because (it is claimed), Highmark only inherited the Certificates of Authority of the predecessor entities. Therefore, when Highmark was formed de novo (to play this role), recalling that this was not a merger (rather, a consolidation), there was no pre-existing entity that could claim a presumed exemption.

Thus, the Act applies to acquisitions of “domestic insurers” by Blues Plans and, thus, it applies to acquisition of the six subsidiaries by Highmark. This is a lynchpin upon which analysis is predicated, for the transaction—viewed properly—creates a prima facie violation of the statute, even based on overly-broad product and geographic markets the Commissioner used. That the Department initially had contemplated review of the consolidation itself was reflected in the title of the announcement thereof published in the Pennsylvania Bulletin on 2/10/1996 (“Application and Request for Approval of a Plan of Consolidation”).

But the Commissioner incorrectly “found that §201 of the GAA Amendments [15 Pa.C.S. §20101] specifically excluded health plan corporations from the definition of ‘insurance corporation’ and, thus ‘held that review of consolidations was not included in the authority granted to her by the GAA Amendments [15 Pa.C.S. § 20101-21207].’ ”

The Court recognized the necessity for there to have been full adjudicatory adverse-party (due process) hearings, as per its 8/12/1997 Order. A footnote [#17] defined this intent: “Here, however, the Department has not yet determined whether there exist factual issues or mixed issues of law and fact, so that an evidentiary hearing may have been required.”

Nothing in the Order issued by this Court excluded anything from being included in the adjudicatory process if it met this criterion (“factual issues or mixed issues of law and fact”), noting that it had every opportunity to have done so, inasmuch as the petitioners’ challenge to the original Order of the Commissioner included a direct challenge to the consolidation itself. Thus, the Court anticipated that review of the consolidation was subject to forthcoming adjudication.

4. The LaFarge Opinion reinforced the need for an adjudicatory hearings process.

LaFarge contrasts regarding the fundamental issues and the procedural safeguards herein.

5. In her 12/2/2002 Order, the Commissioner supported the desirability for the Commissioner to have oversighted the consolidation without, for example, having invoked the Health Department.

This is consistent with the Commissioner’s stated-lament that, allegedly, she couldn’t oversight the consolidation, yet was unable to identify an administrative entity that could. [During Oral Argument, the issue was raised as to whether the Petitioners had attempted other mechanisms to achieve this end, but the key-point that must be recalled is that such an effort was met with overwhelming litigation that intimidated physicians from pursuing this effort.]

The Court excluded from consideration information regarding the irregularity associated with the failure to achieve a 75% voting approval by the PBS Corporate Members because these data were not part of the Certified Record. This was included in the prior record, however, as referenced specifically in the Petitioner’s Appendix. The Court cited Pellizzeri[1] v. Bureau of Professional and Occupational Affairs, 856 A.2d 297 (Pa. Cmwlth 2004) which, itself, cited Berninger v. Workers’ Compensation Appeal Board (East Hempfield Township), 761 A.2d 218 (Pa. Cmwlth. 2000). The basis for this exclusion in all of these cases is that the petitioner had failed to file a motion to include within the Certified Record those previously-generated data (including motions) contained in the Reproduced Record [see P.R.A.P. 1926]. The distinction, here, however, is that the inclusion of all Consolidation-related data were specifically excluded by numerous orders from even being included in the record accumulated following the transfer of the case to the Insurance Department. Thus, it was impossible to have moved to include what had specifically been excluded from the record (as unjust as that decision had actually been). And, clearly, these data were germane (in a directly-linear fashion) to the creation of Highmark. Therefore, the Court should not only assess the Consolidation-process, but it should also address specific errors committed (both the illicit voting-threshold and numerous “Notice” omissions).

Applying the Act was mandated legally, but all arguments raised were not examined. [Also, asserting retroactively that the case had been transferred “for post-approval adjudication” is phraseology that did not appear anywhere in the 1997 Kaiser Decision text. That ongoing awareness of a knowingly-flawed approval process was countenanced remains unnerving.]

Finally, the Court noted (during subsequent discussion of the dual-certification issue), “Therefore, unlike any other type of insurer, consolidation of “blue plans” is made subject to Pennsylvania’s corporate laws, not its insurance laws.” Yet, the Court oxymoronically found that not ALL of its “corporate laws” apply, facilely excluding the most basic one (the Act).

7. PBS did not provide the Corporate Members necessary legal data about BCWP prior to the vote to approve the consolidation, thereby denying them the opportunity to weigh its impact on both fiscal and ethical planes.

8. PBS (in-writing and orally, through its corporate officers and exec-utives) provided the Corporate Members material misrepresentations and omissions prior to the vote to approve the consolidation, thereby denying them the opportunity to weigh its impact on both fiscal and ethical planes.

1. Pennsylvania law does not allow a single entity to operate under the Certificates of Authority for both Hospital Professional Health Service Plans. The regulatory scheme is exclusive as to a hospital plan corporation [40 Pa.C.S. § 6102] and concurrent with the Department of Health as to a professional health service corporation [40 Pa.C.S. § 6304].

2. Only one entity, licensed as a hospital plan corporation, may operate a hospital plan; and only one entity, licensed as a professional health service corporation, may operate one of the types of professional health service plans [40 Pa.C.S. § 6104 & 40 Pa.C.S. § 6308]. Common usage dictates that the phrase, “[i]t shall be unlawful for any person, other than a hospital plan corporation . . . to . . . operate a nonprofit hospital plan” means any entity other than a hospital plan (to wit, a professional health services plan) cannot operate a hospital plan. (The same is true with the obverse.)

3. Hospital plan corporations are specifically excluded from operating as a professional health service corporation [40 Pa.C.S. § 6301].

4. The Commissioner acknowledged the statute does not “address how the different requirements between hospital and professional service plan corporations are reconciled.” One entity cannot perform both functions.

5. The Nonprofit Corporations Act [15 Pa.C.S. § 5921(a)] governs corporate aspects of Highmark’s formation (recognizing the capacity of two nonprofit corporations to consolidate), but it does not govern regulatory aspects of the transaction relating to Highmark’s Certificates of Authority. The Act is sub-ordinate to the HPCA. Indeed, the Act cedes statutory oversight of details thereof (in this case) to the HPCA. The Act contains no mandate that contradicts the HPCA. The Act does not authorize Highmark to do anything prohibited under the HPCA. The Nonprofit Corporations Act is clear [15 Pa.C.S. §103 ].

6. Legislative intent corroborates this conclusion, segregating these entities. The 1939 (initial) enabling legislation (for PBS) was passed after failure of IBC’s effort “to amend the bills to permit it to sell medical services as part of its hospitalization coverage.”

7. Enabling statues insulate these entities from each other, necessitating that both exist independently. Fundamental differences between hospital plans and professional health service plans (related to Governance, Quality and Access, Social Mission and Regulators) contravene a single-licensed corporation from holding both types of certificates.

8. Adopting a chapter heading to define “Highmark” as a “health plan corporation” violates the fundamental rules of construction, documenting the fact that “Highmark” and the Department have exceeded statutory authority. The Court misconstrued the syntactical discussion of headings, for Highmark is a creature of an undefined title (“Health Services Plan”).

9. In other states, specific legislative authority was conferred prior to consolidation of comparable entities.

10. In her 12/2/2002 Order, the Commissioner provided argument supporting dual-certification that ignored law and logic, instead self-satirizing her oversight performance.

Eliminating five words [“expressly organized for the purpose”] did not reflect legislative intent permitting dual-licensure, for this excludes other explanations for streamlining introductory phraseology, such as the ability of the Blues to encompass corporate entities other than health insurance (such as optical care, as PBS provided under “Davis Vision”). This type of cherry-picking establishes dangerous precedent, for declaring two entities are “in pari material” would let other entities to escape oversight by claiming jurisdiction of some other (silent) law.

1. A Certificate of Authority is not a franchise, but a license to do business, personal to the holder and not transferable; a license has both property-rights and usage-rights components, neither being exclusive.

Were Certificates of Authority (of PBS & BCWP) freely transferable assets of those corporations in the nature of a franchise, this would necessarily apply under all circumstances including, for example, if a new incorporator of the new corporation were to violate the HPCA’s express provisions that all incorporators meet certain residency requirements [40 Pa.C.S. § 6306]. This interpretation would undermine express provisions of enabling acts directing issuance of Certificates of Authority by the Commissioner on a case-by-case basis, attaching thereto specific conditions tailored to the circumstance of the particular applicant as appropriate. This position has no sound basis in the statute or in logic. A license does not solely have “property/equity” value. A Certificate of Authority authorizes only the provider named therein to conduct business of continuing care and may not be transferred [31 Pa.C.S. § 151.3(b)]. Also, transfer of ownership of a continuing care provider facility may not be consummated until the person to whom ownership is being transferred obtains its own Certificate of Authority [31 Pa.C.S. § 151.6]. No case-law supports any contrary method of characterizing a Certificate of Authority as requiring lesser oversight; no countervailing statute obviates the need to have acquired a new one. [Again, the absolute constraint of Knecht is applicable.]

Highmark and the Department argued, in response, that a Certificate of Authority has only property/equity value, failing to recognize that the right to use its Certificate of Authority required specific prior-approval by regulator(s). (Sklaroff did not dispute a license is property; Sklaroff consistently noted that it was not only property.)

The Commissioner averred that Pennsylvania courts have consistently held that a license to engage in a business, profession or occupation is a property right in the sense that it is subject to constitutional protection. She wrote, however, that a governmental license is not a property right only when the licensing statute limits the effect of licensure, although she could not cite any such limit in the HPCA. She then identified two examples of licenses in which the licensing statute limits the license’s effect: a taxi license (in which there is no property interest) and a liquor license (which is not transferable) {Order, n. 6}. Yet, a HPCA license is of the same variety as taxi or liquor licenses in that the HPCA statutes proscribe dual-certification of a single entity [40 Pa.C.S. §§ 6104 & 6308]. Recognition of this fact hardly limits the property interest of the Certificates of Authority; rather, this does limit their transferability as a component of that property right. To invoke a catch-phrase, Highmark needs approval both to own and to operate.

She then argued the HPCA “...does not prevent succession to a Certificate of Authority or otherwise condition the holder’s right to conduct business in accordance with applicable statutes.” Thus, she claimed “[Sklaroff] cites to no provision in the HPCA, Nonprofit Law or elsewhere which prevents such an inheritance.” Therefore, absent a proscription to the contrary, she assumed the HPCA didn’t limit licensure and, thus, countenanced its perception solely as a property right. Essentially, she argued that silence in this selected realm necessarily supported her views. [The profound implications of a regulator adopting such an anti-regulator stance is why the Attorney General received prior filings, recognizing also prior “interest” in this matter.]

Naturally, were this approach applied to all legislation and litigation, the sheer-bulk of statutes would be expanded exponentially through the sudden compulsion to insert multiple disclaimers delimiting their applicability; absent any citation, this is an absurdity.

The Commissioner also averred “[a] license granted by the appropriate governmental authority is permission to do some act without which authorization the act would be illegal,” citing Young J. Lee, Inc. v. Commonwealth Dep’t of Revenue, 474 A.2d 266 (Pa. 1983). Thus, if an entity is a creature of a statute which renders its activities (otherwise illegal) legal, then its legal activities are determined by the provisions of the statute that created the entity.

To the extent that hospital plan and a professional health services plan corporations are creatures of the HPCA statutes [40 Pa.C.S. §§ 6101 et seq. & §§ 6301 et seq.], then what they may legally do is determined by the authority that the enabling statute expressly confers on them. Thus, the HPCA grants Highmark rights and privileges only after they have been earned. Indeed, the applicability of the HPCA statutes is necessarily a predominant guide to oversight.

Highmark’s claim that its property rights are married to alleged transferability of two licenses is contradicted by the depiction of a two-step procedure that should occur under such circumstances. “The government cannot, on the one hand, create a business which is dependent on a permit and then, with the other, destroy it by revoking the authorizing permits without first affording ‘sufficient’ due process.” [Young J. Lee, Inc. v. Commonwealth, Dep’t of Revenue, 504 Pa. 367, 474 A.2d 266 (1983)] This clearly distinguishes business (property) rights from subjecting licensure (the ability to implement these property rights) to regulatory scrutiny. Consolidation of two bars—both holding LCB-licenses—would still require the emerging entity apply for a new LCB-license, even if it is to be 50%-owned by each independent restauranteur.

The non-transferability and non-inheritability of any Certificate of Authority does not diminish its property-value, for the right to apply for (and to receive) a new one is obviously favorably conditioned by control over existence of an ongoing service akin to what is envisioned (e.g., when a restaurant/bar’s ownership changes). The HPCA does not affect this fact.

But Highmark’s not having obtained a new Certificate of Authority does not comport with the HPCA, nor does its unrealized responsibilities under the HPCA itself cast any pall over its ownership rights. It should simply have applied for a license, regardless of its genealogy.

Highmark asserted the Department’s regulatory activities may be abbreviated after a fundamental corporate transaction such as a consolidation. It provided, in two instances, grossly incomplete citations, to support this conclusion. These examples (form and rate filings, and out-of-state insurers) were inapposite; the former did not reach the level of licensure, and the latter included a mandated discretionary component. Thus, Highmark did not show a Certificate of Authority was not more than a property right, exemplified by case-law regarding license revocation concerns: “Thus, any adjudication involving the termination of the rights to write insurance, as a property right, must be accompanied by the due process rights outlined in §504 of the Administrative Agency Law.” [Tsolo v. Foster, 561 A.2d 861, 863 (Pa. Cmwlth, 1989)] If licensure-revocation requires exercise of such due process rights, licensure-issuance does, too.

A nursing home facing license revocation has a right to a hearing, as well [Fair Rest Home v. Commonwealth, Department of Health. Pa. Cmwlth, 401 A.2d 873 (1979)]. Again, operational issues distinct from exercising pure-“property” rights have been recognized.

Highmark tried to deny its “newness,” despite the Commissioner’s use of the word “new” in her Order that permitted Highmark’s creation; again, this explains why re-licensure is statutorily mandated and grandfathering isn’t permissible.

Highmark recognized its being subject to HPCA-oversight (without prescribed limit, including the need to apply for a Certificate of Authority), its “newness” (and the implications thereof, supra), and its inability to identify any clause (in the statutes it cites as operational) that endorsed perceiving a franchise only as property (rather than also being subject to certification).

Its new bylaws, its broader corporate purpose, and its new and different balance sheet required scrutiny by the regulator(s); instead, the Department failed to assess the way Highmark envisioned discharging responsibilities dutifully being carried out by its two predecessors.

2. Highmark has functioned illegally because it never applied for (and, thus, was never granted) a new Certificate of Authority; no ruling overrides the inability to overcome applicable statute [Knecht].

This conclusion is directly derivative of the prior discussion; Knecht is controlling.

3. In her 12/2/2002 Order, the Commissioner provided argument supporting licensure-inheritance that ignored law and logic, while corrupting Sklaroff’s argument.

Incredibly, after quoting the enabling legislation, the Commissioner ignored its mandate; all that she concluded from explicit constrictions [recounted supra, page 14 et seq.] was, “Thus, the right to operate legally as an HPCA corporation [the all-encompassing designation of a newly-conjured animal that had just been minted a few pages previously, in a footnote] is conferred by and embodied in the appropriate Certificate of Authority.” Such self-imposed blindness to existing statute cannot be countenanced by this Court.

Both in the text [page #7] and in a footnote [#8], she corrupted Sklaroff’s acceptance of the “property” component of a license (despite meticulous articulation of this precise posture), morphing it into presumed acceptance of the “due process” component thereof.

Therefore, the following assertion is false: “Thus, Dr. Sklaroff correctly concedes that licenses are property.” And despite the facts that the process of applying for a license includes events that didn’t occur in the instant case and that Sklaroff has no license of-interest, she added:

Dr. Sklaroff curiously argues that the cases affording due process protections to licenses [that had been detailed/discussed in footnote #7] prevent the automatic transfer of the license to a successor entity. His theory is that all “participants” to the transaction, including himself, are entitled to an adjudicatory hearing before the transfer takes place. This assertion is incorrect.

First, this concept is not found in any case. Second, due process afforded by the constitution and confirmed by the judiciary protects the licensee as the possessor of a property right; Dr. Sklaroff has no license affected by these proceedings. Finally, the current proceedings are adjudicatory and all parties, including Dr. Sklaroff, are afforded due process protections. Dr. Sklaroff has articulated exactly why Highmark continues to operate lawfully under its certificates pending these proceedings unless and until it is determined to lack appropriate licensing or former Commissioner Kaiser’s order is stayed, vacated or overturned.

Thus, it is incongruous that she would recognize Sklaroff’s “due process rights” exist, and yet fail to recognize that they could ever be exercised. A right cannot exist if it is impossible to be given effect; it is relegated to being illusory and, perhaps intentionally, this is the level of profound aloofness—indeed denigration of the member of the public who was granted standing following exhaustive, repetitive efforts from 1996-2002—that she seeks license to ignore. Here, empowerment to affect a license was impossible to exhibit, when the Department failed to initiate a process leading to certificate-approval.

Next, after relegating an on-point citation to the level of offsetting-analogy [footnote #9], she claimed that HCPA-provisions precluding inheritance do not exist, forgetting to apply Knecht’s proscription against allowing any more empowerment to PBS than is statutory. Finally, she claimed that Sklaroff had created a false-distinction between holding and using a license, reminiscent of the view that it was solely property. In no instance did she address the cogent, real-life issues raised whenever a license is sought, detailed supra.

4. The Department was not able to abbreviate its regulatory activities after a fundamental corporate transaction (consolidation).

After quoting the enabling legislation, the Commissioner ignored its mandate; all that she concluded from explicit constrictions [recounted supra, page 14 et seq.] was, “Thus, the right to operate legally as an HPCA corporation is conferred by and embodied in the appropriate Certificate of Authority.” This reflected self-imposed blindness to existing statute.

5. The Department was not able to subject issuance of a new Certificate of Authority to recognition of Highmark’s “new” franchise (“its new bylaws, its broader corporate purpose, and its new and different balance sheet”), abdicating necessary assessment (of “the way Highmark envisioned discharging responsibilities dutifully being carried out by its two predecessors”).

After relegating an on-point citation to the level of offsetting-analogy [footnote #9], she claimed that HCPA-provisions precluding inheritance do not exist, forgetting to apply Knecht’s proscription against allowing any more empowerment to PBS than is statutory. Finally, she claimed that Sklaroff had created a false-distinction between holding and using a license, reminiscent of the view that it was solely property. In no instance did she address the cogent, real-life issues raised whenever a license is sought, detailed supra.

6. The Department was not able to deny a petitioner his right to exercise due-process rights (acknowledged by the Commissioner).

It is incongruous that she would recognize Sklaroff’s “due process rights” exist, and yet fail to recognize that they could ever be exercised. A right cannot exist if it is impossible to be given effect; it is relegated to being illusory and, perhaps intentionally, this is the level of profound aloofness—indeed denigration of the member of the public who was granted standing following exhaustive, repetitive efforts from 1996-2002—that she seeks license to ignore. Here, empowerment to affect a license was impossible to exhibit, when the Department failed to initiate a process leading to certificate-approval.

7. The Department was not able to claim existence of a (false) distinction between holding and using a license.

The one case upon which the Court exclusively relied also mandated that this “property” right, when adjudicated, MUST be accompanied by due process prior to its becoming effective.

1. In his 7/5/2000 Order, the Presiding Officer inappropriately and inexplicably excluded considering at the Hearing basic antitrust concerns that were to be raised.

The Court determined that any “reversible error” had to be “harmful or prejudicial.” The Presiding Officer neither provided an opportunity to do so when he inexplicably struck sections of both the Prehearing Statement and Discovery Requests (despite provision of specific rationale) and failed to enforce document requests (Board packets and shareholders agreement), nor did he provide recourse to cure presumed defects…clearly compromising cogent analysis. Intuitively, denied information compromised proving antitrust concerns and proving fractious interaction of Capital Blue Cross with Blue Cross of Western Pennsylvania) [vide infra].

2. In his 11/2/2001 Order, the Presiding Officer inappropriately and inexplicably excluded from consideration at the Hearing basic antitrust concerns that were to be raised, and “Highmark” did not subsequently produce many approved documents.

These are some categories of data which were summarily excluded from consideration:

Blue Cross of Western Pennsylvania and Pennsylvania Blue Shield Were Both Actual and Potential Competitors, Commissioner Kaiser Improperly Failed to Consider The Market Shares of Blue Cross and Blue Shield In Analyzing the Competitive Impact of the Change in Control of the Subsidiaries, Market Shares of the Relevant Entities are Extremely High, Transaction Creates Prima Facie Evidence of a Violation Under the Competitive Standard in the Insurance Holding Companies Act, The Analytical Framework Under the Federal Merger Guide-lines, The Transaction Creates a Presumption of Illegality Under the Federal Merger Guidelines, Significant Barriers to Entry Into the Market for Private Health Care Financing in Western Pennsylvania, Highmark’s Monopsony Power.

3. In his 3/25/2002 Order, the Presiding Officer inappropriately and inexplicably rejected subsequent efforts to acquire documents in follow-up.

Again, this type of arbitrary decision was coupled by a false-assertion that “damages” had not been incurred [vide supra], despite having been denied the opportunity to present them.

4. In his 11/27/2002 Order, the Presiding Officer inappropriately and inexplicably precluded presentation of evidence on (1)—whether “Highmark” had fulfilled its social mission, and (2)—whether KHPW affected competition, wrongly considering it an “already affiliated person.”

Again, this type of arbitrary decision was coupled by a false-assertion that “damages” had not been incurred [vide supra], despite having been denied the opportunity to present them. And the market-shares of wrongly-classified “already affiliated persons” were wrongly-excluded:

[T]hese proceedings are being reviewed under §1402, not §1403 of the Insurance Holding Companies Act. The former defines standards and matters the Commissioner is supposed to consider when deciding whether or not to approve the requested change in control [§ 1402(f)(1)(ii)(a)]. The latter defines one specific parameter she is supposed to weigh, namely, whether or not any change of control would substantially lessen competition in the Commonwealth or create a mono-poly therein….[S]he is to use specified information [§ 1403(c)(2)] and competitive [§ 1403(d)(2)] standards; she cannot deny the application if § 1403(d)(3) standards exist. Nothing else in §1403 applies to a §1402 proceeding including § 1403(b)(2), which exempts already-affiliated persons.

She also claimed that it was impossible to prove that 50%-share constituted sufficient “control” to preclude invoking this statute (an assumption that was disproven contemporaneously and was disproven within the filing of CBC, documenting conflict with Highmark) [see p. 34].

5. During the Hearing, the Presiding Officer precluded Sklaroff from acquiring a replacement for his suddenly-absent economic expert, contradicting the flexibility manifest in his 11/27/2002 order permitting the Department to delay testimony until its witness could become available.

6. During the Hearing, the Presiding Officer precluded Sklaroff from testifying regarding his appreciation of the antitrust issues, despite the fact that inter alia he had served as regional coordinator of a union (The Federation of Physicians and Dentists) who had served (successfully) as a representative of a physician-member who had been wrongfully terminated due to his involvement therein.

7. During the Hearing, the Presiding Officer precluded Sklaroff from testifying regarding any negative experience as a PBS subscriber; furthermore, Sklaroff was not even permitted to answer a generic question regarding how the PBS and Blue Cross plans had been established in Pennsylvania.

1. During the Hearing, the Presiding Officer precluded Sklaroff from being able to refer to prepared notes, even when he offered opposing counsel a chance to read them, precluding presentation of a complete case.

Sklaroff wished to ensure all key information was included in the record, so that a very complete and accurate presentation of the data could be provided. The Presiding Officer, however, precluded this from occurring, even when (1)—Sklaroff offered to provide his notes to opposing counsel, and (2)—Sklaroff asserted the existence of the notes would optimize the quality and completeness of his ability to respond to all questions posed {Sklaroff I-p.51}.

2. During the Hearing, the Presiding Officer precluded Sklaroff from being able to correlate the contents of his orientation (as a PBS Corporate Member) to stipulated facts related to the provision of Medicare and Medicaid “managed care” services.

Sklaroff was inappropriately and inexplicably constricted in his ability to correlate his experience as a Corporate Member with the issues that were the central subjects of the Hearing.

1. The Highmark bylaws precluded presenting Special Resolutions by physicians such as himself, thereby compromising the capacity to optimize achievement of the traditional PBS Social Mission to maximize “the physical and mental status of all Pennsylvanians” [Chapter 63], which was recognized in a PBS Monograph detailing “institutional memory.”

Sklaroff documented his compliance with these patient-focused motivations, enforced at Annual Meetings of PBS; none was predicated on any self-interest (of himself or any doctor).

2. The Highmark bylaws eliminated any “grass-roots” involvement of physicians, disenfranchising such physicians as Dr. Sklaroff, who had been elected by his peers to serve as a PBS Corporate Member and who manifest the traditional PBS Social Mission through submission of Special Resolutions (which are explicitly precluded in the Highmark Bylaws, which also preclude election of provider representatives by providers).

The Commissioner didn’t perceive the need to carry-over this specific responsibility.

1. The Highmark witness testified that, when she worked for PBS, she dealt with a relevant product service area as being “health insurance.” Unlike the Court’s claim, this is not “so similar to the reported line of business as to corroborate that assumed market, and it is not so different as to compel some other conclusion,” despite the fact that it added an entirely tangential category of business, the impact of which was not studied by the Department.

Ms. Colleen Marie Gallaher, employed currently by Highmark and previously by PBS as its Director of Regulatory Affairs, confirmed these points and went quite further along. She testified the change in control of KHPW had yielded a change in its lines of business {Sklaroff O-p.241}, supporting the view that it could not be perceived as an “already-affiliated person” supra. Also, she noted that Veritus managed entities (not herself) when it had 100% control, but that this was not the case when it had 50% control (from what she had experienced) {Sklaroff O-p.252}. She agreed “with regard to each and every one of the HMOs, they provided an integrated service, [that is] an integrated service which consisted of both hospital and physician services.”

Therefore, she established the fact that the service areas of PBS and BCWP overlapped (i.e., that they did not solely, respectively, reimburse physicians and hospitals). Thus, antitrust analysis of the effects of the consolidation had to include the effects on the reimbursement of both physicians and hospitals. This was a vital, correct concession. Essentially, both PBS and BCWP were known to reimburse both physician-generated and hospital-generated services, but the anticompetitive analysis promulgated by the Commissioner failed to assess this fact.

2. The Highmark witness testified that, when she worked for PBS, she dealt with a relevant geographic area as being definable as that of the BCWP (i.e., the western 29 counties). Unlike the Court’s claim, this was a dramatic departure from the “statutorily-presumed statewide market.”

She then noted that the 4.5 million PBS statewide subscribers included managed care, and that “PBS owned a 50% interest in organizations that offered integrated products…on a regional basis as approved by the Department of Health to do business.” Therefore, she concurred that the integrated (physician/hospital) products functioned regionally, information that she knew and, thus, that the Department could or should have known. Again, this was a vital, correct concession that impugns the integrity of the approval {Sklaroff O-p.267}.

Thus, “PBS and BCWP, as a matter of reality through the entities that they own, as well as through other activities, competed through their HMOs (a substantial part of their business).

3. The Department should not have excluded large market-shares from antitrust analysis by alleging they were “already affiliated.”

1. The Presiding Officer admitted bias, and consistently exhibited same when crucial matters were adjudicated.

3. The Commissioner’s 5/26/2006 Order dismissed without discussion the salient facts established at the Hearing regarding the Social Mission (as it affected the Highmark bylaws) and the Monopoly concerns.

4. The Commissioner’s 5/26/2006 Order was defective, both with regard to its having ignored Sklaroff’s Post-Hearing Brief and with regard to her having ignored Sklaroff’s Reply to the Briefs of Respondents Highmark and the Department.

(These issues are distilled herein, but they overlap with regard to issues discussed supra.) This is consistent with a thematic concern, that many legitimately-raised issues were ignored.

{The points made in prior briefs are augmented by those made by Capital Blue Cross, but no new arguments that had not previously been preserved have been introduced at in this appeal; for example, admissions of the Highmark witness are buttressed by specific points herein and IHCA-references recapitulate discussion thereof on pp. 8-9, obviating Highmark’s concerns. The filings by Capital Blue Cross elucidate these points and arguments. Otherwise, points raised by the Respondents will be addressed following receipt of their filings in response to this filing.} It is implausible that consolidating Pennsylvania’s two largest health insurers would pass muster.

1. The Commissioner erred as a matter of law in excluding the concededly “large market shares” of the consolidating companies from her analysis of the anticompetitive effect.

The Consolidating Companies (PBS & BCWP)—“insurers”—should have been included in the anti-competitive analysis [see p. 9]. When the Commissioners didn’t, they “wired” the process in favor of approval; indeed, they recognized these entities’ shares to inordinately inflate the “denominator,” but not to assess prudently the impact of the “numerator” [see p. 27]. Thus, Kaiser completely defeated the purpose of this required IHCA analysis by illegally excluding their concededly “large market shares” [Kaiser Order @ 27, ¶ 170, Capital, R. 1748]. Further, Koken compounded this error by countenancing it (without performing an independent analysis).

2. The Commissioners erred at each stage of the mandated-analysis, omitting mandated tests and demonstrating contradictory procedures; indeed, the 2006 Order does not perform the market concentration test and the impact (Insurer A/Insurer B) test, nor does it independently analyze how the IHCA’s anticompetitive provisions apply to the transaction.

The Commissioner must determine if “there is substantial evidence that the effect of the acquisition may be substantially to lessen competition in any line of insurance…or tend to create a monopoly” in the state [IHCA, 40 Pa. Stat. §§ 991.1402(f)(1)(ii), 991.1403(d)(1)].

The IHCA requires applying a strict numerical test [§§ 991.1403(d)(2)(i)] to determine if an acquisition will have a prohibited anticompetitive effect. It is applicable to the instant case because it is specifically incorporated by reference [40 Pa. Stat. § 991.1402(f)(1)(ii)]. Merger of two insurers is deemed prima facie anticompetitive if (1)—each possesses as little as 5% of the relevant market, or (2)—each possesses an even smaller market-share if the market is “highly-concentrated” (i.e., when the share of the four largest insurers comprises at least 75%).

The consolidation is prima facie anticompetitive if it meets these thresholds:

(A) If the market is highly-concentrated and the involved insurers possess the following shares of the market:

(B) If the market is not highly-concentrated and the involved insurers possess the following shares of the market:

The 2006 Koken Order did not perform a de novo stand-alone analysis of this concern; instead, it concluded Sklaroff hadn’t demonstrated error in the 1996 Kaiser Order [pp. 43-44]. The 1996 Kaiser Order determined that the relevant market was the direct written accident and health premiums on Annual Statements filed on December 31, 1994 [Kaiser Order @ 37 ¶ 175]. She determined the market was not highly-concentrated because the sum of the top-four insurers was 71.83% [PBS (29.57%, BCWP (19.58%), IBC (11.61%) and CBC (11.07%)] (i.e., < 75%). Thus, while the Consolidating Companies were excluded from being part of the analyzed market, these entities were included as part of the overall market (so as to determine its “concentration”). This contradiction both was never explained by either Commissioner and contravenes reality.

As noted repeatedly by Sklaroff throughout these proceedings, both entities were insuring both physician- and hospital-based services; they did not abide by any demarcation between the enabling statutes’ charges that PBS encompass solely physicians and BCWP encompass solely hospitals. The Capital Brief elucidated these factors with precision that has never been refuted:

Section 1403(d) makes clear that “insurer” includes all companies under common management and control, and the Commissioner was, therefore, required to aggregate the premium of the nonprofit health and hospital plans with their subsidiaries (companies under common management and control) to determine if they collectively exceeded the 75% threshold. Former Commissioner Kaiser failed to include subsidiaries in this calculation, and thereby erroneously eliminated from her analysis the more than 10% combined market share of the PBS and BCWP subsidiaries [Kaiser Order @ 30, ¶ 192].

Thus, the formula used by both Commissioners drastically and improperly skewed the market share calculation against finding an anticompetitive effect caused by this transaction. If the Commissioners had used the correct definition of “insurer” consistently, the prima facie test would have been easily met, inasmuch as adding 10% to the 71.38% figure transcends the “>75%” threshold and, thus, the market-shares would necessarily prove anti-competitiveness. Indeed, when at least one participant to an acquisition or merger holds a large market share, adding only 1% thereto will cause the merger or acquisition to be deemed prima facie violative of the statute [§§ 991.1403(a) and (b)]. This is consistent with legislative intent [see p. 30].

3. The Commissioners’ exclusion of WBC and PBS from the anti-competitive effects analysis was a fundamental error; it was based on the erroneous decision to allow rules of general interpretation [“insurer”] to supersede specific definitions or requirements [“involved insurer”].

The “Insurer A/Insurer B” test is to be applied to “Involved Insurers” [see p. 27], defined (“as used in this section”) as “an insurer which either acquires or is acquired, is affiliated with an acquirer or acquired or is the result of a merger” [40 Pa. Stat. § 991.1403(a)]. Therefore, the Commissioners ignored the fact that PBS and BCWP comported with this view of “insurers.”

The Capital Brief elucidated these factors with precision that has never been refuted:

The foregoing special definitions of “insurer” and “involved insurer,” supplied for the purposes of the anticompetitiveness analysis, are much broader than the general definition of “insurer” [§ 1401] and include all “companies” under common management or control, regardless of whether they are otherwise insurers for purposes of the IHCA.

In particular, unlike the [prior] definition of “insurer” [§ 1401], they contain no exception for non-profit medical and hospital service associations, and PBS and BCWP fall squarely within their scope. The Legislature’s use of these broader definitions makes perfect sense in this context: a Commissioner can hardly determine whether a proposed transaction has an anti-competitive effect without considering the market impact of all affiliated writers of that insurance, regardless of their corporate form. By applying the general definition of “insurer” rather than these specific ones, the Commissioners erred in a fundamental and prejudicial way.

It is hornbook law in this Commonwealth that rules of general interpretation do not supersede specific definitions or requirements. “Whenever a general provision in a statute shall be in conflict with a special provision in the same or another statute, the two shall be construed, if possible, so that the effect may be given to both….If the conflict between the two provisions is irreconcilable, the special provisions shall prevail and shall be construed as an exception to the general provision” [Paxon Maymar, Inc. v. Commonwealth, Liquor Control Board, 312 A. 2d 115, 118 (Pa. Cmwlth., 1973) (citing Statutory Construction Act of 1972, Pa. C..S. § 1933 (West 2006)].

4. It cannot be rationally contended that the Pennsylvania Legislature or the National Association of Insurance Commissioners intended to exclude from the market share calculation two of the primary participants in the health insurance market from the consideration of the effect of the consolidation of these two companies and their subsidiaries on the market.

The Legislative drafters of the IHCA’s clear language could not have intended for obvious realities in the accident and health marketplace to be ignored; indeed, Sections 1402 and 1403 of the IHCA were copied verbatim from the “model” NAIC Insurance Holding Company System Regulatory Act [§§ 2 & 3.1], which intended to enhance insurer competition [see citation in Capital Brief (pp. 17-18) of the 6/1980 Proceedings of the NAIC, Vol. II, at 32, 40-41].

On the one hand, there is the natural and legitimate desire of some insurers and their affiliates to freely acquire, dispose and merge companies so as in one form or another to increase their profit. On the other hand, it is the natural and legitimate desire and responsibility of a state insurance regulator to be able to exercise regulatory control over acquisitions and mergers which have an adverse impact on the citizens of his state.

The model law assumes that the latter objective is more important than the former and that, where the accommodation of the freedom to merge cannot be made with the need of the regulator to safeguard the public, the former must give way.

5. Whether the Highmark transaction would create an anticompetitive effect (against which the Legislature required the Commissioner to guard) is an analysis that has yet to be properly done by any Commissioner.

In addition to applying the IHCA’s statutory formulae to the Highmark transaction, Commissioner Koken was also required to undertake an independent review of the potential anticompetitive impact [it] could have on the market [40 Pa. Stat. Ann. § 991.1403(d)(2)(iv)][2]. The IHCA grants the Department the discretion to determine substantively whether “the requisite anticompetitive effect” has been established “based on other substantial evidence,” but it does not grant the Department the discretion whether or not to consider the issue in the first place:

(2) In determining whether a proposed acquisition would violate the competitive standard of paragraph (1) [40 Pa. Stat. Ann. § 991.1403(d)(1)] the Department shall consider the following…

(iv) Even though an acquisition is not prima facie violative of the competitive standard under subparagraphs (i) and (ii), the Department may establish the requisite anti-competitive effect based on other substantial evidence [40 Pa. Stat. Ann. § 991.1403(d)(2)(iv)].

Highmark asserted, however, that Commissioner Kaiser never accomplished it [Brief, Pursuant to Paragraph 16 of the Second Omnibus Prehearing Order, @ 12, Capital, R. 937]:

In this case, the Department did not seek to establish “by other substantial evidence” that the change in control of the subsidiaries violated the competitive standard. Indeed, in the 1996 Approval, Commissioner Kaiser concluded that the change in control was not violative of the competitive standard of [the IHCA], and the Department did not exercise its discretion to try to establish “by other substantial evidence” any contrary result.

Despite this unequivocal language, Commissioner Kaiser did not comply with this statutory directive (since she didn’t consider the issue) as acknowledged by the Respondents.

It was concluded that “there is no evidence of record that the change in control of subsidiaries…caused any anticompetitive effect on the marketplace” [Koken Order @ 30, ¶ 108]. While that language might be construed to be broad enough to include an analysis under IHCA [40 Pa. Stat. Ann. § 991.1403(d)(2)(iv)], neither Commissioner performed this analysis. Indeed, in addition, neither Order contains findings or conclusions regarding the other IHCA mandate [40 Pa. Stat. Ann. § 991.1403(d)(2)(ii)]. In both instances, Commissioner Kaiser was derelict in her duty and Commissioner Koken blindly adopted this fundamental defect by-reference.

To the extent that there is any truth to this conclusion, that was the product of not holding a proper hearing and a full review of the evidence under the Administrative Agency Law [§ 504] (i.e., a de novo review) [see pp. 708]. As a result of applying this “appellate review” standard, there is no statement or any indication of any independent analysis or review by Commissioner Koken; rather, she found only that there was no evidence submitted to reject Commissioner Kaiser’s analysis. The failure to do so thus establishes that the Koken Order did not comply with the IHCA-requirements for determining whether the consolidation creating Highmark caused an illegal anticompetitive effect. This yawning defect has yet to be recognized…and rectified.

One final observation regarding how chronology has been portrayed selectively by the Commissioner, to the expense of any challenge to the consolidation, is that this conclusion—that “there is no evidence of record that the change in control of subsidiaries…caused any anticompetitive effect on the marketplace” [Koken Order @ 30, ¶ 108]—failed to recognize that this established a “straw-dog argument”; no post-consolidation evidence could be introduced, so no evidence of record could ever exist that could show that the consolidation caused a monopoly.

The entire rationale for the filing by this Highmark-competitor was based on its having experienced the unbridled competition from market-entry by an entity with the capacity to corner the market inter alia by engaging in predatory pricing, thereby provoking another acquisition. The litany of events recounted by CBC during this millennium constitutes grounds for its being granted standing to gain “its day in court” [vide infra] and for its structure to be scrutinized.

Here, it is apt to quote freely from CBC’s filings, if only to demonstrate the profundity of the effect the Highmark consolidation has had on the marketplace (via established court-records) as had been predicted; inasmuch as this is information from a “friendly” Blue, one can project reasonably that it understates the overall effect that has been experienced by other insurers lacking ability to enjoy the advantages of being a non-profit (notably, the commercial insurers). Thus, consider these points [excerpted from its 10/23/2006 filing] and recognize that they result from a failed effort to invoke the National “Blue” organization to rectify such conflict:

CBC embraces the principles and value of robust—but fair—competition among the providers of health insurance. The result of the 1006 Koken Order, however, is to illegally grant to one of the dominant players in the industry a significant and unfair competitive advantage. By authorizing Highmark to operate as a Health Plan Corporation under a dual certificate, the Commissioner caused CBC and other health insurers to suffer direct harm because of the significant, and unfair, competitive advantages that illegal status conveys.

For example, Highmark’s illegal dual certificate enables it to avoid the costly regulatory burden that CBC must shoulder for its non-Blue Plan professional service plan subsidiary. Highmark, as both a hospital plan corporation and professional plan corporation, is not considered a “health insurer” [under] the Preferred Provider Act [40 Pa.C.S. § 764] and its corresponding regulations [§ 31 Pa. Code § 152]. Thus, because of its dual certificate, Highmark is able to offer a PPO-like product without being subject to the PPO Act and regulations.

Under the Department’s interpretation of 40 Pa. C.S. § 621, CBC cannot (as a hospital corporation) offer a full-service PPO product directly because it is only statutorily permitted to enter into contracts with hospitals and, therefore, cannot enter into contracts with providers. Also, Blue Plans, such as CBC and Highmark, are specifically exempted from the definition of “insurer” in the IHCA [40 Pa.C.S. § 991.1401]. This exemption, however, does not apply to subsidiaries of Blue Plans that are operating as for-profit insurance companies and HMOs. The net of the foregoing is that, in order to offer a full-service product, CBC must use a subsidiary entity that contracts directly with providers for the professional health services plan component of the CBC PPO product. That subsidiary is a health insurer subject to the PPO Act and the IHCA and their corres-ponding regulations—something that Highmark’s dual certificate allows it to sidestep.

But for Highmark’s illegal dual certificate status, it would not have the unfair competitive advantage of being able to offer a competing product without going through the same regulatory approvals—and attendant costs —to which CBC is subject. The extra costs shouldered by CBC do not end with the need to comply with layers of regulation from which Highmark is shielded. Establishing and running additional corporate subsidiary entities which maintain sufficient separateness to satisfy the statutory and regulatory requirements is an additional cost burden on CBC from which Highmark is free under its illegal dual certificate status. Also, as a Blue Plan, Highmark’s hospital plans [40 Pa.C.S. § 6103(b)] and professional health services plans [40 Pa.C.S. § 6307(b)] are shielded from the Commonwealth’s 2% premium tax [72 Pa.C.S. §§ 7901-7906] which CBC’s PPO subsidiary must pay.

For these reasons, CBC has had to spend millions of dollars to offer full-service products after the termination of the JOA to meet Highmark’s illegal dual certificate-based competition. However, it is not just a matter of avoiding many of the costs which CBC must pay which gives Highmark’s illegal dual certificate existence an unfair competitive advantage. As Highmark has come into the CBC Service Area of central Pennsylvania and the Lehigh Valley, consumers can deal and contract with a single entity, Highmark. In contrast, CBC must educate consumers to deal and contract with two entities: (1)—CBC for their hospital needs; and (2)—Capital Advantage Insurance Company for their professional service needs. Accordingly, it is beyond any serious argument that Highmark’s legislatively unauthorized dual certificate grants it significant (and because it is illegal – unfair) competitive advantage over CBC.

Simply put, CBC embraces the principles and value of robust—but fair—competition, but CBC is confronted by overwhelming, unfair, illegal competition not envisioned a decade ago.

7. That Capital Blue Cross has opposed the Highmark consolidation undermines the theory that the “already-affiliated” provision applies; 50-50 decision-making did not permit either entity to control the outcome.

As noted previously [see pp. 22-24], the ability to invoke the “already-affiliated” posture was used by Highmark to avoid proper antitrust scrutiny. As repeatedly argued over the years, the argument that neither entity “controls” conjoint decision-making under such circumstances is mooted by the very fact that CBC chose to oppose Highmark (publicly and legally) herein. Thus, validated is the prediction that there would be a substantive post-consolidation impact on the status of the subsidiaries when, for example, KHPW’s structure (fundamentally, intuitively) was to be changed from being run by two equally-empowered entities to being run only by one.

Despite extensive revelation of how the Highmark consolidation adversely affected CBC [with the JOA having “postponed” harm, per 1/5/2007 Brief], Commonwealth Court denied it standing because it had not intervened in the post-approval hearing phase (a decade-plus ago). Here, CBC claimed a “direct interest in [this] adjudication” [2 Pa.C.S. § 702] by invoking status as an “aggrieved person” (financially). But the Court rejected this effort by claiming both that CBC had not “proven harm” and that it could have achieved standing had it participated earlier (despite its claim that it had not yet experienced any provable “harm”). This oxymoronic view constitutes an outrageous corruption of the law’s intent, its application, and common-sense.

The Court recognized “the complexity and interrelation of procedural and substantive issues here, which [for example] make it difficult to address the standing issue in isolation.” Yet, it failed to honor CBC’s legal argument, which it summarized by citing one Supreme Court case [In re: Application of El Rancho Grande, Inc., 496 Pa. 496, 437 A.2d 1150 (1981)] and two applications thereof by the Commonwealth Court [Pennsylvania Association of Independent Insurance Agents v. Foster, 616 A.2d 100 (Pa. Cmwlth., 1992) and Pennsylvania Automobile Association v. State Board of Vehicle Manufacturers, Dealers and Salespersons, 550 A.2d 100 (Pa. Cmwlth. 1988)]. Liquor licensees could appeal the grant of a license to another, despite not having formally intervened in the prior application proceedings before the administrative entity [El Rancho Grande] and the financial interests of a direct competitor may confer standing.

The thread that runs through the rejection of these arguments—including also that of another case [Nernberg v. City of Pittsburgh, 620 A.2d 692 (Pa. Cmwlth. 1993]—was essentially that the circumstances were identical on two index-dates (when intervention was not pursued and when it was attempted). Here, however, a half-decade elapsed between these two index-dates (~1997 and ~2002), during which time the “harm” supervened. The Court failed to discuss this.

Prominently, it cited recent case-law related to granting of casino licenses in Philadelphia by noting the need to achieve “orderly rules or procedure [that would otherwise] foster untenable impracticalities in terms of the development of an essential record for consideration on appeal” [Citizens Against Gambling Subsidiaries, Inc. vs. Pennsylvania Gaming Control Board, 591 Pa. 312, 916 A.2d 524 at 629 (2007) and Society Hill Civic Association v. Pennsylvania Gaming Control Board, 40 EM 2007, Docket numbers 1356, 1364, 1367, 1751 and 1362, __ Pa. __ 928 A.2d 175 (2007) at 11 http://www.aopc.org/OpPosting/Supreme/out/J-65-2007pc-opin.pdf]. Uniquely, the rationale cited was the Legislature’s having established a direct appeals process.

This structure was never established in the instant case (“to avoid piecemeal litigation”). Inherent in this discussion was the lack of any factual evolution between the two index-dates, again in counterdistinction to the instant case. Furthermore, the operational rationale for not accepting a belated appeal can easily be remedied in this case, invoking the identical mechanism that was established initially by Judge Leadbetter when she transferred the case from the Court to the Administrative Agency (the Insurance Department) on 3/27/1997 by charging it to render key-determinations regarding standing (an unpublished decision that is invokeable in this case). Thus, precedent and common sense permit this facet of the Court’s concerns to be remedied, for this facet of the case need merely be referred back to the Insurance Department so that it can develop a record which reflects both “the law and the facts” that would permit intervention.

Segregated from the aforementioned has been the prior filing and the receipt of responses from Highmark and the Department. Because the date-of-submission of this “perfected” filing falls after the response-date that they invoked, their replies to the aforementioned can be studied. Thus, in the interest of judicial efficiency, their input is now to be subject to focused-analysis, provided in conjunction with the articulation of the precise, trenchant concerns that persist. Again, this is to be accomplished by respecting the 50-page filing-limitation [per P.R.A.P. 2135].

There has never been a hearing (complying with Administrative Agency Law 504) that required the Respondents to justify approving the consolidation; this does “raise an issue of substantial public importance.” Highmark’s citing laws that differentiate nonprofit health plans from other health insurers does not obviate application of statutes that mandate this transpire.

Key contrasts with LaFarge [LaFarge v. Commonwealth, Ins. Dep’t, 537 Pa. 544, 735 A.2d 74 (1999)] reinforce the need to have held full adjudicatory hearings [see p. 10 supra and 9/27/2006 Initial Brief, pp. 10-11]. Citation of a case in which the Department of Health was required to grant an administrative appeal to citizens challenging a permit (permitting installation of a sewage disposal facility) is inapposite, because the Court found only that appellants had the requisite standing to challenge a swim club; procedural deviations from statute were not at-issue [Committee to Preserve Mill Creek v. Secretary of Health, 281 A.2d 468 (Pa. Cmwlth. 1971].

Cases cited in prior filings by the Pennsylvania Medical Society [11/24/1999 & 2/1/2000] and by Highmark [2/22/2000] all are consistent with the concept that challengers to a legal action carried the Burden of Proof, in counterdistinction (in this case) to issuance of a flawed order. Indeed, as was noted in the Filing by the Pennsylvania Society of Internal Medicine [2/22/2000]:

[T[he Court sent the case back to the Department because Commissioner Kaiser did not do what she was required to do under the law – hold a due process hearing. The proceedings below were found to be legally insufficient. Thus, there is nothing left of or to Commissioner Kaiser’s Decision and Order. There is nothing from which an internal appeal can be taken, since there is no adequate record complaint with due process standards. The Commonwealth Court required a fresh and full record, not an “appellate record.” The record desired and demanded by the Commonwealth Court requires the type of evidence (and discovery) sought by PSIM. This is the “statutorily prescribed duty of the Commissioner or the Department” that was not performed when the application was erroneously approved.

[Citing the 1997 adjudication that transferred the case to the Department] “Even though the agency action has a direct impact on the person’s rights or privileges, and is final so as to fall within the definition of an ‘adjudication,’ the action is not ‘valid as to any party unless he shall have been afforded reasonable notice of a hearing and an opportunity to be heard.’ 2 Pa. C.S. § 504. Until a hearing is held before the administrative agency and a record of that hearing made…the adjudication is not valid or effective….[U]ntil a hearing [at which evidence is taken to resolve factual disputes]…issues cannot be properly clarified, whether there is a direct interest of the party taking the appeal and questions of fact sufficiently resolved to create a record upon which judicial review can be conducted.

[Noting citation of a particular case by the Commonwealth Court in 1997] The Supreme Court remanded a case to Commonwealth Court to…order the appropriate agency to conduct an administrative hearing that accorded procedural due process [Callahan v. Pennsylvania State Police, 494 Pa. 461, 431 A.2d 946 (1981)]….Since the decision was already found to be “invalid,” there is no need for an appeal….Appeals…do not involve resolution of factual disputes….It is a [de novo, per the Department] trial.

As a de novo proceeding, the burden of proving statutory compliance rests squarely on the original applicant, Highmark, for, when litigation begins again in a de novo proceeding, the burden of proof is identical to what it was the first time [School District of Erie v. Hamot Medical Center of Erie, 602 A.2d 407, 409 (Pa. Cmwlth., 1992)]. Specifically, when the Insurance Department ignored requests by an insured’s counsel for subpoenas ad testificandum and subpoenas duces tecum seeking information to support a discrimination-based claim, “a new formal administrative hearing” was ordered following “cause remand” [Weinberg v. Insurance Department and Keystone Insurance Company, 398 A.2d 1120 (Pa. Cmwlth., 1979)].

The general rule in administrative actions is that the burden of establishing a right to a statutory grant is upon the applicant [Hospital Utilization Project v. Commonwealth, 507 Pa. 1, 13 N.7, 487 A.2d 1306, 1312 N.7 (1985); Brooks v. Office of Vocational Rehabilitation, 682 A.2d 850, 855 (Pa. Cmwlth., 1996); Commuters’ Commission v. Pennsylvania Public Utilities Commission, 170 Pa. Super. 596, 607, 88 A.2d 420, 425 (1952)]. Highmark was granted a right (to hold a dual-license, through issuance of a Certificate of Authority) without having earned it.

The Respondents cited a “broad and general exemption” from insurance laws that do not specifically refer and apply to non-profit health plan corporations [40 Pa.C.S. § 6103 & 6107], but they only relate to the “business of insurance”…not to fundamental corporate reorganization. They claim the Insurance Holding Companies Act doesn’t apply, despite its intuitive import.

Regarding the latter [40 P.S. §§ 1401 et seq.], already discussed is its encompassing acquisition of a “person” by a Blue Cross or Blue Shield plan [see p. 9]. Silence (not having mentioned Blues Plans in the Act’s specific definitions of “domestic insurer,” “involved insurer” and “person”) does not rebut the duty to discharge such oversight. In other cited instances (e.g., fraternal organizations being exempt, via 15 Pa. C.S. § 5102), other laws apply; there is no proof that the Legislature wished to exempt these non-profits from any possibly-applicable statute. Finally, the Department correctly notes that review of the (faulty) consolidation process would require remand to create a record, inasmuch as effort to introduce such evidence was denied.

The Respondents failed to rebut the plain-language of the cited-statutes [see pp. 12-13] with which Highmark is not in compliance, instead selectively-citing other statutes with which it allegedly complies. A revelatory rhetorical technique shrouding the legislative ambiguity extant is using a plural-form (e.g., “Blues Plans”) rather than acknowledging creation of an undefined entity (Health Plan Corporation). This is certainly an issue of substantial public importance.

The Respondents failed to distinguish property-transfer and the right (license) to operate said property. The Department cited two instances that require relicensure—related to liquor licensees [40 P.S., 47 P.S. 4-468] and continuing care providers [31 Pa. Code §§ 151.3(b), 151.6] —and concludes that the absence of such a mandate provides “license” to preclude this process, despite inability to cite case-law supporting the view that any license can be exempt from review. As often occurred throughout this legal process, they failed to address a key-limitation affecting the Blues [Knecht v. Medical Serv. Ass’n of Pa., Inc., 143 A.2d 820, 823 (Pa. Super. 1958)]. And, again, it cannot reasonably be claimed that these issues fail to carry great public import.

It is truly phenomenal that the case cited by Highmark disproves its thesis, to wit:

…”[D]ue process is fully applicable to adjudicative hearings involving substantial property rights…” such property rights perforce include the right of an individual to pursue a livelihood or profession, thus triggering the protective mechanism of procedural due process. [emphasis preserved]

This case, therefore, illustrated precisely the point that has been made over the years, namely, that there is a definable distinction between the property right (there, a license to be a physician…here, a license to insure) and the ability to exercise that right (there, a license to be a practicing physician…here, a license to write insurance) [Lyness v. State Board of Medicine, 529 Pa. 535, 5442, 605 A.2d 1204, 1207 (1992), quoting Soja v. Pennsylvania State Police, 500 Pa. 188, 455 A.2d 613 (1982)]. “Passage” from one entity to another “without further act or deed” neither denotes nor connotes the ability to use that entity that “passed” without agency review[3].

5. The market-shares of BCWP/PBS should have been considered during performance of antitrust analysis.

The Department (noting that Highmark was silent on this issue) claimed that any effort to include these market-shares would have constituted “back-door review of the consolidation in violation of the IHCA.” There is no authority for this non sequitur for, alas, it makes no sense. Even if the consolidation-process were to be viewed as exempt from administrative oversight, such portrayal of this corporate-transaction would not obviate anti-competitive review of the entities serving as specific components thereof; indeed, the Respondents cannot show that this antitrust analysis would impact the consolidation process and, thus, exemption wasn’t warranted. Another way to perceive the true forces at-play in this matter is to review the statutory details; the aforementioned “Insurer A/Insurer B” structure is mutually exclusive of whatever owns A/B.

6. The Hearing Officer should have permitted Sklaroff to replace his suddenly-absent economic expert, abusing his discretion.

The Respondents misrepresent what transpired in an effort to minimize its profundity. Highmark claimed falsely that this request was “for an indefinite extension of the hearing,” despite the fact that the attorney representing Sklaroff did not oppose continuation thereof; his was a “request that you allow us a period of time…to find an alternative economist subject to certain considerations that I think are important” [Hearing Transcript, Page 43, Line 21 et seq., pp. 265a-266a of Sklaroff Reproduced Record]; these[4] included adherence to the Expert Report that had been introduced on behalf of Drs. Foreman/Shea (initially prepared a half-decade prior).

Also, as per supra, this was congruous with the Department’s month-long delay-request (due to the inability of its witness to appear at that time), a limit Sklaroff was willing to honor. [The Department acknowledged “that the Presiding Officer had earlier granted a continuance to the Department…to present its witness on a different date.”] The Department re-cited tangential considerations that were portrayed as amplifying unspecified “difficulties inherent in introducing a new witness at the hearing stage of the proceedings.” If there were delay inherent solely in the need to perform a voi dire, this would be miniscule when compared with the lengthy time-period between completion of the hearing (2002) and issuance of the Department’s Order (2006).

7. Sklaroff should have been permitted to invoke his notes and provide limited observations regarding his status as a medical practitioner.

The Respondents failed to justify exertion of such limitations; the foundation was laid for ongoing use of notes, and limitations were placed on his ability to discuss personal knowledge.

Highmark, remarkably, claimed that Sklaroff was permitted “to give some opinion based on his experience where proper foundation was laid and when the testimony was relevant,” but examples thereof are difficult to identify (assuming they exist), particularly because of episodic prodding by the Presiding Officer to “move on” to other topics before achieving desired fruition. This is particularly problematic—in the case of his desire to refer to prepared notes—when it is noted that Sklaroff offered the Respondents the opportunity to review them [Hearing Transcript, Page 49, Line 7, p. 271a of Sklaroff Reproduced Record]; the denial of this ability served as an “impediment” [Hearing Transcript, Page 51, Line 25, p. 273a of Sklaroff Reproduced Record].

8. Procedural and Evidentiary Rulings by the Presiding Officer were prejudicial to the ability of Sklaroff to prepare and present his case.

The Department (noting that Highmark was silent on this issue) failed to address the many details that were preserved and presented, dating back to when Sklaroff documented the fact that the Department had not even addressed all the materials (inclusive of communications from Sklaroff) submitted thereto (prior to its issuance of its original adjudication, comparing what it revealed it had used as the basis for its analysis with what was subsequently revealed as having been included in its database). Such arbitrary decisions were made (in the absence of any specificity regarding the rejection of specific requests) and additional discovery opportunities were denied (even limiting the total-number of requested materials, and then refusing to allow submission of replacement-requests after the original list had been inexplicably gutted). Pivotal, here is the absence of rationale provided by the Presiding Officer with sufficient specificity to be invoked for revised submissions (indeed, they were routinely boilerplate, stylistically). Granted, some could be deduced (such as the mandate that Highmark’s future conduct be exempted); yet, additional concerns (note the “laundry-list” patter contained in Commonwealth Court filings) could not be discerned (in particular, alleged linkage to the consolidation, in some abstract way).

9. Pre-Hearing Rulings by the Presiding Officer were prejudicial to the ability of Sklaroff to prepare and present his case.

Highmark mischaracterized the approach Sklaroff adopted pro se when attempting to be prepared for the hearings as having led to his being provided “extraordinary patience, restraint, and latitude.” To the contrary, all key-decisions were adverse to even the most reasonable and focused requests (such as document discovery), with an aloof atmosphere consistently prevailing (such as when orders were issued without a gesture towards the expectation that there would be some explanation for the decisions that were rendered, specifically with regard to discovery).

10. Highmark’s Bylaws failed to perpetuate the physician leadership role that PBS recognized as pivotal when maintaining its Social Mission.

The Respondents claim there is no express statutory mandate that physician leadership be maintained, despite the fact that specific reference was made to the need to optimize the quality of health care provided in the Commonwealth AND to the PBS’s characterization of the key role physicians have traditionally played in that context. Noting that the only formalized way for this to be manifest is through provision of Special Resolutions (not withstanding other mandates as to the numerical representation of physicians and non-physicians in key roles), the pincer-effect (both of precluding Special Resolutions and direct election of their authors by the providers) was to disenfranchise physicians from being minimally-empowered to satisfy their Social Mission. Constant restatement of ways Highmark complies with statute doesn’t address the way it doesn’t. To the contrary, the Department claims that non-physicians (i.e., subscribers) are to be given “the prominent voice on the Board,” without recognizing this well-documented tradition.

11. Highmark’s witness proved the antitrust violation, regarding both the geographic and product components thereof.

The Respondents, instead, endorsed the way the Presiding Officer assessed the testimony of Ms. Colleen Gallaher “as a whole” without noting the specificity thereof, as was quoted.

An extraordinary admission was made by the Department, when it claimed that the testimony included reference to the fact that Trans-General offered both health insurance and non-health (disability and prepaid-legal) insurance coverage, thereby justifying the decision to include “the accident and health line of business.” Clearly, these products can be delineated, and surely they should have been. Segregating the narrowly-defined “accident” marketplace to be consistent with the impact of Trans-General (when PBS wasn’t engaged in such activities) would then have permitted focus on the market for solely health insurance (which was admittedly many orders-of-magnitude larger). It is amazing to have read of this revelation, so late in the process.

Otherwise, the Respondents failed to contradict the (palpably obvious) conclusion that the health insurance product provided in the overlapping geographic region of PBS and BCWP (the 29 western Counties of Pennsylvania) should have been the starting-point for analysis. Inasmuch as the need to focus study on this intuitive antitrust battleground was not refuted, it remains the gravamen of the anticompetitive analysis that the Department still has not done. The same consideration applies to the fact that scattered business-dealings were documented to occur outside western Pennsylvania; indeed, if they occurred out-of-state, would that have then necessitated that the proper geographic region of study should be the entire United States? (Perhaps including the rest of the world would have been apt, assuming an insured might travel.)

The one specific reference to the Highmark-Witness testimony was that KHPW was not “already affiliated” because “the change in control would not cause a change in the service area of any of the subsidiaries.” Not withstanding the fact that she was a fact-witness (not an expert), consider this admission that clearly differentiated “control” over KHPC and KHPW [623a]:

[What accounted for the differences in your interactions?] Primarily, I’d say because of the ownership status of those different subsidiaries. Where we had a 50% interest, we often wanted to express that interest in our dis-cussions. In the case of KHPC, with CBC or KHPC. {punctuation added}

[And in the case of the subsidiary that was owned by Veritus, you had a lesser interest, is that correct?] When Veritus had 100% control, it was Veritus that managed the issues related to any questions from the subsidiaries.

Thus, clearly, shared-control over decision-making was supplanted by absolute-control over decision-making, if within no other context than with regard to KHPW. This serves as an absolute level of proof that “control” changed, mandating the need for the Commissioner to have recognized this observation and have acted accordingly, to disallow the deal [see pp. 30-31].

12. The Commissioner’s 2006 Decision and Order was not sufficient for appellate review.

The Department noted correctly that Sklaroff retains the concern that the Commissioner chose not to address “each and every assertion of fact and law that he raised during the 10 year administrative proceeding,” but it mischaracterized this posture as superfluous because of what had been addressed (e.g., “110 findings of fact”). The key-point, which is actually exemplified by the superficial level of analysis that the Respondents devoted to the initial filing of this appeal (before they knew that this “perfected” version would be prepared to capture their input), is that many fundamental considerations were ignored. It is hoped, of course, that the process of now confronting them will inevitably lead to recognition of the veracity of at least one of them, and, thus, that this will provoke the unraveling of the precipitous deal and the devotion of far greater study to the structure of the state’s health insurance (and, thus, the health care delivery) system.

The Respondents recoiled (somewhat predictably) when the “intact” presentation of CBC was presented instead of renditions of identical concerns that had been composed by Sklaroff. (Again, this was done expressly after Sklaroff had been accused of contemplating “idea theft.”) That’s why it was paraphrased/abbreviated and tethered closely to what already had been written.

The Introduction to the Preliminary Brief included a distillation of the import of this case; it has been restructured and segregated from the legal arguments contained herein[5].

It is difficult to discern which of the many concerns raised during this process is best portrayed as predominant; thus, each will be given its “due” within properly-phrased context.

That legislative efforts are now being made to consolidate Highmark and IBC testifies to the pivotal nature of this litigation. By whatever mechanism of temporary give-aways, the Blues are determined (as we discerned more than a decade ago) to monopolize the Commonwealth.

That the Burden of Proof was on Highmark is illustrated by the fact that this Court does not have any evidence presented at any time (consistent with statute) by Highmark that justifies its existence. That the Commissioner had jurisdiction over the Consolidation (and the faulty process of acquiring approval by the PBS Corporate Body) is illustrated by the fact that it retains oversight over fundamental changes in control of domestic insurers (as does, although it was strangely silent throughout) the Health Department. That Highmark illegally is dual-certified is illustrated by the fact that it could not inherit the right to sell health insurance as an entity that has neither been legislatively-defined nor empowered to supersede statutory limitations that had mandated separate entities encompassing hospital/provider services. That Highmark illegally was permitted to inherit Certificates of Authority to write insurance (without a public hearing) is illustrated by the fact that this licensure process entails more than inheritance of properties, for the right to use/operate when invoking this property requires individualized scrutiny.

That Highmark’s creation was illegally anticompetitive is illustrated by multiple facts, including exclusion of key-components of the product-entities (PBS, BCWP, KHPW), inclusion of tangential “accident”-related products (that unduly enlarged the denominator of what would otherwise have been the obvious focus, health insurance), and inclusion of tangential regions (that unduly enlarged the denominator of what would otherwise have been the obvious focus, the western 29 counties of Pennsylvania). That the hearings process was profoundly biased is illustrated by multiple facts, tethered both to events that transpired prior thereto (such as faulty discovery) and to events that transpired thereat (such as inability to get a new economics expert).

Driving this process—initially and subsequently—was the fact that Highmark illegally was dismissive of the traditional, mandated physician-component of the PBS “Social Mission.” Threaded through this legal analysis has been the lack of any desire to invoke the one case that has reached the Supreme Court related to empowerment of the Blues, namely, the Knecht case; here, explicitly, discretionary limitations were placed thereupon, to wit, that exceeding statutory empowerment was impermissible. That this entire process was characterized by Celeriter Lente [“make haste, slowly”] has proven challenging to one’s faith in the intricacies of government. Nevertheless, finally, the Supreme Court will be exposed to the culmination of this effort.

Every problem has provided opportunity. Here, the necessity to file this “perfected” brief has permitted the appended document to be mainstreamed, affording prior recognition of its legal authorship (@ Saul-Ewing) as well as sufficient “space” to resolve the Respondents’ concerns. The opportunity to review their second-“bite” effort is eagerly awaited, for the facts and the law favor the thrust of this appellate effort, to ensure that open-minded jurists weigh the profundity of these goals and the need to recognize that this appeal is the only reasonable remedy available.

Wherefore Petitioner Robert B. Sklaroff, M.D. respectfully requests that this Court set aside the Commonwealth Court’s Order dismissing this challenge to the Consolidation creating Highmark. Alternatively, Dr. Sklaroff requests that the 1996 “Decision and Order” be vacated, thus re-establishing the independent existences of PBS and BCWP; disapproving the Highmark Bylaws and retransferring the subsidiaries to PBS (to recreate the December 5, 1996 status).

[1] The Court mistyped the name of the plaintiff, omitting the double-“z” in the plaintiff’s name.

[2] This discussion is copied verbatim from the Capital Brief; it constitutes the gravamen of all deviations from statute and common sense that have been committed by the Commissioners; it has been condensed somewhat due solely to page-limitations, while it includes annotations.

[3] For example, recent perjury allegations [related to ties with organized crime] against the owner of the Mount Airy Casino Resort reflects the need for oversight of the personnel involved in the licensure procedure, again totally absent if the Respondents were to prevail in this litigation.

[4] This was included in off-the-record comments which the Presiding Officer precluded from re-citation [Hearing Transcript, Page 44, Line 18, p. 266a of Sklaroff Reproduced Record]. Included was the ability to abide by the constraint that the chosen-expert be among those who had been listed in the previously-filed Prehearing Statement [see p. 542a] (to which no prior objection had been raised and, thus, who would predictably have been an acceptable substitute).

[5] The Commissioner and the Presiding Officer have eschewed responsibility to oversight the consolidation process itself and, as a result, expanded that carve-out maximally to evade the need to probe anything it could place under its aegis.

Their decisions/orders were neither justified nor rational (e.g., deleting “already-affiliated” entities from antitrust analysis). Allowing Highmark inter alia to inherit dual-licenses threatened, essentially, to make new law.

The HPCA does not provide for, or permit, dual licensure of a health plan corporation. The Certificates of Authority of BCWP and PBS did not pass by law to Highmark. Highmark may not operate either a hospital plan or a professional health services plan unless/until it obtains a Certificate of Authority, in accordance with statutory procedures.

The legitimacy of Highmark remains challenged, and proper adjudication will per force yield disapproval of its bylaws and, thus, retransfer of all its subsidiaries to a reconstituted PBS.

Mandating health insurer competition is vital, for the Blues Monopoly—as anticipated— constantly tightens its grip, not withstanding respondents’ many protestations to the contrary. Highmark has tried to muscle Blue Cross of Northeastern Pennsylvania [“BCNEP”] [Highmark v. BCNEP. Pa.Sup.Ct. #’s 183, 205, 309, 663 MDA 2000] and Capital Blue Cross [“CBC”]. And initiating antitrust litigation could not reasonably be fruitful to repair this suffocation, recognizing inter alia that even the current “clean” effort (started before Highmark was born) consumed a decade of delay (with all but 1-½ years thereof ascribed to the Department, with the rest due to a justified conflict-of-interest challenge to PSIM’s representation).

Rectifying this multiplicably-flawed approval would reconstitute PBS and BCWP, just as other healthcare consolidations have been unwound. For example, on 1/2/8/1999, two hospitals (Columbia/HCA Healthcare Corporation and the Arlington Health Foundation) were separated (almost a year after their having joined) by the Internal Revenue Service, due to non-compliance with regulatory standards. The result would not hinder American international-competitiveness, for the marketplace and service-region are undeniably “domestic.” Yet, its impact would extend throughout the Commonwealth’s healthcare delivery system, and it would ripple nationally.

a. Impact of the Blues Consolidation

The consolidation of PBS and BCWP and acquisition of the six subsidiaries [hereafter, the “transaction”] gave Highmark unbridled power to exploit its market position and to accrue massive reserves; ensuing abandonment of the traditional social mission that had guided PBS, has harmed those who had benefitted therefrom: consumers, citizens, employers and providers. It has precluded meaningful cost & quality competition that would otherwise have occurred.

The transaction harmed consumers, as Highmark delivers a lower quality of health care and charges higher prices. Highmark’s Blues on Call triage program substitutes the judgment of a nurse on the telephone for that of a physician who has actually examined the patient, and its closed formulary prevents physicians from prescribing certain necessary drugs. These programs were started without any physician-provider input, given through the PBS as patient-advocates.

It harmed the citizenry, as Highmark shirks its obligation to devote a defined percentage of its revenue to support community services. By transferring the bulk of its business from the parent organization into subsidiaries—Keystone Health Plan West [“KHPW”] and Keystone Health Plan Central [“KHPC”]—which are exempt therefrom, it decrements revenue mandates.

It promises to harm the citizenry further, for the transaction is the first step in Highmark’s long-term plan to convert from non-profit to for-profit status, diverting its reserves to benefit its senior management and future stockholders, preferentially, rather than the statewide community the Blues Plans were created in the 1930s to serve. This transaction is the lynchpin thereof.

Consider how Mr. Walter F. Froh (Senior Vice President, PBS Inter-Plan Relations) portrayed Highmark’s plans (on 2/23/1996) to Mr. Frank W. Clark (the Health Department’s Acting Director of the Bureau of Health Care Financing) {G}.

Mr. Clark queried, “We are interested in the impact of the consolidation on managed care programs.” Mr. Froh wrote he anticipated the KHPs “will continue to operate their existing businesses in the health care and health insurance fields as affiliates and subsidiaries of the Consolidated Corporation either as separate affiliates and subsidiaries of the Consolidated Corporation or, upon consolidation of such subsidiaries and affiliates, under the Consolidated Corporation.”

Undisclosed were plans to sell Keystone Health Plan East [“KHPE”] to Independence Blue Cross [“IBC”] and to disengage from CBC. These reflected machinations that led to this consolidation being effectuated, the fact that the public was kept “out of the informational loop” of such crucial data, and the plan to monopolize the CBC-region (subsequently manifest).

It harmed employers and the Commonwealth’s economy by yielding higher prices and by extinguishing choice. Highmark’s acquisition of KHPW and sale of its interest in KHPE to IBC have had substantial anticompetitive effects, allowing it to solidify and strengthen an already formidable market position. It used financial reserves to support a strategy of predatory pricing in selected accounts where it faced competition (such as from CBC and Northeast Blue Cross), blocking growth of its few actual competitors and entry of potential new competitors. [This commentary was originally written before the Highmark/CBC legal conflict emerged.]

Before the consolidation, PBS and IBC each owned 50% of KHPE. Following the consolidation, PBS agreed that Highmark would sell its newly-acquired (from PBS) share of KHPE to IBC, at a price well below fair market value. This was done both in exchange for IBC’s consent to the consolidation and to induce IBC to enter into a secret market allocation with Highmark (“dividing the marketplace”) excluding IBC from western Pennsylvania.

Highmark has also used its reserves to finance and/or invest in acquisition by West Penn of the Allegheny Hospitals, definably increasing its market power at the expense of all regional competition. Exacerbating entry barriers in private, Medicare and Medicaid product markets, Highmark will force the Allegheny Hospitals to provide it “most favored nation” [“MFN”] rates.

Thus, Highmark acquired additional incentive and capacity to engage in exclusionary conduct toward one of its most significant competitors (both as insurer and as provider), namely, the University of Pittsburgh Medical Center [“UPMC”] Health System.

Thus, it has harmed the capacity for meaningful competition by other providers,

The Blues should be forced to implement the very efficiencies they claimed would lower insurance costs (following Highmark’s creation) in a more competitive health care marketplace.

b. Implications of the Blues Consolidation

Reasonable review of this matter must yield a health insurance system that is responsive to the interests of the insureds. All accumulated insensitive mandates from the Blues (e.g., suddenly forcing a Medicare patient to self-finance an expensive drug (Gleevec) needed to treat her Chronic Myelogenous Leukemia) {personal experience} cannot reasonably be aired herein, when there is no reasonable alternative (for insureds or for providers) in the marketplace…and when hospitals are routinely squeezed (when Blues-contracts are re-negotiated). No one can be a provider unless he/she has a Blues-contract; the resulting Horizontal/Vertical monopolization intuitively cannot be in the economic best-interest of those who seek a responsive system.

It is that goal that continues—a decade after the initial filing—to motivate this petitioner to seek rebalance of the Commonwealth’s health insurers. Unwinding the consolidation will necessitate “unscrambling this egg” knowingly created by Highmark (step-by-step, action-by-action).

Highmark functions in hyperspace, absent cogent statutory/regulatory oversight. For the Current Public-Health and for the Future Commonweal, its Past Creation must be unwound. Thus, it is advised that Conclusions #154-158 from Sklaroff’s post-Hearing Brief be ordered.

On December 30, 1997, during oral argument, the Court [page 30: line 23] noted that ultimate dissolution of Highmark would eventually burden Highmark: “Isn’t that their problem if they are ordered to unscramble the eggs and it is a nightmare for them to do it rather than irreparable harm to your clients?” {JJ}. That prospect now looms.

Highmark (or PBS and BCWP) must: (1)—spin-off KHPW (as had been advised in 1996 by Tom Corbett (then-Acting Pennsylvania Attorney General); (2)—be enjoined from converting to for-profit status; (3)—relinquish its part-ownership of West Penn of the Allegheny Hospitals; and (4)—be prohibited from engaging in anticompetitive conduct, such as: threatening health insurance brokers who sell competing products, refusing to deal with employers who offer competing products, forcing employers to achieve minimum participation requirements; forcing employers to take undesired Highmark (and/or PBS and BCWP) products to get desired products, forcing providers to participate in all Highmark (and/or PBS and BCWP) products if they want to participate in any, imposing MFN clauses in provider contracts; and delaying credentialing of physicians within a reasonable time if they affiliate with competing entities.

The implications of this effort affect many facets of the health care delivery system, detailed in the Preliminary Brief as a recitation of Sklaroff’s testimony, filings and writings (through PSIM and as an individual) and as a recapitulation of Blues-related litigation.

The controlling issues of law herein present significant public policy implications as to the fundamental legal status and operation of Blue Cross and Blue Shield plans. They are of critical importance to the Commonwealth and its citizens because they involve the permissible status and conduct of non-profit health insurers with a dominant role in Pennsylvania health care financing and delivery. If Highmark isn’t dismembered, health insurer competition won’t occur. The Blues, the silent-hand controlling healthcare delivery, must themselves be subject to control.

IN THE SUPREME COURT OF PENNSYLVANIA

Robert B. Sklaroff, MD, Intervenor

Commonwealth Court Docket

Appeal No. 1238 CD 2006

Commonwealth Court Docket

Appeal No. 1215 CD 2006

No. 71 MT 2008

[Temporary Docket]