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WellPoint Payments Face Scrutiny

Times Staff Writer

WellPoint Health Networks Inc. executives could together earn $147 million to $356 million in bonuses or severance payments, depending on how many stay after the Thousand Oaks-based company is acquired by Anthem Inc., according to a document filed with state regulators.

The Department of Managed Health Care released the document on the eve of a legislative hearing on the deal, scheduled for today. The proposed $15.5-billion purchase would create the nation’s largest health insurer, with 26 million members.

For the record:
12:00 AM, Jun. 10, 2004 For The Record
Los Angeles Times Thursday June 10, 2004 Home Edition Main News Part A Page 2 National Desk 1 inches; 33 words Type of Material: Correction
WellPoint deal -- An article in Wednesday’s Business section about Anthem Inc.'s proposed acquisition of WellPoint Health Networks Inc. said that WellPoint acquired Maryland’s CareFirst BlueCross/BlueShield last year. That deal was never consummated.

Some California doctors and consumer advocates are expected to speak out against the size of the planned payments to executives. The California Medical Assn., for example, is set to urge the managed healthcare agency to withhold judgment on the deal until there are answers as to how the size of the payments and bonuses would affect physician reimbursement, premiums and medical care.

WellPoint “claims that generalized efficiencies will result from the merger” of its Blue Cross subsidiary and Anthem, said Astride Meghrigian, associate director of the medical association’s Center for Government Relations. “It appears, however, that the company’s primary motivation to merge with Anthem is to feather the financial nests of its executives.”

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The WellPoint filing with the agency described the company’s potential liabilities in retention bonuses and severance agreements for 293 WellPoint executives. According to the filing, if the 293 executives were retained, their total retention bonuses would be $147 million. If they were all forced out within three years, the filing said, they would get $356 million in severance.

The filing also valued the stock options owned by the 293 WellPoint officers at $251 million.

WellPoint spokesman Ken Ferber said the severance payments were unlikely to be anywhere near the high end of the range. He said the firm wouldn’t have to pay the maximum because the pact with Anthem required it to retain the leadership of Blue Cross of California.

“It’s a hypothetical that could never come to fruition,” he said. “We know the Blue people are staying, the overwhelming majority of the company.”

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The proposed deal is expected to close in July. The new company would be called WellPoint, based in Indianapolis and run by Anthem Chief Executive Larry Glasscock.

The acquisition has been approved by the Justice Department and other states. It needs a green light from California regulators, who are under pressure to place limits on payments to departing WellPoint executives and to extract guarantees that health plans and premiums won’t be adversely affected.

“This is a question of whether doctors and patients in this state will get a fair shake from the company,” said Jamie Court of the Foundation for Taxpayer and Consumer Rights. “If 9-digit compensation is paid out to executives, that significantly increases the chances that policyholders will pay more, that prescription drug choices will shrink and co-payments will go up.”

Court said his group would urge the Department of Managed Health Care to require the retention bonuses and severance to be scaled back, as they were when WellPoint acquired Maryland’s CareFirst BlueCross/BlueShield last year.

Court criticized WellPoint for failing to disclose the pay figures it reported to the managed-care agency. And he knocked the department for waiting until the evening before the state’s only public hearing on the merger to release them.

“I can’t imagine that, between shareholders and regulators, this compensation package will go untouched,” Court said, referring to an Anthem shareholders’ meeting scheduled for later this month.

Ferber said he didn’t know how many WellPoint officers would stay or go.

So far, the only one that the companies have said would lose his job is WellPoint Chief Executive Leonard Schaeffer. Schaeffer would leave his CEO post with almost $76 million in severance and retirement, Ferber said. In addition, Schaeffer would leave with stock and options the company estimates are worth $184 million.

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Ferber said the parameters of Schaeffer’s compensation package were adopted 10 years ago and fell within industry norms.

Times staff writer Robert Salladay contributed to this report.


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