apoBank: Claim filed by BKK für Heilberufe is unfounded


BKK für Heilberufe (a public health insurance fund) has filed legal action against Deutsche Apotheker- und Ärztebank (apoBank), Düsseldorf/Germany. BKK is seeking damages of EUR 391 million based on alleged unlawful lending in an amount of EUR 113 million. This was announced by the bank in an ad-hoc press release dated January 3, 2005.

In response to the claim, apoBank has stated that it is wholly without any factual foundation and that the bank has consistently adhered to its legal opinion in the earlier phases of this dispute. The bank's view is supported by several legal opinions prepared by external experts, who have confirmed the untenability of the claims and the underlying reasoning. apoBank will therefore move for a nonsuit.

Standard & Poor's: No impact on rating

In this context, rating agency Standard & Poor's Ratings Services stated on January 4, 2005 that the claim for damages will have no impact on the bank's rating (A-/Stable/A-2). While it is impossible to predict the outcome of the legal action or the impact on apoBank's financial profile - if any - at this stage, Standard & Poor's understands that the bank has taken reasonable measures during the lending relationship to avoid undue legal or credit risk. At this stage, it is still unclear if the presiding court will allow the action to proceed. The ratings on apoBank continue to be based on the bank's sound stand-alone risk profile, and also reflect its membership in the cooperative banking sector's system of solidarity. apoBank had adjusted common equity of EUR 1.2 billion and reported a pretax profit of EUR 145 million at December 31, 2003. (Source: Standard & Poor's RatingsDirect online database)

BKK claim puts into question the permissibility of lending to compulsory health insurance funds

As submitted to Deutsche Apotheker- und Ärztebank in advance, the reasons for the claim generally put into question the permissibility of lending to compulsory health insurance funds, which would have unpredictable consequences for the entire compulsory health insurance sector and the lending banks.

Against the background of the financial difficulties at BKK für Heilberufe and the resulting - partly public - discussion about the financial restructuring and merger of this health insurance fund, the latter is apparently attempting to obtain a major "contribution" to this financial restructuring from Deutsche Apotheker- und Ärztebank.

It is a fact, however, that apoBank is neither legally nor otherwise obliged to make a "contribution" to the financial restructuring of BKK für Heilberufe.

Deutsche Apotheker- und Ärztebank has acted correctly and in a timely manner

When the first signs of a critical development at BKK für Heilberufe emerged in July 2002, Deutsche Apotheker- und Ärztebank rang the alarm - vis-à-vis both BKK für Heilberufe and BKK-Landesverband Nordrhein-Westfalen (the North Rhine-Westphalian association of company health insurance funds), which was called in by apoBank. In this situation, apoBank agreed to continue its lendings to BKK für Heilberufe only because the association urged the bank to do so and, on July 19, 2002, expressly confirmed its liability - which generally applies to the bank's total claims - specifically for the case in question. Also at the express request of the association, Deutsche Apotheker- und Ärztebank supported the financial restructuring by increasing the loan. For this purpose, a liquidity agreement was signed by BKK für Heilberufe, BKK-Landesverband Nordrhein-Westfalen and Deutsche Apotheker- und Ärztebank on August 13, 2002.

BKK für Heilberufe and the liability question

To fulfil its sovereign tasks, the government, in addition to other instruments, delegates certain activities to corporations under public law. This is why the government is obliged to ensure that the corporations under public law are able to perform the tasks entrusted to them. In its capacity as a corporation under public law, BKK für Heilberufe is integrated into the government liability scheme; the function of the health insurance fund is to carry out sovereign tasks in the healthcare sector.

Just like BKK für Heilberufe, BKK-Landesverband Nordrhein-Westfalen is also a corporation under public law. In accordance with Sec. 78 (3) (2) of the Verwaltungsvollstreckungsgesetz (German Administration Enforcement Law), both corporations cannot become insolvent. If BKK für Heilberufe was to become insolvent, the liability of BKK-Landesverband Nordrhein-Westfalen would take effect. Should this be insufficient, the extended liability scheme of the Bundesverband der Betriebskrankenkassen (federal association of company health insurance funds) would come into effect. If both the North Rhine-Westphalian association and the federal association were unable to service the debt, these tasks - and, hence, the liability - would have to be fulfilled by the government.

The general environment: BKK für Heilberufe is no isolated case

The financial difficulties at BKK für Heilberufe are no isolated case. Compulsory health insurance funds as a whole have had considerable financial problems for several years. The most obvious sign of these problems is the fact that only few compulsory health insurance funds have actually implemented the (noticeable) reductions in contribution rates expected by politicians as a result of the Gesundheitsmodernisierungsgesetz (GMG - German Healthcare Modernisation Act) which came into force on January 1, 2004. In fact, the most pressing concern for the compulsory health insurance funds is to reduce their accumulated debts using the additional financial scope resulting from the GMG.

The legislature has had to acknowledge the fact that the health insurance funds have become indebted despite Sec. 220 of the German Social Security Code, according to which health insurance funds should "always be financed from contributions". This indebtedness is the result of the imbalance between benefits paid and revenues received. In response to this situation, the government has ruled that the health insurance funds must pay back all their debts by the end of 2007. A recent statement by the German Health Ministry - according to which the GMG has "paved the way for a gradual repayment of debt" - shows that politicians have been aware of, and accepted as a fact, the indebtedness of the compulsory health insurance funds.

There is no exact information on the total amount of the health insurance funds' debts - irrespective of the question of what happened to the billion-euro reserves that were customary in the past. While the German Health Ministry speaks of total debts of EUR 6 billion, some health insurance funds and the media have mentioned much higher figures. According to "Welt am Sonntag" (May 23, 2004), the funds' total debt exceeds EUR 10 billion. According to the newspaper, experts say that up to 100 health insurance funds are in financial trouble. Even if the exact amount of the compulsory health insurance funds' debt is not known, "Ärzte Zeitung" claimed, on June 7, 2004, that it is a fact that the health insurance funds' expenses between 1991 and 2003 exceeded their revenues by EUR 14.2 billion. This prompted the legislature to issue the above rule as part of the GMG.

The company health insurance funds (BKK), which are one component of Germany's compulsory health insurance sector, also operate in this difficult environment. The federal association of BKK assumes that the company health insurance funds account for one fifth of the - repeatedly cited - total debt amount of EUR 10 billion. In a declaration dated July 6, 2004, the association stated:

"Deficits will arise if the contribution rates imposed are insufficient to cover the statutory insurance claims in the long term."

Since November 2002, health insurance funds have been allowed, by law, to increase their contribution rates only in exceptional cases, even if their financial situation would make this necessary. Under such circumstances, it is not surprising, according to the federal association of BKK, that "the compulsory health insurance funds' debts are rising". The association has also claimed that the complex and delayed billing and settlement processes of the "Risikostrukturausgleich" scheme (RSA - risk structure compensation scheme) make it even more difficult to calculate the contribution rates reliably and accurately - making reliable planning even more challenging for a public health insurance fund.