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Even before the ink dries on WellPoint Health Networks Inc.’s agreement to acquire rival Blue plan CareFirst BlueCross BlueShield for $1.3 billion, regulators in Maryland, Delaware and the District of Columbia are bracing for a difficult review that could take at least 12 months. At the heart of the regulatory review are local interests particular to each state and political sensitivities in all three jurisdictions. Owings Mills, Md.-based CareFirst owns not-for-profit Blues plans domiciled in Delaware, Maryland and Washington, D.C. Before the WellPoint transaction announced last week can close, insurance commissioners in each state must approve a conversion to for-profit status. The process requires CareFirst to make contributions to charities to compensate each state for tax breaks and other subsidies Blue plans received as not-for-profit businesses. Simply agreeing on how much money the three states should get is an arcane process. “I’m not sure $1.3 billion is the right number,” said Lawrence Mirel, commissioner of the District of Columbia Department of Insurance and Securities Regulation. Mirel stressed he did not oppose the plan but lacked enough information to evaluate the offer. WellPoint expects to close the deal within 18 months. Mirel and Steven Larsen, commissioner of the Maryland Insurance Administration, said the review of CareFirst’s conversion application will take at least 12 months. Donna Lee Williams, Delaware insurance commissioner, was not available for comment. “The three commissioners had a meeting in the spring to discuss what we would do if CareFirst was bought,” Mirel said. “Now that what-if scenario has arrived.” CareFirst began laying the regulatory groundwork before a deal was finalized. Mirel confirmed that CareFirst picked up an application from the district’s insurance commissioner to convert to for-profit a few weeks ago. In Maryland, CareFirst has 30 days to file with Larson’s office. He expects to hold public hearings within 10 days of receiving CareFirst’s application. “I have heard informal comments that some consumer groups are concerned,” Larson said. He stressed, however, that he was eager to listen to all sides and didn’t have a opinion on the deal. Once the hearings are completed, the review will be expanded to include opinions from hospitals, doctors, department of health and elected officials. Maryland doesn’t provide direct involvement for its attorney general, Joseph Curran. But Larsen noted that Curran had a common-law obligation to review the process. To be approved, the deal must be “in the public interest” of citizens in Maryland and the district, he said. Maryland calls for a confidential process, but Larsen plans to ask CareFirst to waive confidentiality. If the company agrees, all documents will be published on the insurance commissioner’s Web site. “WellPoint disclosed all information on the California Blue and the Cerulean [Georgia Blue Cross] conversions and wants full disclosure for this process,” said Ken Ferber, press officer for Thousand Oaks, Calif.-based WellPoint. Larsen expects to retain four advisers to review components of the deal. He said the advisers would seek answers to four questions: Was due diligence appropriate? Is the offer price fair? What will the corporate structure look like when the deal is completed and how will it be financed? And what will be the post-transaction impact on the community? CareFirst is responsible for the expense of all experts required to review the transaction. “I’ll cooperate with other states wherever possible,” Mirel said. “That includes the possibility of joint hearings and possibly retaining joint advisers.” CareFirst’s financial advisers have navigated the conversion process before. Stuart Smith and Ben Adams at Credit Suisse First Boston advised The Missouri Foundation for Health, a charitable foundation established when Missouri’s Blue plan converted to for-profit. Jay Smith and William Taylor of Chicago-based Piper Marbury Rudnick & Wolfe offered legal counsel for the transaction. WellPoint again received legal advice from Gary Horowitz, Thomas La Macchia and Carlo de Vito Piscicelli of New York-based Simpson Thacher & Bartlett and turned to Banc of America Securities for financial advice. Perhaps the biggest unknown, and potential hurdle to closing the deal, is how the proceeds will be allocated among the three jurisdictions. Mirel acknowledged that Maryland should receive the largest payout. About 57 percent of CareFirst’s members are in Maryland with most remaining business in the D.C. metropolitan market. Only 277,000 people, 9 percent of CareFirst’s membership, are covered in Delaware. The interests of other constituents could also bog down the process. The district plan covers residents of northern Virginia. “Virginia has no direct jurisdiction but the state has laws protecting its citizens’ rights,” Mirel said. Alfred Gross, Commissioner of Insurance for the Commonwealth of Virginia, was not available for comment. CareFirst’s Group Hospitalization and Medical Services Inc. unit must have its charter amended by Congress and the district’s corporation counsel before the deal can close. “Ultimately every commissioner reserves the right to do what’s best for their jurisdiction,” Larsen said. — With additional reporting by Danny Fortson Copyright (c)2001 TDD, LLC. All rights reserved.

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