For Immediate Release
August 15, 2014

Contact: Pat Beaudry
Phone: 617.939.0800

Timeline of Actual Events Tells Different Story

BOSTON – With today’s release of a Republican Governors Association SuperPAC ad distorting Republican Charlie Baker’s record at Harvard Pilgrim, Massachusetts Democratic Party Coordinated Campaign Chair Ben Downing released the following statement and timeline.

“The new Republican Governors funded ad misleads votes into thinking Republican Charlie Baker alone moved Harvard Pilgrim out of crisis. The timeline of the events clearly shows that state government was involved in helping the health insurance company,” said Downing. “Not only is Republican Baker trying to mislead voters about his record but now his Super PAC is doing so as well.”

Background:

●May 1999:
○Harvard Pilgrim Health Care announces a $94 Million loss and ousts its Board
○Republican Charlie Baker is appointed CEO and says he can turn it around in 60 days
○HPHC immediately pulls out of the western MA medicare market, leaving 3,500 seniors without coverage.

●July 1999:
○HPHC announces a new recovery plan that:
■Hikes premium from 12% to 15%
■Lays off hundreds of employees
■Three tier prescription plan
■Renegotiation of prescription contracts
■Selling off real estate
■Exiting some medicare markets

●October 1999:
○After failing to find a buyer for its unprofitable RI operation, HPHC exits the state, leaving 155,000 members and 800 employees. Regulators take over.
○This prompts MA hospitals to raise the bankruptcy question.

●November 1999:
○The Senate passes an HMO bailout bill providing protection to consumers should HPHC fail
○HPHC reports losses of $75.4 Million in the first nine months of the year, but say they are on schedule with their efforts to cut costs.
○Standard & Poor’s lowers the HMO’s credit rating to junk bond status

●December 1999:
○The Boston Globe reports that the quasi-state agency Massachusetts Health and Educational Facilities Authority (HEFA) and HPHC are “quietly arranging” a $140 Million package designed to improve the company’s balance sheets by $60 million.
○A similar 1998 deal arranged by HEFA and HPHC comes to light, where investors loaned the company $90 Million dollars.
○Media quickly paints this as a “bailout.”
○Republican Baker’s connections to state government and the Pioneer Institute are heavily scrutinized as he undergoes hearings as to why HPHC is failing.

●January 2000:
○HPHC discovers that, due to accounting errors, its 1999 losses now total $177 Million, almost $80 Million more than previously thought. This is the “January surprise.”
○The sudden realization cancels the HEFA-HPHC deal and, as a result of a court order from Attorney General Tom Reilly, the state puts HPHC into receivership.
○The state managers that take over HPHC during the receivership quickly come under scrutiny for their close connections with Baker.
○Further suspicions arise as to how long Baker knew about the January Surprise. Part of the 1999 HPHC recovery plan fired the outside accounting firm responsible for managing its books. At best, the in-house accounting system that Baker set up was so dysfunctional that it missed the added losses. At worst, he actively covered up those losses until January 2000.
○By the end of January, HPHC’s total losses reach $197 Million.

●March 2000:
○The AG announces that HPHC will continue its recovery plan under state supervision
○Key to the plan is a “couple of accounting maneuvers” that allow receivers to increase HPHC’s net worth from a negative $88 million to positive $178 million. This is done by “subordinating” the $198 million dollars worth of bond debt that HPHC owes to HEFA, essentially removing it from its books. This was made possible from a law passed in November 1999.
○Another key factor in HPHC’s survival was a consensus that the company needed to be preserved at all costs, even at the expense of lesser HMO’s.

●May 2000:
○The AG announces that they will take HPHC out of receivership as soon as a new board is appointed and new recovery plan in place.
○The HMO exists receivership by the end of May.

●June 2006:
○The state formally releases HPHC from all special oversight.