STATE OF OREGON DEPARTMENT OF CONSUMER AND BUSINESS SERVICES

DIVISION OF FINANCIAL REGULATION

BEFORE THE DIRECTOR OF THE DEPARTMENT OF CONSUMER AND BUSINESS SERVICES

In the Matter of the Proposed Plan of Acquisition of Control of A TRIO Health Plans, Roseburg, Oregon, by Grants Pass Management Services, Inc. dba Oregon Health Management Services, Grants Pass, Oregon.

) Findings of Fact, Conclusions of Law and ) Order ) ) Case No. INS-FR 16-09-007 )

INTRODUCTION

On or about March 10, 20 16, Grants Pass Management Services, Inc. dba Oregon Health

Management Services ("OHMS" or "Applicant") filed with the Oregon Department of Consumer

and Business Services, Division of Financial Regulation (fonnerly the Insurance Division)

("DFR"), a Fonn A Statement Regarding the Acquisition of Control or Merger with a Domestic

Insurer (as supplemented, the "Form A"). As required by ORS 732.517 through 732.546, the

Form A provided notice of OHMS's intent to acquire an ownership interest in A TRIO Health

Plans, Inc. ("ATRIO") a domestic insurer. The fi ling fee required by OAR 836-009-0007(12)

was received by DFR on April 20, 2016 ("Filing Date"). The proposed acquisition ("Proposed

Acquisition") described in the Form A is an activity described in ORS 732.521 (1 ).

The Director of the Depariment of Consumer and Business Services ("Director"), acting

in accordance with the procedures set forth in ORS 732.517 through 732.546, has reviewed the

Form A. Notice of a public hearing was issued on August 2, 2016, and a public hearing on the

Form A was held on August 23, 2016. A public comment period was open August 23, 2016, to

September 6, 2016. The Form A, the presentation at the public hearing by the Applicant and

ATRIO were posted on the DFR website.

Now, therefore, upon due consideration of the circumstances, including the said Form A,

documentation filed in support of Form A, and any testimony at public hearing or public

comment, the Director enters the following Findings of Facts, Conclusions of Law and Order.

FINDINGS OF FACT

The Director FINDS that:

(1) OHMS filed the Form A, dated February 22, 20 16, seeking pennission for the acquisition

of 500 shares of A TRIO Series A Voting Stock. After the transaction, OHMS would own 25%

of the issued shares of ATRIO Series A Voting Stock.

(2) OHMS is a physician-owned coordinated care company that provides Medicaid managed

care services to Oregon Health Plan members in Josephine, Douglas and Jackson counties.

OHMS is the sole member of PrimaryHealth of Josephine County, LLC (PrimaryHealth), which

cutTently holds a Health Plan Services Contract, Coordinated Care Organization Contract

#143120-6, with the State of Oregon. PrimaryHealth has a Management Services Agreement

with OHMS to provide managed care services to P1imaryHealth enrollees.

(3) ATRIO is an Oregon for-profit business corporation, has been licensed as a Health Care

Service Contractor in Oregon since March 31 , 2005. A TRIO has a Medicare Advantage contract

with the Centers for Medicare and Medicaid Services ("CMS"), whereby it operates various

Medicare Advantage plans and provides Medicare covered health care benefits to qualified

Medicare beneficiaries in Douglas, Klamath, Marion, Polk, Josephine, and Jackson Counties,

Oregon. ATRIO also offers individual and group cormnercial health benefit plans both inside

and outside the ACA marketplace in Douglas, Klamath, Marion, Polk, and Josephine Counties,

Oregon.

( 4) The Proposed Acquisition is intended to provide an additional choice in the Medicare

Advantage Market to Medicaid enrollees in zip codes 97523, 97526, 97527, 97528, 97531 ,

97532, 97533, 97534, 97538, 97543, 97544, and 97497 in Josephine County, Oregon; and

97525, 97530, and 97537, 97442, and 97410 in Jackson County and Douglas County, Oregon

(the "OHMS Service Area").

(5) Under the terms of the Stock Purchase Agreement, Dated February 27, 20 14 (the "Stock

Purchase Agreement"), A TRIO would apply for expansion with CMS and bid for a Medicare

Advantage contract in the OHMS Service Area. In addition, A TRIO would enter into a Medical

Services Agreement with OHMS; develop a Medicare Advantage Campaign in the OHMS

Service area; and conduct open enrollment activities in the OHMS Service Area.

(6) If ATRIO is able to achieve annualized premiums of$15,000,000 or more from accepted

enrollees in the Medicare Advantage plans that it offers in the OHMS Service Area prior to

December 31, 20 16, A TRIO will sell 500 shares of its authorized but unissued Series A Voting

Stock to OHMS for $1,500,000. The total consideration is based on a price of $3,000 per share,

which the A TRIO Board of Directors and shareholders have determined to be fair and adequate

consideration for such shares. The consideration ($1 ,500,000) complies with the 10-to- l

premium to surplus industry standard based on the $15,000,000 amrnalized premiums attributed

to A TRIO members in Josephine County.

(7) OHMS agreed, pursuant to the terms of the Stock Purchase Agreement, to deposit into an

Escrow Account a non-refundable $500,000. This non-refundable amount is in recognition of

the fact that ATRIO would incur substantial expenses in soliciting and marketing potential

customers in the OHMS Service Area to enroll in the Medicare Advantage plans that A TRIO

will be offering in the OHMS Service Area.

(8) In addition, OHMS deposited $1,000,000 in the Escrow Account to be held as a

refundable deposit.

(9) OHMS did not and will not borrow any funds for the purpose of purchasing the Series A

Voting Stock of ATRIO.

(10) OHMS and ATRIO entered into a Management Services Agreement effective January 1,

2015.

(11) A TRIO applied for and received approval to expand its Medicare Advantage product into

the OHMS Service Area for 2015.

(1 2) A TRIO has achieved annualized premiums of $15,000,000 or more from accepted

enrollees in the Medicare Advantage plans that it offers in the OHMS Service Area.

(1 3) ATRIO intend to sell , and OHMS intends to buy, pursuant to the tenns of the Stock

Purchase Agreement, 500 shares of ATRIO authorized but unissued Series A Voting Stock.

( 14) After closing, OHMS will have the right to designate three candidates to A TRI O's Board

of Directors, and each A TRIO shareholder agrees to vote all of its shares to elect the three

candidates designated by OHMS, provided, however, OHMS must designate its President or

other chief executive officer as one of its candidates and at least one candidate that satisfies the

requirements fo r public directors under ORS 750.015.

CONCLUSIONS OF LAW

The Director CONCLUDES that:

1. The Fonn A is supported by the required documentation and meets the requirements of

the Oregon Insurance Code for approval with respect to acquisitions and mergers pursuant to

ORS 732.51 7 to 732.546.

2. The Director finds that there is no evidence that:

(a) The activity is contrary to law or would result in a prohibited combination of risks or classes of insurance.

The acquisition of control of Domestic Insurers by Applicant is pennissible under ORS 732.517 to 732.546.

(b) The activity is inequitable or unfair to the policyholders or shareholders of any insurer involved in, or to any other person affected by, the proposed activity.

The activity and consideration for the Proposed Acquisition is not inequitable or unfair to the policyholders or shareholders of A TRIO or to any other person affected by the proposed activity.

The Applicants do not anticipate any changes in the business plans of ATRIO. Rather, A TRIO will continue to operate as it has historicall y. There are no cmTent plans for ATRIO to change any insurance products it offers to the public or to make any other change of its insurance license. C01Tespondingly, the policyholders of A TRIO can expect to receive the same level of service as ptior to the Proposed Acquisition because no material changes are anticipated with respect to the products or services which they receive from A TRIO.

(c) The activity would substantially reduce the security of and service to be rendered to policyholders of any domestic insurer involved in the proposed activity, or would otherwise prejudice the interests of such policyholders in this state or elsewhere.

The activity will not substantially reduce the security of and service to be rendered to policyholders of A TRIO or otherwise prejudice the interests of such policyholders in this state or elsewhere. OHMS is an Oregon for-profit corporation and, provides medical services. The financial information submitted as Appendix C of the Fonn A demonstrates that OHMS is sufficiently capitalized and the description of its business activities over the last five years in Appendix C of the Fom1 A demonstrates that OHMS is prudently managed.

(d) The activity provides for a foreign or alien insurer to be an acquiring party, and the director further finds that the insurer cannot satisfy the requirements of this state for transacting an insurance business involving the classes of insurance affected by the activity.

No insurer is an acquiring party. OHMS is an Oregon Corporation, who has an operating subsidiary that is contracted as a CCO.

(e) The activity or the completion of the activity would substantially diminish competition in insurance in this state or tend to create a monopoly.

There are several insurers operating in ATRIO's service area. Providers sign non­exclusive contracts with A TRIO. There is no indication that the sale of shares to OHMS and the partial ownership interest that will result for OHMS will lessen

competition among insurers operating in the Josephine County area Oregon or tend to create a monopoly among insurers.

(t) After the change of control or ownership, the domestic insurer to which the activity applies would not be able to satisfy the requirements for receiving a certificate of authority to transact the line or lines of insurance for which the domestic insurer is currently authorized.

A TRIO possesses an Oregon certificate of authority. After completion of the proposed transaction, A TRIO will have capital and surplus of approximately $24 million. ORS 750.045(1) requires a Health Care Service Contactor such as A TRIO to possess a minimum capitalization amount of $2.5 million. A TRIO will remain adequately capitalized to transact the volume of health insurance business in Oregon it currently provides and that it proposes to provide.

(g) The financial condition of any acquiring party might jeopardize the financial stability of the insurer.

OHMS' s financial condition upon the Effective Date appears adequate to conduct its business activities and its operating projections reflect it will be able to meet its on-going financial needs and responsibilities.

(h) The plans or proposals that the acquiring party has to liquidate the insurer, sell the insurer's assets or consolidate or merge the insurer with any person, or to make any other material change in the insurer's business or corporate structure or management, are unfair and unreasonable to the insurer's policyholders and not in the public interest.

OHMS has confinned they have no plans to liquidate A TRIO, to sell its assets or to consolidate or merge .it with any other person, or to make any other material change in its business, corporate structure or management, beyond those which are described in the Agreements, which will allow for OHMS to appoint three directors to the A TRIO Board of Directors.

(i) The competence, experience and integrity of the persons that would control the operation of the insurer are such that pennitting the activity or permitting completion of the activity would not be in the interest of the insurer's policyholders and the public.

There is nothing in the DFR's investigation or the biographical infonnation provided regarding the persons that will control the operation of A TRIO that suggests that the competence, experience and integrity of those persons who will control the operations of A TRIO will be contrary to the interest of the policyholders of A TRIO or the public.

(j) The activity or completing the activity is likely to be hazardous or prejudicial to the insurance-buying public.

There is nothing to suggest that the Proposed Acquisition will be hazardous or prejudicial to the insurance-buying public.

(k) The activity is subject to other material and reasonable objections.

After considering all relevant information provided to the DFR, the DFR finds that there are no material or reasonable objections to the Proposed Acquisition.

ORDER

Based on the foregoing Findings of Fact and Conclusions of Law, it is hereby ordered that:

(1) The acquisition of control of ATRIO by the Applicants is hereby approved;

(2) The Applicants shall provide the DFR with a definitive set of the final closing documents

within thi1iy days of the closing of the Proposed Acquisition;

(3) The Applicants shall provide notice of any decision by the Applicants to relocate the

headquarters of ATRIO at least three business days prior to the announcement of such

decision;

(4) The Applicants shall advise the DFR if the Proposed Acquisition does not close within

ninety days of the date hereof;

(5) The Applicants shall cause to be paid the fees of any actuaries, accountants and other

experts not otherwise a part of the DFR's staff that the DFR incurred in connection with

the Proposed Acquisition;

(6) Within thirty days of the closing of the Proposed Acquisition, the Applicants shall cause

to be filed an amended holding company act statement;

(7) ATRIO shall submit an enterprise risk report under ORS 732.569 each year dming which

the Applicants control ATRIO and an acknowledgment that ATRIO and any affiliates

that are within the Applicants ' control will provide, at the Director's request, information

the Director needs to evaluate enterprise risk to A TRIO; and

(8) The effective date of closing the Transaction shall be no sooner than sixty days after the

date of this Order.

~ DATED this~ __ day of October, 20 16.

TKKEEN Deputy Administrator Division of Financial Regulation

NOTICE

Pursuant to ORS 732.528 (6), any insurer or other Party to the proposed activity, including ATRIO, within sixty days after receipt of a notice of approval or disapproval, may appeal the final order of the Director as provided in ORS 183.310 to 183.550. For purposes of the judicial review the specifications required to be set forth in the written notice from the Director will be deemed the fi ndings of fact and conclusions oflaw of the DFR.