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Los Angeles Times

Public Hearing Set on Deal to Buy WellPoint;

Amid criticism, state HMO regulators will take testimony on the proposed $16 billion purchase by Anthem.

by Marc Lifsher, Times Staff Writer
June 24, 2004

SACRAMENTO -- State HMO regulators, under fire for their handling of Anthem Inc.'s proposed purchase of WellPoint Health Networks Inc., said Wednesday that they would hold a public hearing on the controversial deal.

The state Department of Managed Health Care, which had been poised a month ago to approve the buyout without a hearing, now plans to take public testimony on the $16-billion deal in Sacramento on July 9.

The acquisition, if approved, would create the nation's largest health insurer.

A separate hearing on the WellPoint-Anthem union is scheduled for Friday by the state Department of Insurance. Commissioner John Garamendi also must sign off on the takeover.

The administration of Gov. Arnold Schwarzenegger drew criticism this month from consumer groups, legislators and state pension officials when it contended that a hearing on the acquisition wasn't required by law. But now the top lawyer at the Department of Managed Health Care, which oversees health maintenance organizations in California, says it was all a misunderstanding.

"We never said we weren't going to hold a public hearing. We said we wanted time to evaluate all the issues," Kevin Donohue said. "We've done a deliberative review and now concluded that a public meeting is needed."

Ken Ferber, a spokesman for Thousand Oaks-based WellPoint, said his company "looks forward to this hearing as the final step in a comprehensive and thorough approval process." Shareholders of both companies are scheduled to vote on the transaction Monday.

The department's decision to hold a hearing on the purchase is "good news for patients," said Jerry Flanagan, a San Francisco-based healthcare analyst for the Foundation for Taxpayer and Consumer Rights. The decision, he said, shows the administration has bowed to pressure from patients' rights groups and the California Public Employees' Retirement System, the country's largest public pension fund.

But Schwarzenegger's regulators must do more than just take testimony, Flanagan said. They need to ensure that premiums paid by members of WellPoint's subsidiary, Blue Cross of California, aren't used to pay retention and severance bonuses for nearly 300 of its executives that could cost $147 million to $356 million, he said.

Both the department and WellPoint insist that the compensation will come out of Indianapolis-based Anthem's coffers and not from WellPoint.

The Department of Managed Health Care needs to sign off on the deal because it issues the Blue Cross HMO license, which is the biggest part of WellPoint's California business.