Free Motion for Summary Judgment - District Court of Federal Claims - federal

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 1 of 45

DEFENDANT'S EXHIBIT 2

B-33

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 2 of 45

IN THE UNITED STATES COURT OF FEDERA CLAIMS
)

HIGHMAR, INC., SUCCESSOR IN INTEREST TO PENNSYLVAN BLUE

SHIELD AN SUBSIDIAS
Plaintiff,
v.

) ) ) ) ) )
) ) )

Civil Action No. 05-1030 T Judge Margolis

THE UNTED STATES,
Defendant.

)
) ) )

PLAINTIFF'S SECOND AMNDED ANSWERS TO DEFENDANT'S FIRST SET OF INTERROGATORIES
Pursuant to Rules 26 and 33 of the Rules of the United States Cour of

Federal Claims

("RCFC"), PlaintiffHighark, Inc., Successor in Interest to Pennsylvana Blue Shield, ("PBS"),
by and through its undersigned counsel, hereby responds and objects to Defendant the United
Interrogatories as follows. Plaintiff States' ("Defendant" or "United States") First Set of

reserves

the right to supplement its responses.

GENERA OBJECTIONS
1. PBS objects to the United States' First Set of

Interrogatories to the extent the
those imposed by the

United States seeks to impose burdens or requirements on PBS in excess of

RCFC.
2. PBS objects to the United States' First Set of

Interrogatories on the grounds that

they exceed 25 in number including all discrete subpars.

II

763884.I.TAX

B-34

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 3 of 45

3. PBS objects to the "defiitions" in the United States' First Set of

Interrogatories

on the grounds that they make the interrogatories unduly burdensome to answer and are vague.
4. PBS objects to each and every Interrogatory to the extent that it calls for

information that is protected by the attorney-client privilege, the work product doctrne, the selfcritical analysis privilege, or any other privilege or protection from disclosure. PBS hereby asserts all such applicable privileges and exemptions. Any disclosure of privileged or protected
information in response to any Interrogatory is inadvertent and not intended to waive those
privileges.
5. PBS objects to the Interrogatories to the extent they seekinformation wholly
irrelevant to Plaitiffs claims and are not reasonably calculated to lead to the discovery of

admissible evidence.

6. PBS objects to the Interrogatories to the extent that Defendant already possesses
or has equal access to the information sought.

7. PBS objects to the Interrogatories to the extent that they are overbroad and
harassing and any attempt to respond would be unduly burdensome, expensive and/or
oppressive.

8. PBS objects to the Interrogatories to the extent that they are vague or ambiguous.

9. Whenever in these responses PBS employs the phrase "subject to and without
waiving its objections," PBS is responding to the paricular interrogatory as it may be narrowed
by PBS's general and specific objections and without waiver of any objections.
10. PBS's responses herein shall not waive or

prejudice any objections that PBS may

later assert. These General Objections apply to and are incorporated by reference into each of

- 2-

B-35

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 4 of 45

PBS's specific responses and objections below, and the specific responses and objections set

forth below are not to be deemed a waiver, either in whole or in par, of any of these General
Objections.

SPECIFIC RESPONSES AND OBJECTIONS
Interroeatorv No.1:
If plaintiff responds with anytng but an unequivocal admission to any request contained
in Defendant's Requests for Admissions-Set No.1:
(a) Quote the phrase, word, or words that plaintiff does not admit;

(b) State in detail each fact that (in plaintiffs view) supports the refusal to admit the

clause, phrase, word, or words listed in response to Interrogatory l(a), identifyng
all persons who have knowledge of each such fact and describing all documents

that support each such fact; and
(c) If plaintiff does not agree with defendant's statement of the subject of

the

requested admission, fully state plaintiffs view of

the facts, and separately set
relies to support its point of

fort the evidence upon which plaintiff

view.

Answer to Interroeatorv No.1:
PBS objects to ths Interrogatory on the grounds that it is vague, overbroad, unduly

burdensome, not reasonably calculated to lead to the discovery of admssible evidence, and
unreasonably cumulative and duplicative of other discover requests. Subject to and without

waiving its objections, PBS answers as follows. Where applicable, and not objectionable on the
its denials in its Answer to Defendant's
grounds stated above, PBS has explained the basis of

Requests for Admissions-Set No.1, and incorporates those answers herein.

-3-

B-36

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 5 of 45

Interro2atorv No.2:
State all facts upon which plaintiff relies to support its claim that a tax deductible "loss of
intangible assets" occured as alleged in the complaint.

Answer to Interro2:atorv No.2:
PBS objects to this Interrogatory on the grounds that it is vague, overbroad, and unduly

burdensome. Subject to and without waiving its objections, PBS answers as follows. Durng the
years at issue, PBS held intangible assets including healthcare coverage contracts that it held
since at least Januar 1, 1987. Each such contract was a valuable asset. In the year the contract

terminated or was canceled, there was a closed and completed transaction with respect to that

asset. When these contracts termnated or were canceled, PBS sustained a loss. Ths loss was
not compensated for by insurance or otherwse. See also PBS' s answer to Interrogatory 3 below.

Interro2atorv No.3:
State all facts upon which plaintiff relies to support its claim that each of

the contracts

referred to in paragraph 24 of the complaint was terminated or cancelled in the year for which

plaintiff claims it as a loss.

Answer to Interro2atorv No.3:
PBS objects to this Interrogatory on the grounds that it is vague, overbroad, and unduly
burdensome. Subject to and without waiving its objections, PBS answers as follows. PBS relies

on the fact that for each such contract either the subscriber or PBS actually terminated or

cancelled the contract in the year in which PBS claims the loss deduction. PBS also relies on the
fact that for many, if not all, contracts that were terminated or cancelled, either the subscriber or

PBS communcated that fact to the other pary. PBS also relies on the fact that it made entres

- 4-

B-37

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 6 of 45

into the corporate subscriber database and the corporate group database stating the date each

such contract was terminated or canceled. PBS also relies on the fact that contemporaneously
with the termination or cancellation of a group subscriber, PBS prepares consolidated group

activity reports indicating cancellations and other group activity. PBS also prepares four
different cancellation reports by agent plan from the Optimum Flow System, which is a nightly
electronic file transmission, to process cancelled groups. PBS also relies on the fact that it
received and used forms verifying the termination or cancellation dates of

the contracts from

agent plans. This would include the Group Data Forms ("GDF") which are received from the agent plans for cancellation notification of experience and communty-rated groups.

Interroeatorv No.4:
Describe the method, assumptions, and calculations by which plaintiff computed the
income tax refud claim of$21,329,919 set fort in the prayer for relief

in the complaint,

including the method, assumptions, and calculations by which plaintiff computed the fair market
value on Januar 1, 1987, ofthe contracts referred to in paragraph 24 of

the complaint.

Answer to Interroeatorv No.4:
PBS computed the $21,329,919 set forth in the prayer for relief

by identifyng the group

and individual healthcare coverage contracts that terminated in each of the years at issue, and

calculating the fair market value of each such contract as of January 1, 1987. The values were

based on the valuation ofPBS's subscriber intangibles as described in the report, dated
September 10, 1998, prepared by Mr. Michael Wierwlle, Valuation Parer at

PricewaterhouseCoopers LLP (the "PWC Report"). The PWC Report and supporting
documentation describes the methods, assumptions and calculations used to deterine fair

-5-

B-38

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 7 of 45

market value. These documents previously have been provided to Defendant. Plaintiff notes
that the fair market value of

the contracts is not necessarly the same amount shown in the PWC

Report. Plaintiff will provide what it contends to be the value of such contracts in its expert
report(s).

Interroeatorv No.5:
Identify all persons and/or organzations that paricipated in any maner in computing the
$21,329,919 amount set fort in the complaint or conducted, at any time, a valuation ofthe
contracts referred to in paragraph 24 of the complaint.

Answer to Interrof!atorv No.5:
PBS objects to ths Interrogatory on the grounds that it is vague, overbroad, unduly

burdensome and to the extent that it calls for information that is protected by the attorney-client

privilege or the work product doctrne relating to any valuation that was created in anticipation

oflitigation or is presently being undertaken in connection with ths litigation. Subject to and
without waiving its objections, PBS answers as follows. Michael Wierwille, Jonathan L. Jacobs,

Chrstina Choe, Lisah Burhan and Jagesh Shah, who were employed by PricewaterhouseCoopers
("PWC") at the time, conducted a valuation of the healthcare coverage contracts held by PBS as

of Januar i, 1987 and prepared the PWC Report referred to in the answer to Interrogatory 4.
These values were used to compute the $21,329,919 amount set forth in the Complaint, based on

what were believed to be the healthcare coverage contracts that terminated between 1987 and

1996. Todd Vanerstrom, Paul Fleischacker, David Werner, Lloyd Freeman, James Eagle and
Jacqueline Bauer of Highark, Inc. provided information to PWC for purposes of

the valuation.

PBS previously had commissioned a valuation of individual subscriber relationships which was

-6-

B-39

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 8 of 45

conducted by Ernst & Young in 1995-96. The Ernst & Young valuation report was authored by
Lee C. Russell and Charles M. Chubb, Jr.

Interro2atorv No.6:
Identify each sale of health

care coverage contracts to another health insurance or health

service provider that plaintiff

has made at any time, including the purchaser, the date ofthe
the sale, and the method by which plaintiff

transaction, the number of contracts sold, the terms of

calculated the amount of consideration for the sale.

Answer to Interro2atorv No.6:
PBS objects to this Interrogatory on the grounds that it is vague, overbroad, and unduly
burdensome. PBS fuer objects to this Interrogatory on the ground that it is not reasonably

calculated to lead to the discovery of admissible evidence. Subject to and without waiving its
objections, PBS answers as follows. PBS is unaware of any sale of health

care coverage

contracts to another health insurance or health service provider from 1980 to 1996.

Interro2atorv No.7:
Identify each purchase of health

care coverage contracts from another health insurance or
has made at any time, including the seller, the date of

health service provider that plaintiff

the

transaction, the number of contracts bought, the terms of the sale, and the method by which
plaintiff calculated the amount of consideration for the purchase.

Answer to Interro2atorv No.7:
PBS objects to this Interrogatory on the grounds that it is vague, overbroad, and unduly
burdensome. PBS fuher objects to this Interrogatory on the ground that it is not reasonably

calculated to lead to the discovery of admissible evidence. Subject to and without waiving its

-7-

B-40

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 9 of 45

health objections, PBS answers as follows. PBS is unaware of any purchase of

care coverage

contracts from another health insurance or health service provider from 1980 to 1996.

Interr02atorv No.8:
Identify each purchase of a company by plaintiff, and each sale of a company by plaintiff,
wherein an element of the purchase price was determined or affected by the value of health

care

coverage contracts, including the seller or buyer, the date of

the transaction, the number of

contracts

bought or sold, the terms of

the purchase or sale, and the method by which plaintiff

calculated the amount of consideration for the purchase or sale.

Answer to Interr02atorv No.8:
PBS objects to this Interrogatory on the grounds that it is vague, overbroad, and unduly
burdensome. PBS fuher objects to ths Interrogatory on the ground that it is not reasonably
calculated to lead to the discover of admissible evidence. Subject to and without waiving its

objections, PBS answers as follows. PBS is unaware of any purchase or sale of a company by
plaintiff wherein an element of

the purchase price was determined or affected by the value of

healthcare coverage contracts from ì 980 to 1996.

Interr02atorv No.9:
Identify each contract referred to in paragraph 24 of the complaint.

Answer to Interr02atorv No.9:
As read with the United States' definition of

"identify," PBS objects to this Interrogatory

on the grounds that it is vague, overbroad, and unduly burdensome. In addition, the definition of
the
"identify" contains varous components that clearly do not relate to an identification of

contracts, but instead appear to seek other substantive information and should be counted as

- 8 -

B-41

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 10 of 45

discrete subpars for the puroses of the limit on the number of interrogatories contained in

RCFC 33(a). Subject to and without waiving its objections, PBS answers as follows. The
contracts referred to in paragraph 24 of the complaint are identified in the PWC Report, which
has already been provided to Defendant (the portion of

the PWC Report entitled Pennsylvania

Blue Shield Abandonment of Intangible Assets as of Januar 1, 1987).
Interro2atorv No. 10:
Describe each insured that, on Januar 1, 1987, was protected by one of

the healthcare

coverage contracts referred to in paragraph 24 of

the complaint.

Answer to Interro2atorv No. 10:

PBS objects to this Interrogatory on the grounds that it is vague, overbroad, unduly

burdensome, not reasonably calculated to lead to the discovery of admissible evidence, and
uneasonably cumulative and duplicative of other discovery requests. In addition, the United
States' definition of

"describe" contains varous unrelated components that should be counted as

discrete subparts for the puroses of the limit on the number of interrogatories contained in

RCFC 33(a). Subject to and without waiving its objections, PBS answers as follows. The insureds for which PBS provided health care coverage on Januar 1, 1987 fall into three categories: (1) experience-rated; (2) community-rated; and (3) direct-pay. Experience-rated
insureds are large groups of 100 or more paricipants, covering geographic areas both within and

external to the Commonwealth of Pennsylvana. Premium rates for experience-rated business

are based on previous experience regarding utilization of group benefits. Communty-rated insureds are small groups with membership tyically less than 100 which are geographically
concentrated within the Commonwealth of

Pensylvana. These contracts are fpr paricipants of

-9-

B-42

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 11 of 45

small businesses or persons sharng a common bond that band together to receive benefits at a

group rate. Direct-pay insureds are paricipants who pay directly for coverage and who are not

par of an employer's group. Rating and underwting for communty-rated and direct-pay
insureds is not based on group-specific experience, but rather on the collective book of

business,

controlled and executed as per the regulations promulgated by the Pensylvana Deparent of

Insurance.
Interro2atorv No. 11:

Describe plaintiffs policies, at all times between Januar 1, 1977, and Januar 1, 1987,

for dealing with health insurance subscribers who were delinquent on their premium payments

and identify the persons primarly responsible for dealing with delinquent health insurance
subscribers between January 1, 1977, and Januar 1, 1987.

Answer to Interr02atorv No. 11:

Durng the period from Januar 1, 1977, for groups that made payments directly to PBS,
PBS's policy was to send a letter inorming the employer that payment was overdue. The letter
was often followed up with one or more phone calls to ascerain the intentions of the employer
and status of the payment. After a certain period of

time or ifno resolution could be made

relative to payment a cancellation notice would be sent. Most of these policies and procedures
were performed by the PBS billing departent. For groups where biling was handled by an

agent plan, the agent plan would follow their own policy. The agent plan would then notify PBS
of the groups cancellation if the payments could not be obtained.

- 10-

B-43

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 12 of 45

Interroeatorv No. 12:

State all factors on which plaintiff relied in setting premium rates for direct pay
(individual) healthcare coverage contracts durng the period Januar 1, 1977, through Januar 1,

1987, and state how each factor was used in setting premium rates.
Answer to Interroeatorv No. 12:

PBS objects to this Interogatory on the grounds that it is vague, overbroad, unduly
burdensome, and not reasonably calculated to lead to the discovery of admissible evidence.
Subject to and without waiving its objections, PBS answers as follows.
To set premium rates for individual contracts, PBS considered prior claims experience (as

described below), industr data, input from consultants, short and long-term historic trends, and
other available inputs and used ths information to estimate claims for the upcoming year.
Claims experience was pooled by major product (e.g., UCR vs. fee schedule). PBS also

considered administrative costs and other elements of retention needed in setting the premiums.

These factors also were generally considered by major product to determine premiums for that
product, then PBS would consider if

the rates among the products were appropriate.

Interro!!atorv No. 13:

State all factors on which plaintiff

relied in setting premium rates for group health

insurance subscribers of fewer than i 00 participants durng the period Januar 1, 1977, through
January 1, 1987, and state how each factor was used in setting premium rates.

- 11 -

B-44

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 13 of 45

Answer to Interro2atorv No. 13:

PBS objects to this Interogatory on the grounds that it is vague, overbroad, unduly
burdensome, and not reasonably calculated to lead to the discovery of admissible evidence.
Subject to and without waiving its objections, PBS answers as follows.

The factors described in PBS's answer to Interrogatory 12 above were also used to set
premium rates for group policies, except that rates were set by major product (e.g., VCR vs. Fee
Schedule) with line of

business (e.g., medical vs. dental). As with direct-pay, experence was

pooled by major product.
Interro2atorv No. 14:

State all factors on which plaintiff relied in setting premium rates for group health
insurance subscribers of more than ninety-nine participants durng the period Januar 1, 1977,
through Januar 1, 1987, and state how each factor was used in setting premium rates.

Answer to Interro2atorv No. 14:

PBS objects to this Interrogatory on the grounds that it is vague, overbroad, unduly

burdensome, and not reasonably calculated to lead to the discovery of admssible evidence.
Subject to and without waiving its objections, PBS answers as follows.
Rates were set by an analogous process to that outlined in PBS ' s answer to Interrogatory

13 with two key differences. First, rates were set using client-specific experience. Second, to
the extent that a client's experience was not fully credible, a credibility factor was employed to

adjust the portion of a group's experence that fell outside of a predetermined projected loss ratio
band.

- 12 -

B-45

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 14 of 45

Interrol!atorv No. 15:

State all factors on which plaintiff relied in setting premium rates for federal employee

healthcare coverage contracts durng the period Januar 1, 1977, though Januar 1, 1987, and
state how each factor was used in settg premium rates.

Answer to Interrol!atorv No. 15:
PBS objects to ths Interrogatory on the grounds that it is vague, overbroad, unduly
burdensome, and not reasonably calculated to lead to the discovery of admissible evidence.

Subject to and without waiving its objections, PBS answers as follows. PBS did not set the

premium rates for federal employee health insurance subscription premiums. These rates were
established on a national basis for all federal employee enrollees.
Interrol!atorv No. 16:

State whether plaintiff maitains specific records of the amount of profit eared from
each healthcare coverage contract and, if so, describe the records so maintained and identify the
person curently employed by plaintiff

who is most familiar with such records.

Answer to Interrol!atorv No. 16:
PBS objects to this Interrogatory on the grounds that it is vague, overbroad, unduly
burdensome, and not reasonably calculated to lead to the discovery of admissible evidence.

Subject to and without waiving its objections, PBS answers as follows for the time perod 1980
to the present.

the
For individual subscriber contracts and small groups, PBS does not keep records of

profit eared from each contract. For experience-rated groups, PBS tracks loss ratios for each
group as par of its rating process.

- 13-

B-46

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 15 of 45

Information regarding loss ratios was historically maintained in the Rate Action File and

is curently maintained in the Highark Pricing System. Robert Cohen is the Highark
employee most famliar with the Rate Action File records and Sheila Fasig is the Highark
employee most familiar with the Highark Pricing System records.
Interro2atorv No. 17:
Describe the circumstances in which plaintiff

would cancel a healthcare coverage

contract durng the period Januar 1, 1977, though Januar 1, 1987.

Answer to Interro2atorv No. 17:

PBS objects to this Interrogatory on the grounds that it is vague, overbroad, unduly
burdensome, and not reasonably calculated to lead to the discovery of admissible evidence.
Subject to and without waiving its objections, PBS answers as follows.
PBS would cancel a healthcare coverage contract durg the period of Januar 1, 1977

though Januar 1, 1987 for three basic reasons: (1) at the request of the insured; (2) for non-

payment of premiums; and (3) for failure to meet the group underwriting guidelines. The non-

payment of premium policies are outlined in the Response to Interrogatory 11. Enforcement of

the group underwting guidelines was delegated to the Blue Cross plans as par of the agency
servces agreement. Examples of

these standard requirements include, but are not limited to:

(1) minimum employee paricipation in the benefit plan (e.g., at least 75% of eligible employees
emolled); or (2) minimum group size (there must be at least two emolled employees).
Interro2atorv No. 18:

Describe plaintiff s general practice of marketing health insurance products to former

subscribers durng the period January 1, 1977, to the present.

- 14-

B-47

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 16 of 45

Answer to Interrol!atorv No. 18:
PBS objects to ths Interrogatory on the grounds that it is vague, overbroad, unduly

burdensome, and not reasonably calculated to lead to the discovery of admssible evidence. PBS
fuer objects to ths Interrogatory on the ground that in incorrectly assumes that PBS had a

general practice of marketing health insurance to former subscribers.

Subject to and without waiving its objections, PBS answers as follows. The general
practice of marketing to former subscribers was similar to the practice of marketing to any other

subscribers. This would include customer calls, customer visits, proposal wrting, supported by
marketing collateral such as pamphlets describing the varous product lines such as Blue Shield
100. Practices for marketing were often shared with agent plan marketing efforts and would
combine the collective marketing collateral and capacities of

both PBS and the agent plans.

Sometimes agent plan and PBS sales personnel would jointly attend sales calls.

Marketing to former subscribers may have taken into consideration previous benefit

designs, pricing and adminstrative processes in better serving the prospective clients' futue
needs. However, this practice was not limited to former subscribers and would have been a
consideration for any prospective subscriber. If an individual subscriber ceased to be a PBS
group subscriber and did not become enrolled under a health benefit plan with any other

organization, they were offered to elect to become a conversion subscriber. This allowed a
subscriber to convert to an individual policy without providing evidence of insurability.
In more recent times staring with the 1990' s, marketing practices would include

community outreach programs, wellness programs, commercial advertising through coordinated

TV radio and print, direct response advertising, surveys and web and internet marketing.

- 15 -

B-48

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 17 of 45

- 16-

B-49

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 18 of 45

federal income tax prior to Januar 1, 1987 under the provisions of26 U.S.C. § 501(c)(4).

Accordingly, PBS does not have any Federal income tax records regarding capitalization or noncapitalization of such costs prior to Januar i, 1987. Subsequent to Januar 1, 1987, for Federal

income tax purposes, PBS treated the costs associated with internally developing or otherwise

acquirig health insurance subscription contracts as required by the Internal Revenue Code.
Plaintiff

has never purchased or otherwise acquired health insurance contracts so it has not had

occasion to treat the costs incured in such an acquisition as capital or non-capital expenses.

Plaintiff fuher responds that to the best of its knowledge, Plaintiff did not routinely capitalize
the costs associated with internally developing or otherwise acquiring healthcare coverage
contracts in its financial accounting records and tax retus and that on neither its financial books

and records nor its tax retus has the Plaintiff recorded an asset account containig or relating to

healthcare coverage contracts, because the financial accounting rules and Internal Revenue Code
did not require Plaintiff

to do so.

Interro!!atorv No. 21:

Identify and describe the costs plaitiff incured between 1987 and 1996 in creating, or
facilitating the creation of, healthcare coverage contracts.

Answer to Interro!!atorv No. 21:
PBS objects to this Interrogatory on the ground that it is not reasonably calculated to lead
to the discovery of admssible evidence. As read with the United States' definition of

"identify,"

PBS fuher objects to this Interrogatory on the grounds that it is vague, overbroad, and unduly

burdensome. PBS fuher objects to the terms "creating" and "facilitating the creation of' as
vague and ambiguous. In addition, the United States' definition of

"describe" contains various

- 17 -

B-50

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 19 of 45

unelated components that should be counted as discrete subpars for the puroses of the limit on
the number of

interrogatories contained in RCFC 33(a). Furer, PBS objects to the

Interrogatory on the grounds that the term "cost" is vague. Subject to and without waiving its

objections, PBS answers as follows (constring "creating" or "facilitating the creation of' as
limited to the actual sales (i.e., employer group engagement) and not the preliminar
development work (e.g., product design and actuaral analysis) that led to the actual creation of

the product(s) that were ultimately sold). The Blue Cross plans were responsible for the
Marketing and Sales of the Blue Cross/Blue Shield healthcare plans, as defined in the agency

services agreements. Blue Cross Sales Executives were the primar contact with the employer
groups, Blue Cross handled the advertising, Blue Cross Underwting Staff prepared the rate

proposal and administered the Underwting Guidelines and the Blue Cross Membership and

Billng area entered the initial enollment and produced invoices. The cost for these services,
along with PBS' s share of any applicable commission payments, were "charged back" to PBS

under the terms ofthe respective agency service agreements.
PBS Sales staff performed sales support functions in assisting the Blue Cross Sales
Executives at the point of sale as well as ongoing account servcing. These costs included

explaining the Health Care, Dental and Vision programs and facilitating the account set-up on

the PBS systems. The PBS Rating area prepared the new business quote for the PBS programs

and forwarded the rates to the Blue Cross Underting area for packaging. The PBS
Membership and Biling area would install each new account on the enrollment systems and the
PBS Benefit Coding area would code the appropriate benefits into the claims processing system
so the account's benefits were administered properly.

- 18 -

B-51

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 20 of 45

Interrof!atory No. 22:

State whether plaintiff incured the costs refered to in number 21, supra, in each of the
years 1987 through 1996.

Answer to Interrof!atorv No. 22:
PBS objects to this Interrogatory on the grounds

that it is vague, overbroad, unduly

burdensome and not reasonably calculated to lead to the discovery of admssible evidence.
Subject to and without waiving its objections, PBS answers as follows. Plaintiff

incured costs

in creating or facilitating the creation of

health

care coverage contracts in each ofthe years 1987

through 1996.
Interrof!atorv No. 23:

State the reason or reasons why plaintiff did not claim deductions for terminated or

cancelled healthcare coverage contracts on its origial federal income tax retus for the 1987
through 1994 tax years.

Answer to Interrof!atorv No. 23:
PBS objects to this Interrogatory on the grounds that it is vague, overbroad, unduly

burdensome and not reasonably calculated to lead to the discovery of admissible evidence. PBS
fuer objects to this Interrogatory on the ground that it is not reasonably calculated to lead to

the discovery of admissible evidence. Subject to and without waiving its objections, PBS
answers as follows. In the initial years following the enactment of

the Tax Reform Act of 1986

(the "Act"), Plaintiff, as well as other Blue Cross and Blue Shield plans, which had become
subject to federal income taxes for the first time in 1987, did not have a complete understanding
of

the newly applicable tax provisions, including the fresh start basis rule. As PBS came to study

- 19 -

B-52

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 21 of 45

and understand fuher developments in the law, it engaged Ernst and Young to complete a study

aimed at valuing the individual subscriber relationships as of Januar 1, 1987. PWC later was

engaged to value the group subscriber relationships.
Interro2:atorv No. 24:

State the reason or reasons why plaintiff is not seeking a refud of federal income taxes
health for the 1987 through 1990 tax years based on the termination or cancellation of

care

coverage contracts.

Answer to Interro2atorv No. 24:

PBS objects to this Interrogatory on the grounds that it is vague, overbroad, unduly

burdensome and not reasonably calculated to lead to the discover of admissible evidence.
Subject to and without waiving its objections, PBS answers as follows. The losses based on the
termination or cancellation of health

care coverage contacts for the 1987 through 1990 tax years

form par of certain tax attbute car forwards including, without limitation, net operating loss

tax that
car forwards, that car forward and result, in whole or in par, in an overpayment of

Plaintiff paid for the tax year 1991.
Interro2atorv No. 25:

Describe plaintiffs data management system for membership and claims information as
it existed at all times between 1977 and 1996.
Answer to Interro2atorv No. 25:

PBS objects to this Interrogatory on the grounds that it is vague, overbroad, unduly
burdensome and not reasonably calculated to lead to the discovery of admissible evidence.
Subject to and without waiving its objections, PBS answers as follows.

- 20-

B-53

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 22 of 45

There were numerous systems that existed and used by PBS between 1977 and 1996 for

both claims and membership processing. Beginnng with data management systems for claims,
the following systems existed durng 1977 and 1996:
1. Regular Business Systems ("RBS") - in 1977 was an outsourced claims system

developed and supported by Electronic Data Systems ("EDS"). Ths system was
housed at an EDS facility until

1979 when it was purchased by PBS. PBS

supported RBS internally from 1979 until it was decommission in 1997.
2. Optimum System for Clais Adjudication and Reporting ("OSCAR") - is a

claims system established as PBS's primar claims adjudication system in 1986.

It is still in use. A more detailed overiew and flow char is attached.
3. Complementar - a claims system that processes claims for coinsurance and/or
deductibles imposed on a person covered under Medicare, 65 Special (362 and

364 Enrollment)/Signatue 65 programs. This system was established in 1976 and
is stil in use.

4. COMP 1 - Comp 1 was a system to process comprehensive institutional and
professional claims. The Comprehensive Program combines facility,
medical/surgical, and major medical as a single package of

benefits. Ths data

management system, established in the 1980's, was decommissioned in 2003.
5. Concordia - a dental claims processing system established in 1994 with the United
Concordia Companies Inc. ("UCCr'), a subsidiar ofPBS. Ths system is a PBS

OSCAR clone, rung separately and modified for dental claims processing.
The system is stil in use today.

- 21 -

B-54

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 23 of 45

6. Automated Claims Expert (ACE) - was established in 1990 as a data warehouse
for finalized claims data. The system is fed by a varety of other clais systems

including those mentioned above and used to query and report claims information. It is still in use today.
PBS's membership systems consisted of

two main systems, the Subscriber Database

("SDB") and the Group Database ("GDB"). Both these data management systems were

implemented in 1986. Both are stil in use today.
Prior to 1986, groups were managed using paper forms known as "group data forms"

("GDF"). GDF's were color coded, multipar, carbon paper copies filled out by agent plans and
sent to the PBS sales area. Sales would review and would add information before sending to the

rating area. Rating would process the account and upon completion forward to the group area.
Group would create a rolodex card for inventory control and tracking data errors. Errors were
there were no
marked on the rolodex card and the GDF would be sent back to the agent plan. If

errors, the data would be keyed into a mainframe system called the Old Group Database using
on-line green screens for tracking and reporting.

Afer 1986, the group database system ("GDB") maintained and managed data about
group customers. The GDB supported PBS's high volume claims transaction processing, ad hoc
reporting using robust IMS and DB2 data stores, and backend financial processes.

The GDB was updated in several ways. Intially groups were managed with closing
reports. These closing reports are still used,

but supplemented with an automated Group

Electronic Mail Update System ("GEMUS"). GEMUS was implemented in 1992 to eliminate
paper Closing Reports and to improve the timeliness and accuracy of

Group Data to the GDB.

- 22-

B-55

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 24 of 45

GEMUS provided the capability to electronically transfer Group Data from the Agent Plans to
PBS and also internally between deparents. Other ways to update the GDB include:
1) A mass update system using Account Level Multi Group ("ALMG") which is a

user controlled select and update process and an on-request process where a programer is
involved to create hardcoded selects and update logic.
2) Optimum Flow, implemented in 1990, is a nightly electronic file transmission to
process canceled groups. PBS receives nightly transmissions from the agent plans for cancelled
groups and applies the updates to the GDB.
3) Experienced Rates Monitoring - (established in 1990), applies new rates to

experienced rated groups based on input fies from the RASP process.

4) Communty Rate Generator - (established in 1993), allows actuares to specify
rate factors applicable to benefits and type contracts to apply rates to applicable groups.
The SDB maintained membership enrollment information for subscriber applicants and

their dependants by contract. Each record contained contractual data needed to process a claim.

The primar source of contract information was the four Agent Plans. Anyon-line maintenance
performed during the day by the Agent Plan was wrtten to an Activity Log. Using this daily
log, contracts were extracted and transmitted to PBS. Each contract transmitted contained

subscriber coverage, dependent coverage and historical data. Upon receipt of each transmission,
the Subscriber Load and Maintenance programs began the process of editing, converting, and
loading of

the data to the Subscriber Database. The SDB also has many on-line screens for

query and update of subscriber information. The SDB uses mainframe IMS/DB databases and
IMS/DC data communications for display.

- 23 -

B-56

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 25 of 45

Prior to 1986, the agents held all the enrollment for PBS. PBS used a query/response

system with the agents by sending tapes with enollment information back and forth. PBS would
send a query tape to the Agents weekly, to determine subscriber eligibility, and the Agents would
retu the tape, weekly, with the responses. After the tapes were received by PBS with the

the
subscriber enrollment information, claims would begin to process through the remainder of

system using ths data.

- 24-

B-57

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 26 of 45

OATH TO ANSWERS TO INTERROGATORIES
I declare under penalty of perjur that the foregoing Plaintiff s Second Amended
Answers to Defendant's First Set of Interrogatories are tre and correct to the best of

my

knowledge, information, and belief:

--~6.~-- ~Todd B. Vanerstrom

- 25 -

B-58

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 27 of 45

Respectfully submitted,

"

Arur Newbold Dechert LLP

I¿T ~~

Cira Centre 2929 Arch Street Philadelphia, P A 19104
Phone (215) 994-2624

Fax (215) 655-2624 Counsel for Plaintiff

Date: Januar 23,2007

Of Counsel:
Frederick J. Gerhar

James 1. Spadaro, Jr. Andrea M. Kirshenbaum Dechert LLP Cira Centre 2929 Arch Street Philadelphia, P A 19104

- 26-

B-59

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 28 of 45

CERTIFICATE OF SERVICE
I hereby certify that I have this 23rd day of Januar, 2007, caused a copy of

the foregoing

Plaintiffs Answers to Defendant's First Set of

Interrogatories to be sered by U.S. Mail and

facsimile upon the following:

Karen E. Servidea, Esquire

United States Deparent of Justice
Tax Division Federal Claims Cour of Section P.O. Box 26

Ben Franlin Station
Washington, DC 20044 (202) 514-9440

~/tz -- --,
Andrea M. Kirshenbaum

- 27-

B-60

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 29 of 45

DEFENDANT'S EXHIBIT 3

B-61

~.:'..':.-"--~"+--: ...i: .;.:._~-;...-:.. .,-.:.- .':,: -_": :~ Case 1:05-cv-01030-LSM Document 23-4 Filed.02/15/2007 .. r

Page 30 of 45

PENNSYLVANIA BLUE SHIELD

1991

B-62

US196

Case 1:05-cv-01030-LSM IlICA.uD OEIAL SERVICE Oil IJDEHITT CORPORATIOHS Filed 02/15/2007 HOSPITAL Document 23-4

Page 31 of 45

For-

ANNUAL STATEMENT
For the Year Ended December 31. 1991
OF TH carDITtOr AIO AFFAIRS OF I1

MEDICAL SERVICE ASSOCIATION OF PENNSYLVANIA
rue Coii_y Co.: 54171 UIC Gro",p Co4.: 00 Orgaiz.ed WIer the LAW. ot the St;a.t'. ot Peaia..1VU&
Emloyer'i 10 Hwi.r: 23-1294723

mae to ._

INSUCE DEPARTMT OF TH STATE OF Pennsylvania
PURUANT TO THE LAWS THEOF
IIlc:orpora.ced: 09/06/1939
Stacutory Home Oit1c;.: 1800 CaD'Cer Str..t

Coiieaced BuaUi...: 04/01/19';
C.. 8111 PA 17089

MUn A4iuitrat1n Ot:tei: 1800 Cinter Strilt
Ca. Kill PA 17089

NUl Adcl...: 1800 Cauter Str..t;
Priii LOe&t10A at 800a aø Roeord: 1800 C.Atlr Stri.t

(717)711-31S1 . C.. H111 PA 17089 (717)711-31S1

C&l H111 POL 17089

Amu&l StaC...a:C COAta.'t Per.oD &icl Phone Numer: M1ckay L. Jon.. (717)753-3178

OFFICERS
Pr..id_a;c: Samel David Roe.. Jr.
Sec;retar: Val t er rredi c Frob.

Tr...urer: Donald. Leroy Fiahar

Vice Presidents
Ral b. !lbert T .Oll M.D. - Chairman of :he 30ard
:o:in ~ev.rIY Edit:OD. M.D.
a in :.uiiene Pat.1:lreOD

Jittri John i - r-irst
Gear.. FrederiCK Grode Tbo=u CharI.. Sommer.

Vice-Qlai.r.an
LC,..\, ld L r~a:-

a =lt.,,~ roui.

.. JO tar.. . - ~)t~con It ice-i_. a l :-an

E~~::t ;~~11: ;~~t l rd

Da.iii ilia. Thom..

DIRECTORS OR TRUSTES

Ifl111.. R. Uixaer
J. ilOb~ Bawi

Dora G. 8&1llc M.D. #
loi.oh a. 81004 lrj: M.D.

~;i: ~!i~ô.. s.
airallel l' r14&~ 11b.1" ~Oll14

Wl1.011 aennlC1: CODDlr r_
'Ialtir J. Dialtre

JohD A.. Ca.lllc.r ~r.

MD.

or

10

WIllIg E. itall .D.S.

The DIREORS OR TRSTE 1.111:111.1' la contInued. OD. thi following pqi.

en _ ircel( .. .

ro W1

Stati ot Peiylv&D&
COWlty at CWerlaø

l ii
Jr. Pri.ldant. Waieir Fredr1e Frob Secretar. Donald Leroy Fltl:e::
A 101 OF PEINSYVAXIA 'being duly ..OrD. i&c for' b.luelf d..po... &Ad sa:.a

that they u-e tile Ve ..eri 0 ieera ate 1&1 orporatlon. &Del e1t OD tll. tlUrty-t1rlC 4&1 at Oeeiciber
hit. &11 at tho h.roin 0111erib.4 ....t. ..ro th. abiol",.. prop.1"y at thi iU4 Corpnt1on. tro. &101 dnr !ro=

":¿:~~-;~'-"U~~~1JAI j~~_
;:."ld.in~ ' ---- Seer.tur !:.~r. .. t'. .n~- L:U
¡,

uy U... or clulU th.rion. axeipt .. her.lI it&ted. u4 tut tlii ai ItatOl..t. togicher Wlth rolated
ixlblte. ache4.. az exll.tlou therein COD.C&e4. &Di:ie4 or reierred. to 1. a full &D 1:Re .ta.tame.t at a.¡:'

the ....t. lA li.&bi.li.tle. &Del ot che coadi.1:101l &t &tt'uri of the .&14 t.urer u: ot th. th.ñy-tiret: d&7 ~f O.e.lI.r 1&at. lA of 11:. Ulcoaie aid ctecct:101l therefrom tor th. year elied OD. tb.t clt.. a.ccorcUn¡ to the bee':

(See sepa~atew attached certification;

Act:

Suier1b.4 aø ..on to lI.torl 1M tlii

~~9?.~ . Or MC_'. .. ti. d tl .,1_.
2nd 4&y at Earch
1992

(al II tlii u or1¡1 t1l1 Yi. (X) HO ( )
(b If no: ~1 l .tat. the aa-ieiit numer

11 4a. fll.4 .

111 ø.Ulir of paci. &tt&ced

hU -: (~~.~.. .. . ., -- .~.. (.1 ~. etlc.. .. oIot.. .. U. .. -- tM i.ca.. ,..U:1.. ,. u. ph__ -. ...c....t
~~,~~:~:¡,~r~ .".::.~i!~~

l.y Cu,.IiiS'l. ~"I .,'" ... 'j"f,_~." "".f.. ...."V 1""

B-63

U8197

Case 1:05-cv-01030-LSMUIItDocument 23-4 or niFiled 02/15/2007 or PEyuu 32 of 45 Page 1.2 snTD ,. ni 1U 1511 IOlCl saYle! lSuriOl

r...

THIS PAGE IllIONALLY LET BLAK

B-64

U5198

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 33 of 45

Fon 13 lllAL STUDOt ro~ t1 n: 1991 or t1 _ieAL $Evla: lSUtI.. or PEVUU

LIAILITIES. RESERVES AN OTH FUS
1. ci up&4 (P~ 2.) nacbd.. prrtai.. tU' recrou". c..e "Jutaftta .
o )_ i. Pr...Ul.. for .-ierrH. Mt.ntty ..efit.......................................................

1 De..ber 31. 1901

Decnkc ll.
1990

1

2(2.192.878

2.c .171. 5.9

3. Oapacl ciu "i..tant ........ _........... _.............. _................................ 4. o..anH ,._.. (P.. Ul.. ................ ........... ................... ... .................
6. Oaea'" i.....i...c lacne....... .... ... ............. ............ .... -..-...... ........... .....
8. (1) Ta.. 11c..... aa tH. ... or acen" (aiHia, F.i lac.. t:)..................

10.114.117
T1. LU. 118

9.730.3"0
56.473.573

561.33
8.561.117

313.176

CI) r.....i iac.. t. (exlM.a, d..ten" t&)...........................................
(C) at'" ex.... 4.. or Ken"..........~... -.' _....... ...................... .............1. Pr-i.. ..,ita ... by apllcaaCa reJ-d44 or atK U Jet accep" u ..kn or ....cnkn._

...699.265
14.154.341

SO.ll6.3U

I. .. _OJ l

o .. laCeruC tiler... l

0........................ .
2.137.010

9. l.C. rtt...i. Dr reLa." tor &Cc...t. of DU.n.............................................

2.028.79"

'A. Pr.i_ tor ..ri..e. ratt.C' r.t...................... ......................................
10. l.iUty for uota ..14 ..41-l .aiuu" acct4..t. aM ...ü .i................ .............

46.071.4:1

il.402.H3

11. r.. '.U b, corloa ...1' reU..,nae. tr~l.......... ......... ...........................
12&. 0'...,.. pr-i.. oa rd..vue. 1. ...e.ortz.. c..pui.. .

0................... .

121. "'1...,.c. CIaot report" l10.... . 0 ~i. trM ...ellonz... 0 pl4 10.... 0 aael oa ..~. reñ" loa... .. u i_CU" ".t
12C. Pu4. u4i upa. aloca.ted 10" ",uta..t .a..... recOYl. troa ....tllor1:i..

e_""1.. . 0.......... ...........................................................

c_..i.. . Q............................... ...... ................................
a I

120. ~::: .:.~ ic~:.l-:i.lti~TI:I:. t:r I accout ot .~. ~~~~~~~~....................

13. Prat.. tor ..C..orU.. rei..U'c. (It.. 12 .. 12. . 12 - u.)...........................
14. au.. Uu1UU..:

(II ac ,,,AB .................................. .......... ............. ...... ... ....... (I) CI IS II ElCE or 11I 01 ii ..............................................
(e) Jam __ ...... ..... ...... ..................... ........................ ............. (D) cani PUI1 .......................................................................

52.oel.139 I

41.548.002 53.993.297

72.413.137

23.597.ll4
6.461.174

H.250.iai

(E ................................................... .............. ........... ..............
(n ...... ............................................. ...... ................. .............. -(a) ...... .............................................. ................................. .....

: ",__::,=,uuuuumuuummuu.uuuuumu -="'1
(t) Sbt.Ca............ ......................: ........... ........... .................. 0

(I) .................................................... ............ ................ ..........

544.7is.5n

(I) IEll FA DE MUr.lin IlIts .................................................. 15. øo (e) IE fl QlnøGECIE .......................... ............................... ....... UlI.7I.001
(D) ..... ...... ... ... . ..... ......... . .. ..... .. . . ... ................. .... ... . . ... . .... .........

4S. S7. 000

:2.717.541

IT. _.1.. i-...............................................................................
1~. tota __ .. ..lp.. t.. (P 4. It. 2!)..........................................
19.
419 16 801
tot................................... ............ ........................ ............. 1.00.3I.1!1

a

345 _.547
190.02.139

B-65

US199

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 34 of 45

fora I. UnlL snmur FO& ni l' l1I1 or ni _ieu saYlCE &SUTIOI OF P£ISVUU

I". hs.. ...... I

l I I i I I I _1- I II II'I I I i I l :i I I I I I I l I I I II IlIII I I
UNERWRITING AN INVTM EXIBIT
PART 1 - PREIUM WRITT AND EAED
l I I , l l

I u.. " l.. I li lui-.l

i i I I I I

.. I __ I
I I

I ... ~_ l u... I .. I Cl.... lTe'u. a. ,..t rr.. l6 I U, i.ii I h-.. t_ I l- ,.. I.... GIll" (I.U I

11. ....kl ....1

.1

'2. ..ca .....1

II. .........

1....lJC.1t I

l

It, "".......1

2.......au I

I U4....fi I r n..ta... I I

.I I .I I .I I .I I .I

. i . I . I . i . I a I

I I-llt. 1.._ hc.(hnW I l l-l" lui.. "'__. (l" - , I I Sl I.... he. ll ~_ l I

I I 1.._ I. ... I

. I .....l74.MJ I &.....on I n._.1M I . l fI...711 l 1,~''.121

. l SM....ne I l.ll._ I t.nI.'" I . I .,71.111 I is4.'02.~

. I nt.ta... I 1..1" I lH," I . I '61... I 7U...'.

. I t.......UIlI ".tn.." l ?I.l".l. I . I ,.,UL..,. I 1.Tn."I.

I I I

I

PART U - UlEAHED PREIU
Moan, ui,ct.S..
I

2 Pr..i&: 1. Fore.

................ Joaoa 2. ................ F.'ru .. ................ Mac. I. .............-.- lprll S. .............-.- .., I. .............-.. Ju.
1.

UIUAL

PI :

3 I Frattoa ia..c ot Cl.;:. 'liar Q..ua". F:~:-6::ar~

0 0 0

1121

0
0 0 0 0 0

3/24
S/24
7124 9121

0
0 0

7.

I.

I.
10. 11. 12.

..._............ JdT .._............. '.CUt .............-.. S.,c_r ................ Oc:_ ................ I....be

0
0

11/21 13/21
16121

0
0

0 0
0 0

17/24 11/21
21121

0 0 0
0

. . . . . . ~ . .. .. . . . .

SD - UIUAL
13.

PJl :
JolT

Dee_Nr

23/21

U.
lS.
11. 17. 11.

................ ................
...................

.................

s."r
OcCo_

1....C

0 0 0
0

tlI2
3/12
6112 7112

0 0 0

................

11.

: llY PIoc.. ................
IIITY
rori.

................. Do_r

10_

0 0

9/12
11/12

0 0
0

20. 21.

22. 23. 24.

PJl : ................ Do__ ADUCE PJl :

................ lofttr ................ Do_r
III I I I I

0 0
0

'"

Iii

511

0 0 0

0 0

112

0

100 iiII

75. ici .12l

7S.icl.12l

-It trati.. .. ..~ .,1,. ... prerata ..U.04.

B-66

US200

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 35 of 45

r.. 13 UI.u srlma ,. lI TE 1911 or ni _ic. SEYlCZ lSllOW or n:wuu

UNERWRITING AN INVSTM EXIBIT PART 3 - EXENSE PAID AN IlCU
2

iy of i:...
1. ci. Pr...i........... - . . .. . . . -. . . . . . . . . . - . . . . . .. . . .

...
l..l37 .U6

C1 i 'eu
26. 74.. 70

£i..
3

o'PU'

Pr"rt.. re

, ~..e. 'PU'

2

E:...... Iacarrt'

5

. 3 - 1

2. ldaautrlft (aClt lacl.... U It.. i aU 6)......... _.......
3. SoUcitiac.. _ _ _..... ..-..... .-............................ -....

10&._._

12.94._
30.16
:i.9M.I7T

20.738.801 10.056.412
1&&.621

13t.ll8.3'11 111.774.4:Jl

4. tot& '...nrti.. Ea..... ..-....-...... _......................
s. i-.,..~.c Ex__e.................... _................ _.... _..

-.-.2.061.11&

2l.94'.01

2a,06,20.i
2".9&6.7$9 1,019,039 7Tl.oe4.798

30._.404
S5.02l

12._
D.0I1.12

I. t.ta i:............................................

_.01..601

31.03.028

7. 1&1O at ... of a.UciCla ..Men"" && ..iatrlft ap..... to .et ,... writ..:

lctii&!
(1) Ea... ot ..UClt1ac ....cnkn: laUD It.. 3. COL. 2 aM.. to It. 5. COL. l. Pan 1....

Lera1 Lalt

o.~ t
1.44 t

0.00
0.00 ': O.ao ".

(I) l4Utnct.,. ea.....: lat. It.. (1.2l-). COL. 2 &I. to It. &. eol. 4. Pa 1.......

(C) r.w oI...: 1a10 It.. e. col. 2 ...,. to It.. 5. COL~ 4. Pue 1._..................._.

..31 t

PART 3A - ANALYSIS OF EXENSES

Iau.. ......
I 1

Pu'
5

'"~~tU~¡
7

1.

2.
3.

-.

1.

Cla ..t...t
0

2

3

4

I
Tot.&

Ida..

'...rtl.1.... _ ~ _ _.... ~ _..................

ItU''" aM ...oclatl0...........

T.174

.tratt.. Soltcltl... 0 II1.ll SI 1.12.070
34. .021

T....~e.t
a

Tot.ll

111,904

ia9.ó-I
1. 738 no

Sa_...... .~..........~ ..~...........

101.33.14
IT . 17. 12l

48.101._

4. £.,lOfM r.1aU.. .. ..Uue........... 5.

1.7&._
2.373._

Nl._ 1..._
1"
79 .043

.
100.20
12.11.3

1.730,533

ll7.62t.3U
24.104.110 444.133

tl8.2~.2~9
20.705. ')90

I.
T.

a:. .. h6 ..ta......... Tr..l .. tnl n....................
Iuuac. .
accocr at iea _ l . res.... '" . 1_ ...1...

6&.4&1

42.4sa

U4.13J
3.306.595

il 3.72.210 t_ laC= . .. nR i_. Co S..... .

...4U

1.2I
T.1I
..!M.
3.444

3.328.949

i. ..
10. 11.

i.l_t..... ........................... m.u.. .. .-i-er..................
Poata. tol"" .. ta1~.

12._._

..ll.340

1.~1(.13..11.57 4.23,142
1.51'.411 311 . 0l

10&. gi 37. s6

1.11._
3..27.

l&.21 :i.700
0

1l.62e...O 2'..2S.011 11.23.,846
23.4.T .241
432.456

U.6150.ó75

27.359.630 11.D92.512

i.....................................
taD.
l1c.... .. t..:

_PO .. ap_.....................

21..40,112

..
II
I3 .:i

23.6ll. \50
.(51. S23

12. 13.

a_u.C. acur .. c..aiuac ..c... _.... .... .._....................
(ü S-... i-i iuan. w...... (II IuU'. l.t Uc.....
(C)
011

2.522._
0 0

4.103,_
a
30 .:i

10.16
a a

7.273.125
a

7.D36.393
a

0

.. f................ ..............

a

30.3a
12.324.403
a

to.639

PaynU _.......................

I.T34._
a

3.60...
0

Ta.S
0

T.3"
0

12.ll6.211
0

lIbr (aiad.. fa4en lac ..

i- ..ta)........................
tal.... . .. .. . .... . . .. .. . .. . .

ll. .
15.

l- ..ta _.....................
-i ..i.e t.._.. ...... .................. Ie__ea ., aaar ac...t .. ....U ,i-.........................
(1-.,1 :
(ü
(II
(C)
CDI

1.73._
4.12
0 0

3.&3._
!lI,7l1
0 0

Ta.S
0

T . 3!

12.3&4.7.1

1.5IT.NI

2.463.166
784.190
a

0
a

714._
0

12.188.880 2.385.255 714.390
0

1..
11.

_.u.Inc:TIU ............... CU
PU.

110._
47.11
16 .li

cr

IEßoa

......... ~.... ........... .

m _.12
0

U 2.33
0

0

13
a
0

110.ITI 31..079
16 . &1
127 . ae7 . ss

111. 798

310.503
0

(I (f
(el
11.

_. PU_. ca. ...............

... .... ........ ~...... ................... .... ..

46...461
0

51.51.017
0

24.&1'._
0 0 0

124.820.899
0

-i .................-.......

........ ~......w ~... ~........ ......... .. ..... .. ..

0

a

.- ............................ r.t&..

(I..U..&&.I

(2.4...mil
(u.30.1&1 11.774.23

~.. ~......... ...............................

((1.78.131 131.1".32

(MO.ie) (UL.731

((10.314.&231

(23 .183. nii

(1tO.334.523; (23.113.715)
213.019.501

28.oa.2O

2.m.03

271.OI,_

B-67

US201

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 36 of 45

DEFENDANT'S EXHIBIT 4

B-68

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 37 of 45

~

Blue

Pennsylvania Shield

-

A fllJU ILL
'..'-...-:.-:.::.:..;,...

~~ ~: Gtllt:e(1eAC

1993
ì"
B-69

U8530

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 38 of 45
'01 lJ

ENNSYLVANIA

ANNUAL STATEMENT
OF THE

MEDICAL SERVICE ASSOCIATION
OF PENNSYLVANIA

01 1800 CENTER SiREEl¡ CAMP HILL
In Ihe Siale 0' PENNSYLVANIA

\Ø
TO THE

~

t\Ø

Insurance Commissioner
OF THE

COMMONWEALTH OF PENNSYLVANIA

FOR THE YEAR ENDED DECEMBER 3t. 't3
... l.'"!C Sa¥t Co
Nasll. TL..

HOSPITAL, MEDICAL AND DIEAL SERVICE OR INDmwNIT CORPORATIONS

1993 Q~

B-70

US531

Case 1:05-cv-01030-LSM
HOSPITAL. MEDICAL AND DENTAL SERVICE OR (NO

Document 23-4

Filed 02/15/2007

Page 39 of 45
Fo,, 13

;y CORPORATIONS

~m~lll~~IIU~IIIII~ OO1JIJI'" o. (-i III
GlCA Slh'ia "isouuo. or Pl-iiuaail.

ANNUAL STATEMENT
For the Year Ended December 31, 1993
Of THE CONDITION AND AffAIRS Of THE

MEDICAL SERVICE ASSOCIATION OF PENNSYLVANIA
NA I C G roup Code: 000
HAIC Con.ny Code: 54771

Ei10yer's 10 N_ber: 23-1294723
. Nde to the

Org.nized under the l.ws of the State of Pennsylv.ni.

INSURANCE DEPARTMENT OF THE STATE OF Pennsylvania
PURSUANT TO THE LAWS THEREOF
Incorpor.ted: 09/05/1939
St.tutory Hoa Office: 1800 Center Street
Hain Adiinístrative Office: 1800 Center Street

Comenced Business: 04/0111940
Caa Hi 11 . PI. 17089

C..P Hill. PA 17089

(717763-3151

H. i1 Address: 1800 Center Street
Priniry loc.ti on of Books .nd Records: 180 Center Street

, Caa Hi 11 . PA 17089
(717)763-3151
(7177J0- 1845

C.ni Hilt. PI. 17089
Annu.1 St.teint Cont.ct Person .nd Phone Numer: N.nette P. Kline

OFFICERS President .nd C.LO.: Slluel O.vid Ross. Jr. Secret.ry: W.lter Fredri c F..h
Treasurer: Oon.ld leroy Fi sher

Vice Presidents
John Stew.rt Brouse - CMet Oper.tina Officer
Hershel Bern.rd Oon.ld - Third Vice- Ch.i..n ,
Gilbert AnthOf" FridAY. Jr. H.O. _ Ch.i... of the Bo.rd

Everett Fr.nkli n Br".nt Georae Frederi ck Groe
R.lph John St.lter. H.O. - First Vice- Ch.i..n Joseph Anthony Riccí. H.D.

Robert Eugene P.tterson

W...en Georoe Webber - Second Vice- Ch.irwn

Thi-as Charles Sors

Iln i e i Henry T hOls

C.rlo J.Bernard Don.ld Robert W. Ford. 14.0. Hershel DiMarco, D.O. Judith R. Diehl
Fr.nk DeFazio W.lter J. De. \trey

John A. C. enter Es uire A. J. Chi.lutrí. 0.0.5. Wi son Bennett Conner etired 4 14 93 W.lter O'AlesSlo
ss

Willi.. G. 8.rtusk.. H.O. J. Robert B.u. Ooris N. Alexander Rich.rd O. B.ltz. H.D. Joseph B. Blood. Jr.. H.D. Jeffrey John Burdae (Retired

DIRECTORS OR TRUSTEES

4/14/931

the D'I£CTOR 01 TIUT££S list,,, is c..t'inuee .. tNo follo.''' ,i"e.

St.te of Pennsylv.ni.

County of Cu.erl.nd

ì

i.1 0...,4 ..... Jr~ 'nli4...t.", c.£.o.. Vilt...- 'ndrtc Fro" Seretary. 10"" b... 'aU""'.. Sr. V.P. and C.".Q.. ., 0. MfrCAl URIC( ASSOIAUON OF PEliyl.AfIA ..i", dill, twon. uc" ....us.. "rs tNt the,. are e.. &D..e ..'cr... offlc.ri of tM ,..id i.....r. .. tNt .. UI t".rtr-first 4l,..f o.c...., I.st. ,II' .f eM Nri. "icrt~ ..i.ts ..r. tM ..t._I..t. ,.r .. t.. i.id l...rer. frH ... cl..r ,. -l ....

or chi.. t~. .u.,t as he.... tutH..... t..c tIh ..1 iUt..t. t.'.t..r .it.. relalHI.."ttt. ie..lii ... ...,..ti.. tMn"
e..WN4. ..... ., nf.rrH t. it .. full aM tru itac..t et .11 tM .lieU 1M li.llillUei ind of tM '..iU.. ... If,.i" of tM ",i4 i....At .. .f tN thirtr-fint 41.,. ef De..r ,..t. .. ef its l-i.. .. 4Matie.. thef.. fer tIM ,..r eMd .. that "'ti. .. .... .. c..,..tI4 t. KCO"'._ "t. ti- fllC ..1 itatl-l tftStrUoi &- acc..ti., ptKtien .. ,""Hurl'S .....11 .UI',It to t~ pteat l-t: (iJ

~ ltJ1k
Sr. ,.,. ... (.'.0.

.tote i....' ._.~. .iff..: er. (2' tNt .Ute ..1.. or ..Iotio.,- ....,. .'_'N", w~ ,rolcUclts .. ,re~. -~.. .~. "'~"-. -,- ..i.. .Ufe..o. i. ......iOf ..t(Tn. acc..nU..

Subscrjbe .nd s_rn to before II this
d--rtI. d.y of 1\ -thAi/a IiJ
. 1994

f:l I f no: ( i l s U te the _ndint nUlr
Iii d.te filed

Is this .n ori9in.l filing? Yes (X) No ( )

~?f1L/" .~~(n ilJA

~\

(iii) numer of pages .ttached

B-71

US532

Case 1:05-cv-01030-LSM
ro,. i' A"NUAl srArrHENT ro-i rUE V(Aq 199! ~r ¡M( lo

Document 23-4
_ SERVICE ASSOCIATION or PENNSYLVANIA

Filed 02/15/2007

Page 40 of 45

DIRECTORS OR TRUSTEES (Cant i nued)
Gilb~~t A. F~idav. J~. M.D.
W; Iha.. £. Hall, D.D.S.
Rob~~t L. Gron 1 und

Peter No""" H1 I ver. H.D.

W, 'a.. S. W. ters M.D. R~ti~~ 14 93
Wa rr~n Georle We e r

Anqelo S. Monaco, D.P.M. S...~l David Ross. J~. (E. Off,ciol Susan F. Sordoni R.I h John Stalt~~ M.D.

St~øhen J. He~cea. M.D. Chules R. MCRa~k M.D. Edw.~d J. Resnic . M.D. ThOl" J. Rohne~. M.D. i Gloria J. Schucolskv I P.ul l. Strickle~

John M. Wilds'
Shi~iev V. Youn"

1. i

B-72

US533

Case 1:05-cv-01030-LSM

Document 23-4

Filed 02/15/2007

Page 41 of 45

Fo,, 13 ANNUL .STATEHENT FOR THE TEAR 1993 Of THE MEDIC "RVICE ASSOCIATION Of PENNSTLVANIA

I ~iiiiiiiiim 100 ~i~ ~m 1~i11~i1 ~III in~ n~imiio 11m im~~

_nim_

o., c.: 11

1l1CA søia .uunOi Of .ll...I.

ACTUARIAL STATEMENT

1.2

ß3

B-73

US534

Case 1:05-cv-01030-LSM
Fa". 13 AIHUAl STAT01EHT FOR THE TEAR 1993 OF THE MEOI

Document 23-4
:ERVICE ASSOCIATIOH OF PEJHSTlVAI!A

Filed 02/15/2007

Page 42 of 45

ASSETS
i. Bonds'.. . .. . .. . ... . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . . .. . . . . . . .. . . .. .. . . . . . . . . . . . .. . . . . . . . . . ..
2. Stocks:-

Decemer 31.
19'13

Oeemr .J1.
1992
577 .414,09

706,276,671

Z.I Preferr stocks.... ........ ....... ...... ......... .... ................... ....................
2.2 C~n stocks ....... e.. ........... ................. e_.. ................... _._ ......... .............. ...... .....
3. Hor-gige 10.ns an real estate

329.158.98
246.707
49.3ZZ,503

246.469 ,524

...............................................................-..................
encurrances .................... ................. ................ .................. ..............

4. Re.l estate, Ie.. S

49.73'1.102

s.

Collateral loans

.....................................................................................................
SZ ,205

6.1 Cash on hind and an deposit .. __.................. .0....................... ................................................ ...... ..................

1.231
167 ,68,465

6.2 Short..terl investlnts .............. _................................................................................................... ..............
7. Aggregate ..rite-ins for invested assets ..................... ................. ....................

173.399,744
Z,179.S4Z

Z ,038,567

7A. Subtotals, CAsh .nd invested ISSetS, (It..s i to 7) ..............................................
8. Uncolleced p..iu.. ............ ...................... ........ ............... ....................

1,260,636.360
84,333,097

4,043,345,979

93,408,89

9. ""unts reeiv.ble rel.ting to uninsured accident and health plans ...............................
LO. Funds held by or deposited with reinsure coll&nil!s ...... h. .................. ............ .........

ll. Reinsurince reoveribles on loss and loss adjustmnt ;:aymnts ......................t.............
l2. Federil inco- tu reoverable ....................................................... ............
.J. Interet and otler invest-int incOl due and accrued........... ...................................
.4. Reeivable fro paret, subsidiiries and .ffil iates . ............ ................. .................

15,959,456

13,090 ,226

5.

Electronic data proessing equi_t

.....................................................................

32,414,255 38.139.890

28,666,197

8. Aggreate wr;te-ins for ot.her than invested assets ...... .................... ............ ............

9. To~.ls (Itl! 7A to 18) .....................................................................
ETAILS OF WRIT£-INS AGGREGATED AT LINE 7 FOR INVESTED ASSETS
roi. OefeM" ~nsAtion Trust Fund ................................................................

1,431,48.058

!I. 472.Je 1,253,98,68

2,179,542

.. ,0J 2

,S6

'02.

.....................................................................................................................

ro. . ...... .... ...... .... ... ............. .......... ........... ......... ......... ..... .......... .......... ..........
'05.

/0. .................................................................................................................. .........................................................................................................................
2,179,542
2,038,567

'98. Sv.ry of reining write-ins for line 7 fro overflow page .........................................
'99. Touls CLlnes 0701 t1rogh 0705 plus 07g8)("ge 2, Line 7)

~AILS OF WRITE-INS AGGREGATED AT LINE 18 FOR OTHER THA INVESED ASSETS
01. Accounts Reeiv.ble-Aeit Pl.ns ..... ............................. ....... ........................

21,941,681 21,015,157
919,785

02. Accounts lli vab le-Fede.. 1 Ei loye Progr.. ....................................................

OJ. Acconts lliy.ble-..nt Cotr.cts ................. ..... ..................................
04. Hfscell.neo Acunts Reeiv.ble .......................... .....................................

22,310,372

15,587,409
617,539

29,038,326
12,182,007

11. Joint ,. ............... ......................... ........ ........ ......... .... .............
ii. S-". of ..inlng write-ins for Line 18 fro oyerfl"" p.ge ...................................
19. Totals (Lines 1801 t1rogh 1805 plus 1898)(P.ge 2, Line 18) .....................................

38,139,89

85,472,38

fE: The ii- on tIls page to .gre witl Exlbit 1, COL.. 4. Th "o~es to Fin.nci.l Stat..t .re .n tntecr.i part of thtS sta~..~.
¡tate bais of valu.tion. Bonds are valued ac airciz:ed c:osc. COlln sCocks are valued ac aiarkec value.

2

~'l

B-74

US535

Case 1:05-cv-01030-LSM
Fo,. 13 ANNUAL STATEM£HT FOR THE YEAR 1993 OF TlE III

Document 23-4
SERV ICE ASSOCIATION OF PENNSYLVANIA

Filed 02/15/2007

Page 43 of 45

LIASI LITI ES, RESERVES & OTHER FUNDS
1. Clli.s uftpiid (Part 2A. Colu., 4, Une 5)(Includes ørovision for retnMcthe cost idjustats

Oee.er 31.
19113

1

Oe_r 31.
l!l2
312.115.90
15.050.917

Z

) ...............................................................................
z. Provision for deferrd Ifternity benefits (Part ZB. Une 4. COlu.. 2) ............................_

287.781.136

3. Uniiaid clai.s adjustlnt eJqses (Part 3. Line 20B. Col.. 2l ...................................

11.107.618

4. Unearned pre;ua (Piin 1. Colu.. Bl ........................................................................
5. Unearned investlnt inc.. (Part 4. Line 9. Col.. 4) ............................................

66.670.105

8Z.IZZ.30

6. eel Tixes. licenses and fees due or ."Ned (excluding Federal inca- taxes) ........................

813.123

649.58
8.514.710
41.657 .D5

(b) Federal ill taxes (excludin9 deferr taxes) ................. ............. .... ...........
(c) Other exiienses du.. or accNed .... ....... .......................... ........... ...... .........

1.469.01S
51.131.512

7.. Preiui dep