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08/12/97 PHILADELPHIA COUNTY MEDICAL SOCIETY v.

August 12, 1997

PHILADELPHIA COUNTY MEDICAL SOCIETY, RAYMOND J. LODISE, M.D., PENNSYLVANIA SOCIETY OF INTERNAL MEDICINE, AND ROBERT B. SKLAROFF, M.D., PETITIONERS
v.
LINDA S. KAISER, COMMISSIONER, INSURANCE DEPARTMENT OF PENNSYLVANIA, RESPONDENT



Appealed From No. MS96-04-098. State Agency Insurance Department.

Before: Honorable James Gardner Colins, President Judge, Honorable Joseph T. Doyle, Judge, Honorable Bernard L. McGINLEY, Judge, Honorable Doris A. Smith, Judge, Honorable Dan Pellegrini, Judge, Honorable Rochelle S. Friedman, Judge, Honorable Jim Flaherty, Judge. Opinion BY Judge Pellegrini. Judge Leadbetter did not participate in the decision of this case.

The opinion of the court was delivered by: Pellegrini

OPINION BY JUDGE PELLEGRINI

FILED: August 12, 1997

The Pennsylvania Society of Internal Medicine and Robert B. Sklaroff, M.D. (Opponents) petition for review of the November 26, 1996 decision and order of Linda S. Kaiser (Commissioner), Commissioner of the Insurance Department of The Commonwealth of Pennsylvania (Department). That decision and order approved the change in control of six subsidiaries of Blue Cross of Western Pennsylvania (Western Blue Cross) and Pennsylvania Blue Shield (Blue Shield), and approved the proposed bylaws of Highmark, Inc., the consolidated entity and corporate successor of the former Western Blue Cross and former Blue Shield. Opponents are the Philadelphia County Medical Society, the Pennsylvania Society of Internal Medicine, Robert B. Sklaroff, M.D., a corporate member of the former Pennsylvania Blue Shield, and Raymond J. Lodise, M.D., also a corporate member of the former Pennsylvania Blue Shield.

I.

A.

Western Blue Cross and Blue Shield were each organized under the Pennsylvania Nonprofit Corporations Law (Nonprofit Law). *fn1 Western Blue Cross provided hospital care coverage to subscribers in 29 counties throughout Western Pennsylvania, under that part of the Health Plan Corporations Act commonly known as the Hospital Act. *fn2 Blue Shield provided physician care coverage to subscribers throughout the state, under that part of the Health Plan Corporations Act commonly known as the Health Service Plan Act. *fn3

Western Blue Cross and Blue Shield decided to merge their organizations and operations into a single corporate entity to be called Highmark, Inc. (Highmark). The stated purpose of the consolidation was to offer health care insurance, especially managed care, and integrated products, as a single corporate entity, as well as to operate more efficiently so as to better serve their subscribers. To effectuate the consolidation, Western Blue Cross and Blue Shield (collectively, Consolidating Companies) submitted their consolidation plan to the Commissioner for approval. *fn4

By that plan, the Consolidating Companies proposed to consolidate to form Highmark and submitted the proposed bylaws for the new corporation to the Department. *fn5 Under the consolidation, *fn6 Highmark would operate both a hospital plan and a professional health service plan. *fn7

B.

To consolidate, Western Blue Cross and Blue Shield were required to receive the Department's approval under the Insurance Holding Companies Act and the Health Plan Corporations Act. Because the consolidation involved the change in control of the insurance company subsidiaries, Section 1402(a)(1) of the Insurance Holding Companies Act, 40 P.S. 991.1402(a)(1), required that any proposed merger or other acquisition or control of an insurance company must first be approved by the Department. Western Blue Cross and Blue Shield would not be covered under Section 1401, which specifically excludes "nonprofit medical and hospital service associations" from the definition of "insurer". Under Section 1402(a), the Commissioner has the authority to review the statements filed with it by the person or entity with whom the domestic insurer is to merge or be controlled by. Under Section 1402(f)(1), the Commissioner must approve a change in control unless she finds:

(i) that the insurers will not be able to satisfy the requirements for the issuance of a license to operate the line or lines of business for which they are presently licensed;

(ii) that the change in control will substantially lessen competition in health care insurance in the Commonwealth or create a monopoly therein;

(iii) that the financial condition of the acquiring party may jeopardize the financial stability of the insurer or prejudice ...


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