This is the integration extract of due diligence: the fourteen findings that generate integration work, each with its severity, how the transaction dealt with it, what the program must now do about it, and who owns that. It deliberately excludes findings that were purely valuation matters and are now settled. It also carries a second register — the matters diligence could not assess — which is the shorter list and the more consequential one. Issued to the Steering Committee and all workstream leads on March 13, 2023.
Table of Contents
1. What Diligence Covered
Diligence ran from October 2022 through signing on February 13, 2023, across financial, actuarial, legal, regulatory, technology, human resources and compliance workstreams, supported by external advisors. It examined contracts, statutory filings, system inventories, architecture documentation, organizational data, audit reports and management representations.
1.1 The limits, stated once
Diligence could not examine member-level enrollment or claims data, could not test Cumberland Valley records against ACME's, and could not access competitively sensitive pricing or provider rate detail except through the Clean Team in aggregated form. These are legal constraints, not omissions, and they are described in full in the Clean Team Protocol. Their consequence for this document is Section 5.
2. Deal Treatment Categories
| Treatment | Meaning — and what it does not mean |
|---|---|
| Priced | Reflected in the consideration. The buyer paid less. No work was performed and no obligation was created. |
| Escrow | Funds held back against a defined contingency for a defined period. Recovers money if the contingency materializes; does not prevent it. |
| Indemnity | Seller bears specified losses. Requires the buyer to identify, quantify and claim — which is work. |
| Rep & warranty | Seller states a fact is true. Remedy is a claim after the fact, subject to survival periods and caps. |
| Accepted | Known, quantified, and taken as it stands. The most honest category, and often the correct one. |
3. Findings Register
| Ref | Finding | Severity | Deal treatment | Integration action | Owner |
|---|---|---|---|---|---|
| DD-01 | Core administration platform is a heavily customized legacy system; the vendor's support for the installed release ends within the integration window | High | Priced | Confirms the absorb decision in the Application Disposition Matrix. Platform must be retired, not maintained. Sets the outer bound on the migration schedule. | W. Ferriday |
| DD-02 | Enrollment records show inconsistent name and address formatting and an internal duplicate rate above sector norms | High | Rep & warranty | ⚠ Scale unverifiable pre-close — see Section 5. Profiling scheduled as the first substantive post-close activity. Drives the EMPI approach and the steward staffing model. | Dr. A. Ravindran |
| DD-03 | Twelve material vendor agreements contain change-of-control provisions; three confer termination rights on the counterparty | High | Rep & warranty | Pre-close contract sweep. Consents and novations drafted for immediate post-close execution. The three termination rights are a Day 1 threat and are tracked individually. | M. Rousseau |
| DD-04 | Business Associate Agreements with several PHI-handling vendors name Cumberland Valley as the covered entity | High | Accepted | Every BAA re-executed for the surviving entity. Tracked to completion as a Day 1 gate condition — a miss is a privacy exposure, not an administrative one. | L. Braithwaite |
| DD-05 | Target has no production cloud footprint; all workloads on owned infrastructure in a single leased data center | Medium | Accepted | Reinforces the rehost-first migration posture. Data center lease term becomes a schedule dependency for the wave plan. | B. Trammell |
| DD-06 | Interfaces between core admin and downstream systems are predominantly scheduled batch; limited real-time capability | Medium | Accepted | Constrains the integration architecture. Coexistence design assumes batch and EDI as the primary mechanisms rather than APIs. | R. Delacroix |
| DD-07 | Prior state market conduct examination produced findings on claims timeliness; corrective action plan closed but recent | Medium | Indemnity | Claims timeliness metrics monitored through cutover. Any Day 1 degradation is a regulatory matter, not only a service matter. | R. Cadwallader |
| DD-08 | Concentration of institutional knowledge in a small number of long-tenured technical staff, with no documented succession | High | Accepted | These roles anchor the retention plan. Knowledge transfer is a tracked deliverable with acceptance criteria, not an assumed by-product of the TSA. | D. Marchbanks |
| DD-09 | Provider contracts include a mix of evergreen and fixed-term arrangements with staggered renewal dates | Medium | Accepted | Network rationalization sequenced against renewal calendar rather than program convenience. Constrains the timing of a $19,000,000 synergy source. | J. Kirkendall |
| DD-10 | Care management platform is a third-party tool under a subscription that overlaps ACME's own tooling | Medium | Accepted | ⚠ Tension with the preserve decision: the capability is retained, so the tool cannot simply be terminated for its subscription saving. Disposition resolved in the matrix, not by default. | Dr. M. Ellsworth |
| DD-11 | Reserve setting methodology differs from ACME's in assumptions and development factors | Medium | Escrow | Methodology alignment required for combined statutory reporting. Actuarial workplan; not a program deliverable but a program dependency. | E. Wetherby |
| DD-12 | Identity and access management is directory-based with limited role-based provisioning and periodic manual recertification | Medium | Accepted | Access model must be reconciled before any cross-entity system access is granted. Prerequisite to the landing zone identity design. | A. Quintanilla |
| DD-13 | Two office leases and the data center lease expire inside the integration window | Low | Accepted | Lease decisions sequenced against migration waves. Renewing the data center for a year is cheaper than a migration compressed to meet a lease date. | W. Pickering |
| DD-14 | Clearinghouse relationship differs from ACME's, with a distinct trading partner configuration for X12 transactions | Medium | Accepted | Consolidation is a high-confidence vendor synergy, but sequencing is constrained — the target's clearinghouse cannot be dropped while a TSA still depends on it. | H. Castellow |
4. The Four That Shape the Program
4.1 DD-01 — the platform decision was made by the vendor, not by us
Support for the installed release ends inside the integration window. That removes the option of running the target's platform indefinitely and converts "absorb" from a preference into a constraint. It is a useful thing to be able to say in a disposition debate: the alternative to migrating is not "keep it," it is "run an unsupported claims platform for two million members," which is not an alternative.
4.2 DD-04 — the finding with the worst ratio of effort to consequence
4.3 DD-08 — the retention problem is a knowledge problem
A small number of long-tenured staff understand how the target's systems actually work, as distinct from how the documentation says they work. They are also the staff most able to leave, because their skills are marketable and their futures are least certain. The program's exposure is not headcount; it is that the TSA assumes those individuals are available to run services and transfer knowledge for twelve months.
4.4 DD-10 — the finding that contradicts a default
The care management platform overlaps ACME's tooling, which in isolation reads as a vendor consolidation opportunity. But the investment thesis preserves care management precisely because the target's program outperforms — and the tool is part of how it performs. Terminating the subscription to book the saving would take value out of the thing the transaction was partly undertaken to acquire.
5. Register of Matters Not Assessable Before Closing
This register is shorter than the findings list and carries more risk. Each entry is a matter the program knows it does not know, with the date by which it will know.
| Not assessable | Why not | Resolves | Program posture in the meantime |
|---|---|---|---|
| Cross-entity member overlap and true duplicate rate | Requires member-level data from both parties in one place — barred by the information barrier | Post-close profiling | ⚠ Plan on the deal-model assumption while treating it as the program's largest single uncertainty. Contingency sized accordingly. |
| Actual condition of address, identifier and demographic fields | Same barrier; only aggregate quality indicators were released | Post-close profiling | EMPI design assumes a wide clerical review band rather than a narrow one |
| Provider reimbursement detail sufficient to model rationalization | Competitively sensitive; released only as directional variance | Post-close contract review | Network synergy timing modeled on renewal calendar, not on rate analysis |
| Employer-group-level renewal exposure | Named account detail not releasable | Post-close | Member Services retention planning uses seasonality, not account lists |
| Production behavior of the core platform under combined volume | No access to production environments before closing | Post-close load analysis | Absorb decision assumes headroom; assumption logged and owned |
6. Handoff to Risk Register and Disposition Matrices
| Finding | Becomes | Where it lives from here |
|---|---|---|
| DD-02 — enrollment data quality | Risk: identity resolution materially harder than modeled | Risk Register; Data Migration & EMPI Strategy |
| DD-03 — change-of-control provisions | Risk: critical vendor exercises termination right | Risk Register; Vendor & Contract Disposition Matrix |
| DD-04 — BAA re-execution | Day 1 gate condition | Day 1 Readiness Plan; Go/No-Go criteria |
| DD-05, DD-06 — infrastructure and interfaces | Design constraints | Cloud Migration Strategy; Integration Architecture Plan |
| DD-08 — knowledge concentration | Risk: attrition before TSA exit | Risk Register; Retention & Key Talent Plan |
| DD-01, DD-10 — platform and tooling disposition | Decisions requiring argument | Application Disposition Matrix |
| DD-09, DD-14 — contract timing | Synergy sequencing constraints | Synergy Realization Plan; TSA Schedule & Exit Plan |
| All Section 5 entries | Assumptions with owners and test dates | Integration Management Plan; Risk Register |
Related artifacts: 1 — Integration Charter · 2 — Deal Summary & Investment Thesis · 5 — Clean Team Protocol · 20 — Application Disposition Matrix · 21 — Vendor & Contract Disposition Matrix · 28 — Risk Register