Consumer Group Calls For Regulators & Shareholders To Quash Bonuses

Payments to Wellpoint executives after the company’s buyout by Anthem Inc. could top $600 million if regulators and shareholders do not modify the acquisition terms, according to documents received from California regulators by the Foundation for Taxpayer and Consumer Rights under a Public Records Act Request late Tuesday.

The documents detail potential payments in excess of those estimated by the company to shareholders at $200 million in a recent proxy. Executives will receive cash bonuses worth between $146 million and $365 million under the proposed terms of the company’s buyout by Anthem, in addition to over $251 million in stock options. Wellpoint CEO Leonard Schaeffer has already begun exercising his stock options as of June 1st at sweetheart prices — earning him $16 million on that one day alone and increasing the size of his shares by hundreds of thousands.

The Foundation for Taxpayer and Consumer Rights (FTCR) will urge the state and shareholders to scale back the executive pay package at hearings on the acquisition before the California Assembly this afternoon — in addition to suggesting other conditions on the deal to guarantee continuity of care for patients. Shareholders will meet later in the month.

“When patients are being denied access to basic drugs, specialists and procedures in the name of cost-cutting, this platinum parachute must be cut back by shareholders and regulators,” said Jamie Court, president of FTCR and author of Corporateering. “The details of this obscene executive pay-out have been hidden from shareholders and the public because it gives greed a bad name. Wellpoint executives shouldn’t be able to steal hundreds of millions of dollars in benefits from policyholders and shareholders.”

Governor Arnold Schwarzenneger, who has authority to require the Department of Management Health Care to conduct hearings on the proposed merger, has received $92,400 from Wellpoint and its top executives.

“Governor Schwarzenegger and state regulators have failed to adequately address serious questions about how the proposed merger will affect patient care. The merger must be delayed until those questions are answered,” said Jerry Flanagan of FTCR. “Governor Schwarzenegger must personally require state regulators to hold their own hearings on the merger in order to live up to his commitment to an open government.”

FTCR will present the following 10 questions to legislators, regulators and company executives at today’s hearings:

1) The $600 million in cash bonuses and stock options to company executives proposed in the merger agreement will absolutely affect the financial stability of the merged company. Will Anthem and Wellpoint guarantee in writing that premiums, co-payments and other rates will not increase more than the rate of inflation for the two years following the merger?

2) In a 2003 deal to sell the Maryland-based CareFirst to Wellpoint, CareFirst’s board approved merger-related incentives and bonuses valued at nearly $120 million. Following public outcry, CareFirst and WellPoint decreased merger-related compensation by about half. Does the Department of Managed Health Care agree to require Wellpoint and Anthem to reduce the proposed $600 million package of cash bonuses and stock awards as a condition of approving the merger? Do Wellpoint’s top executives agree to limit the size of their awards? For his part, Wellpoint CEO Leonard Schaeffer will receive $84 million in cash and $150 million in stock. Will Mr. Schaeffer reduce his compensation?

3) Blue Cross of California has been Wellpoint Health Network’s cash cow — supplying the majority of the parent company’s net income, removing profit from the state. By up-streaming profits to the national parent company, Wellpoint, Blue Cross of California has disguised its true profit levels and medical loss ratios. Will the Department of Managed Health Care investigate the impact of up-streaming profits to the new merged company on the California economy and stability of the state health care system before agreeing to the merger?

4) Will Anthem and Wellpoint guarantee in writing to not change Blue Cross‘ network of doctors and hospitals and list of approved drugs and comply with state law requiring insurers to make medically necessary services “readily accessible to all enrollees”?

5) Will Anthem and Wellpoint guarantee in writing to integrate and improve their arrangement of care and their payment processing so that there is no disruption to Blue Cross patients after the acquisition?

6) Blue Cross is the state’s second largest health insurer and largest provider in the California Medi-Cal program which provides health care for low-income and disabled Californians. Will Anthem and Wellpoint guarantee in writing that the merged company will continue coverage for Medicare, Medi-Cal, Healthy Families, and Access for Infants and Mothers (AIM) patients that Blue Cross now treats?

7) Blue Cross of California is one of the state’s most inefficient health insurers with over 21% of premium revenues going to overhead cost, advertising, executive salaries and profit. How will the new company reduce the overhead costs of the California subsidiary without raising rates to patients or business owners and without cutting back on access to care? Will Anthem and Wellpoint guarantee in writing that within 2 years the merged company will reduce its overhead costs to 10% of revenue?

8) What is Anthem’s response to a lawsuit brought in federal and state court by Connecticut doctors who say the company illegally reduced their reimbursements for treating patients? The allegations include delaying and denying payments, using such tactics as “down coding” claims to procedures that pay less, and “bundling” claims so the plan doesn’t pay the full cost of more than one procedure done on a patient. Will Anthem and Wellpoint agree in writing to not carry out any of these activities in California?

9) California physicians receive the lowest reimbursement rates for treating MediCal patients and those enrolled in other public programs. The result has been that fewer physicians in the state provide treatment to patients on public programs. What will the merged company do to ensure that physicians are adequately compensated and that patients enrolled in public health care program will have access to health care?

10) Will the legislature create standards limiting the size of executive payouts in future acquisitions?

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The Foundation for Taxpayer and Consumer Rights is a non-profit and non-partisan consumer advocacy organization. For more information please visit us on the web at http://www.consumerwatchdorg.org or http://www.calhealthconsensus.org/