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Robert B. Sklaroff, M.D.
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This is the updated testimony provided on July 15, 2008, before the Insurance Commissioner.
TESTIMONY
PENNSYLVANIA INSURANCE DEPARTMENT — FIELD HEARING — PROPOSED CONSOLIDATION OF THE PENNSYLVANIA “BLUES” COMMISSIONER JOEL ARIO
July 15, 2008
By Robert B. Sklaroff, M.D.
Regarding:
Examining Health Care Mergers in Pennsylvania:Any Blues Merger/Consolidation Would Have aCatastrophic Effect on Pennsylvania Medicine
As Documented in Pending Litigation Pending Before the Pennsylvania Supreme Court [Docket # No. 114 & 115 MAL 2008]
Robert B. Sklaroff, M.D., F.A.C.P. Medical Oncology/Hematology Telephone: (215) 663-8200 Facsimile: (215) 663-8388 E-Fax: (215) 689-2461 Medical Arts Building - Suite #130 50 East Township Line Road rsklaroff@comcast.net Elkins Park, PA 19027-2253 http://www.doctor-bob.biz/rsklaroff
Disclosure of Organizational Relationships {Testimony ONLY reflects FPD Policy.}
Past-President, Pennsylvania Society of Internal Medicine {The American College of Physicians absorbed the PSIM.}
Regional Coordinator, Federation of Physicians and Dentists [“FPD”] National Union of Hospital and Health Care Employees American Federation of State, County and Municipal Employees American Federation of Labor – Congress of Industrial Organizations Suite #C2, 1310 Cross Creek Circle, Tallahassee, Florida 32301 1-800-373-5777 {Jack Seddon (Executive Director) concurs with the substance of this testimony.}
Committee-Person, Republican Party Precinct 7-2, Abington Township, Commonwealth of Pennsylvania
Commissioner Ario, I appreciate the opportunity to present this Testimony regarding an issue that has been of deep personal concern for more than a decade. Forward-thinking doctors predicted that a statewide “Blue” was contemplated before Highmark was created on December 6, 1996. That is why we sued the Insurance Commissioner—a day prior —to stop the consolidation of Pennsylvania Blue Shield [“PBS”] and Blue Cross of Western Pennsylvania [“BCWP”]. That lawsuit pends before the Pennsylvania Supreme Court, and it provides the lynchpin for the current proposal. I will discuss the history of this litigation as well as current proposals before the Pennsylvania General Assembly—among them House Bill 112—inasmuch as it is vital that you be provided “true” informed consent regarding the grave risk to the future of Pennsylvanians that this proposal entails.
Essentially, an effort continues to “wire” approval of the creation of this corporate giant, as evidenced by the fact that the Blues were complicit in the sculpting of the enabling bill (as amended). They hope to correct all the mistakes they made when Highmark emerged, but simply applying the principles in these bills will reveal BOTH (1)—how dangerous approval of this mega-insurer would be, and (2)—why support for my lawsuit is needed.
I am Robert B. Sklaroff, MD and I am testifying on behalf of the Federation of Physicians and Dentists. The FPD is a national organization, a component of Philadelphia-based NUHHCE, the National Union of Hospital and Health Care Employees. NUHHCE, in turn, is a component of AFSCME, the American Federation of State, County and Municipal Employees. AFSCME is an International within the AFL-CIO. The FPD represents thousands of physicians nationally, both those who are employees and those who are independent contractors. NUHHCE (through its President, Henry Nicholas) provided a $1000 contribution to my legal expenses, years ago; the FPD (through its President, Jack Seddon) has consistently supported and published information regarding this litigation—and its importance—during this millennium. His sustained courage as a leader contrasts with that of what is viewed euphemistically as “Organized Medicine.”
It must be appreciated that I am a former member of the American Medical Association, the Pennsylvania Medical Society, and the Philadelphia County Medical Society. Although active during the 1980s and 1990s and having held multiple positions therein, resignation was the action I took when faced by the PMS’s actions and inactions. Indeed, for example, on Wednesday December 18, 2002, the day prior to my long-awaited presentation to the Pennsylvania Insurance Department’s Office of Hearings and Appeals, my economic expert was suddenly “pulled” by the PMS…after he had agreed to testify. Essentially, despite whatever you hear publicly emanating from the PMS, know that the Executive Vice President, Roger F. Mecum, was solely to blame for violating policies that had been enacted—over the years—to help physicians combat these insurance giants.
I have carried this responsibility after all physicians and organizations had dropped-out. Illustrative of how vital the current litigation has become, is the fact that my current work has been joined by Capital Blue Cross, which will participate with me in Oral Argument. Although I have often been forced to handle this matter on a pro se basis, my current appellate representation is being handled through the firm of M. Mark Mendel, Limited. * A friend who has heard me rail against the Blues for years, suggested that I summarize this Testimony by emphasizing the importance of allowing free market forces to enhance quality while lowering prices. Certainly, despite solemn pledges to the contrary, Highmark has consistently raised its premium rates during the past decade. This is, naturally, to be contrasted with permitting a monopoly to control health care delivery. Thus, government should certainly not sanction completion of crafting statewide Blues.
Another friend, John R. Cohn, M.D., a Jefferson pulmonologist/allergist/pediatrician and letter-writer extraordinaire, recently had an essay published in the Wall Street Journal. Excerpts are relevant to the issues that are raised by this proposed corporate change: “The lack of a national insurance market has meant that in many parts of the country one or a few giant insurance companies control the marketplace with high barriers to entry by competitors. Insurance premiums increase at double digit rates, while providers see only a fraction of that amount. Such market domination and antitrust regulations prevent providers from organizing to negotiate alternative care delivery and reimbursement paradigms with carriers or even employers. The result is that insurance companies have inadequate incentive to reduce costs—since they can always raise premiums—and their money comes out first. Other than a few procedures that patients are willing to pay for on their own, providers have no choice but to accept what the carrier decides is left over for them.” The rest of the essay decries superimposition of bureaucracy upon bureaucracy.
When I submitted my initial brief I 2006 to Commonwealth Court, I discussed the import of my lawsuit thusly (in a footnote, with certain legalese deleted). [This and other filings by both myself and my litigation-opponents are available on my web-site.]:
“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….
“On December 30, 1997, during oral argument, the Court 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?” That prospect now looms.
“Highmark (or PBS and BCWP) must: (1)—spin-off Keystone Health Plan West [“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 Most-Favored Nation [“MFN”] clauses in provider contracts; and delaying credentialing of physicians within a reasonable time if they affiliate with competing entities….
“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.”
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I am not going to argue my legal case, here, today. Rather, I am going to use it to provide counterpoint to the bills that are before the legislature and which must not be adopted. I have painfully learned that, despite all good intentions, “The Devil is in the Details.”
The URL for pending legislation before the Pennsylvania House [HB112] is as follows:
Press reports state that a comparable bill has been introduced into the Senate and will be the subject of a hearing conducted by the Senate Banking and Insurance Committee, chaired by Don White of Indiana County, a former insurance agent. His Chief-of-Staff, Joe Pittman, commented simply that “Competition is a good thing for the consumer.”
Creating an oversized insurer that would be the third-largest in America and that would control more than half of the Pennsylvania Marketplace of Health Insurance simply can’t be good for the populace. But it is necessary to study how and why this is the case.
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The first concept that must be appreciated is the fact that the Blues have proposed this “enabling legislation”—as has occurred prior to every such merger-consolidation of any Blue Plan in America—in contrast with the fact that Highmark was created without it!
This is a fundamental observation for, by supporting any such bill, the Blues per force confess to faulty corporate changes that had occurred in the absence thereof. In the case of Knecht v. Medical Serv. Ass’n of Pa., Inc. [143 A.2d 820, 823 (Pa. Super. 1958)], unambiguous language was used by the Pennsylvania Supreme Court to delimit the power of the Blues to act without legislative authority: “Since defendant [PBS] was created under authority of the Act of June 27, 1939, P.L. 1121, for the purposes therein expressed (additional citation omitted), it may not exceed the authority granted or alter the provisions of the statute.” Therefore, because there had previously been no authority granted by the General Assembly to effect any type of corporate change, the creation of Highmark was fatally-flawed at its onset, and it currently writes health insurance illegally.
The second concept that must be appreciated is the fact that the Blues have inserted the phraseology that is at the heart of my litigation, namely, the dissolution of any distinction between a Hospital Plan Corporation and a Professional Health Service Plan Corporation. {See page 3, lines 8-25}. When Highmark was created, it subsumed separate statutes governing the Blue Cross and Blue Shield plans in Chapters 61 and 63, respectively, of The Insurance Company Law of 1921, amended December 20, 2000 (P.L.967, No.132). This meant that the contrasting natures of each entity (related to goals, constitution and oversight) were illegally admixed, and the new legislation would remedy this defect.
But this would not remedy the prior fatal-flaw, namely, that Highmark was created as a Nonprofit Health Plan Corporation, an entity that had not previously been authorized by any legislative edict. The “rules of construction” do not permit the adoption of the title of a bill as having any statutory effect. This is why the definitions are to be altered, albeit after the pivotal events of a decade ago, and this reveals why the Blues recognize that their prior actions have been faulty. Presumably, the Insurance Department is complicit through this effort, inasmuch as it continues to support the legitimacy of Highmark.
The third concept that must be appreciated is the fact that it explicitly states (at the end): “This act shall not apply to any merger, consolidation or other acquisition of control made or consummated prior to the effective date of this section and, if required, following the issuance of an approving determination.” There is only one such event that could be cited as related to this disclaimer, and that is my pending litigation. Essentially, this is a brazen attempt to acquire back-door, retrospective legislative approval of Highmark’s existence.
The fourth concept that must be appreciated is that certain definitions in the legislation are oxymoronic, that is, self-referential. For example, only a “domestic insurer” can be a party to a fundamental corporate change [page 4, line 1], with this term defined as “any person controlling a domestic insurer [page 4, line 20]. The method to the madness of maintaining a closed-shop? Only Highmark and IBC are parties to the arranged-marriage.
The fifth concept that must be appreciated is that the legislation permits financiers of any such fundamental corporate change to remain confidential “if the person filing such statement so requests” [page 6, line 2]. Thus, the ability to “follow the money” is denied to the public, and we all know (from Watergate, in particular) how necessary THAT is!
The sixth concept that must be appreciated is that the Insurance Department may or may not demand that information be divulged regarding the extensive contractual status of any syndicate that may be involved in this fundamental transaction [page 6, line 30], again denying the public any information regarding the under-the-radar forces that are at-play.
The seventh concept that must be appreciated is that the Insurance Department is now demanding issuance (to any new entity) of a fresh Certificate of Authority to write health insurance [page 9, line 5], despite the fact that Highmark never “went through the paces” of having applied for one, a decade ago, claiming it had “inherited” those of the consolidating entities, PBX and BCWP. Highmark, and the Insurance Department, have consistently claimed that such licenses are purely “property” that can be “inherited,” denying the fact that a license also is a governmental “granting of permission” to function (just as a merger of two taverns necessarily yields fresh Liquor Control Board approval).
The eighth concept that must be appreciated is that the Insurance Department must now ensure that any fundamental corporate change is in compliance with Pennsylvania law [page 10, line 8]. Although the Department had initially claimed oversight over the consolidation process (when it first issued its notification in the Pennsylvania Bulletin), subsequently, it claimed it lacked such jurisdiction. Thus, for example, this physician had been denied the opportunity to speak at the PBS Corporate Member meeting prior to the approval-vote, despite harboring evidence that BCWP had been sued for having charged members a deductible on the gross-cost of a procedure, while actually collecting far less from hospitals…without providing the members any refund. In addition, the “approval” vote was 74.7%, one vote shy of the 75% needed to alter the PBS Bylaws. Therefore, although the consolidation process violated Pennsylvania law (certainly, the dissolution of a company necessitated amending its bylaws), the Department disclaimed authority (despite having been provided statutory language mandating exertion of such oversight).
The ninth concept that must be appreciated is that the Insurance Department would only be required to hold public hearings regarding the proposed fundamental transaction if the insurers were to request one [page 10, line 30]. That’s right, the Department could view the situation as sufficiently private to deny the public any formal input into its approval. Indeed, what would be the likelihood of the insurers inviting public scrutiny of their plan?
In my case, there were never “de novo” hearings to supplant the “informational hearing” that the Department had orchestrated with the Blues. In the proposed law, a proposition that Lewis Carroll’s Alice would have witnessed only in Wonderland, a challenge to the fundamental transaction would never reasonably occur, depriving the citizenry, providers, and business community of any opportunity to challenge any monopoly and monopsony, namely, control over both the buyers AND the providers of health care in Pennsylvania.
This is also particularly problematic due to the expensive experience I had when my “standing” was repeatedly challenged, both by Highmark and by your predecessors. Despite the fact that the Commonwealth Court determined (on March 27, 1997) that I had a “direct, substantial and immediate” interest in this issue, the lesser standard used by the Department [only having “direct” interest] remained disputed. Absent involvement of the public to provide input, the “inside-baseballers” would keep approval private. The tenth concept that must be appreciated is that there is an explicit “pass” given to antitrust analysis of “already affiliated persons” in such transactions [page 13, line 20]. If approved, this would have the effect of exempting such entities as KHPW from review, using the loose definitions that Highmark and the Department would wish to apply, despite the fact that it actually (1)—was a major component in the market-share review, and (2)—had previously been controlled by neither of the consolidating entities.
Illustrative of the absolute fallaciousness of such a conceptualization is what predictably occurred a few years ago, when Highmark competed in the Allentown region with Capital Blue Cross, after Highmark cancelled their Joint Operating Agreement to operate Keystone Health Plan Central—identical to that of KHPW—thus illustrating the fact that each 50-50 partner (as is intuitive) had veto-power…and, thus, that neither controlled it.
Specifically, the managed care subsidiaries had an independent function, but the current legislation would assume they did not function in the market-place. The effect, of course, would be to diminish the impact of the Blues when compared with their competitors. Such an effort to “game the system” is pathetically transparent, and it must be stopped.
The eleventh concept that must be appreciated is that the antitrust analysis is limited to the “direct written insurance premium in this Commonwealth for a line of business as contained in [its] annual statement” [page 14, line 2]. This allows for dilution of the data, for it does not mandate that each type of insurance be analyzed separately. For example, if a company writes both health and casualty insurance, those markets would be pooled… even if the contribution of the insurers-of-interest to the latter was actually miniscule.
This is how the Insurance Department was able to conclude that Highmark would not be monopolistic/monopsonistic were it to be permitted to function, despite the fact that the anticipated market-share would be upwards of 85% of the health insurance written in the Western 29 counties of Pennsylvania. Instead of focusing competitive-analysis on the geographic-area of overlap of PBS and BCWP and on the health insurance service-area, non-health insurance was studied and the Commonwealth wasn’t even subdivided. And, while diluting the data, it even excluded the Keystone Health Plan West market-share.
The twelfth concept that must be appreciated is that this legislation would shift the burden-of-proof to the Commissioner, were merger-approval denied [page 16, line 27]. This was a point-of-contention in my hearings process, inasmuch as the Department had mandated (and the Presiding Officer, James E. Johnson, had approved) that I harbor it. Thus, although Commonwealth Court had ordered these hearings because of the violation of the Administrative Agency Law regarding bogus hearings, protestants such as myself were now to be held responsible for “disproving an unproven fact,” rather than mandating that the proponents of the fundamental transaction being forced to show it was lawful.
The thirteenth concept that must be appreciated is that an absolute mandate that any acquisition be approved if it would “yield substantial economies of scale or economies in resource utilization that cannot be feasibly achieved in any other way, and the public benefits which would arise from such economies exceed the public benefits which would arise from not lessening competition” [page 17, line 13]. That is also an absolute stunner; even if the transaction were to be grossly monopolistic, the Insurance Department would have to approve it if it demonstrated the capacity to provide “economies of scale.”
We all know what happened when such claims were made by the Blues a decade ago; promises were broken, premiums were increased, obscene fiscal reserves were accrued. Now, simply allege a slightly larger computer armed with an identical program could accommodate twice the bulk-processing of insurance claims, and, presto, you have your approval of a grossly monopolistic company, even if all other rationale is deficient.
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Other concerns related to my litigation include administrative irregularities committed by the Insurance Department during the Hearings process, such as limiting discovery. These are detailed, also, on my web-site, and I would be happy to answer any questions related thereto at any time. Thank you for the opportunity to have provided this input.
Simply put, the merger/consolidation of Highmark and IBC will easily pass muster with this sham-legislation, despite creating a subterfuge of oversight. Because there is little geographic overlap between Highmark and IBC, and because of the lax standards that are proposed to be employed, this fundamental transaction must be vigorously opposed. Indeed, the new legislation would not “fix” multiple errors I encountered with Highmark. Rather, for at least thirteen distinct reasons, it would compound this grievous error.
And know this: the implications of a do-nothing posture are now to be lifelong.
In short, the proposed marriage of Highmark and IBC is illegitimate, if for no other reason than the need to recognize that Highmark itself is a bastard-child. Far from saying “It’s OK” to support this transaction, endorse pending legislation, or respect Highmark, you should scrutinize Highmark from the antitrust perspective and dismantle it forthwith …just as Acting Attorney General Tom Corbett had initially proposed be done in 1996.
I received a letter last week from CIGNA, which had origins as the Insurance Company of North America and—for many years—was headquartered a few blocks from here, on north Broad Street. It is now pulling out of the Pennsylvania managed care marketplace. There is little doubt that this would not occur if it had a decent market-share, and there is even less doubt that it is the inordinate growth of the Blues that has provoked this event. Decreased competition hurts everyone, including the motivation to provide quality care by those who ostensibly benefit therefrom…the Blues. They MUST be stopped!
I have posted my filings before the Pennsylvania Supreme Court on my web-site at the following URL:
http://www.doctor-bob.biz/AA-Blues/Blues/Supreme%20Court%20Filings/SupremeCourtFilings.htm
Thank you for your attention.
Executive Summary
The proposed consolidation of the Blues would complete the process of monopolizing the Commonwealth of Pennsylvania’s health insurance business. They are also proceeding to monopsonize the provider community. Yet, my input has been delinked from that of the Pennsylvania Medical Society, the President of which, Dr. Peter Lund, was quoted last week in the Pittsburgh Post-Gazette as saying the following: “With the significant market share the consolidated company would have, provider reimbursement levels could be driven down below competitive levels and contract terms could be more one-sided than they currently are.” There was also a certain irony when I read that one of the critics of this process was Dr. Stephen Foreman, for he was blocked by his then-employer, the PMS, from testifying regarding antitrust concerns at the hearings that were held on December 19-20, 2002, as had been court-mandated AFTER the PMS had both opposed the initial litigation filing of 2006 and had dropped-out of the process of holding these hearings after the case had been transferred back to the Insurance Department.
I have documented a cross-walk between the proposed legislation and my litigation and, thus, rather than permitting this event to transpire, the legislature should join me in trying to re-create the insurer environment prior to the dissolution of Pennsylvania Blue Shield.
Please consult my web-site for further information regarding my pending litigation:
http://www.doctor-bob.biz/AA-Blues/Blues/Supreme%20Court%20Filings/SupremeCourtFilings.htm
I hereby challenge the Commissioner to a public debate regarding the legal posture he has inherited as a protestant to this case, which is before the Pennsylvania Supreme Court. When the public has been educated properly regarding what transpired, it will demand that the Commissioner withdraw his support for Highmark and, thus will moot this entire matter of a merger of this illegal entity with IBC. The Commissioner knows all-too-well that the entire process of approving this consolidation creating Highmark was “wired,” and the inability to perpetuate the social mission—which dominates these proceedings—would actually stem from decisions that were made more than a decade ago.
It is vital that this entire process not degenerate into a negotiating-posture, for it is the very concept that must be challenged resolutely. No trade-offs will compensate for the tragedy that will befall all Pennsylvanians if the Blues are given control over the market.
I am available if there are any questions regarding either the details of this input or the tremendously profound implications thereof—which will be perpetual and irreversible—affecting all people who dare to become involved in the health care delivery system of the Commonwealth of Pennsylvania…including patients, providers, insurers and financers.
Thank you for your time and attention; know that this Testimony has also been uploaded onto my web-site, so that the public will be able to scrutinize—and confirm—my views. Although some would wish it otherwise; I am functioning as a modern-day Cassandra, providing incontrovertible fact, measured analyses, and the only reasonable solution. |
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To contact me--Robert B. Sklaroff, M.D.--just send an e-mail (rsklaroff@comcast.net).
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