Be­hind Wel­lpoint’s CEO choice

Swedish to lead Wel­lpoint through re­form’s changes

Modern Healthcare - - FRONT PAGE - Jaimy Lee

If the busi­ness model for the health in­surance in­dus­try has to change, so should its lead­er­ship. That’s the strat­egy that Wel­lPoint is tak­ing by tap­ping a hospi­tal ex­ec­u­tive as its new CEO. The Indianapolis-based health in­surer said last week it hired Joseph Swedish, a long­time hospi­tal CEO and the cur­rent pres­i­dent and CEO of Trin­ity Health, a large not-for-profit health sys­tem based in Livo­nia, Mich.

Wall Street took a some­what neg­a­tive view, with shares down al­most 3% the morn­ing af­ter the an­nounce­ment. Sev­eral an­a­lysts de­clined to com­ment on his ap­point­ment, cit­ing their un­fa­mil­iar­ity with Swedish, who starts at Wel­lPoint on March 25.

How­ever, oth­ers say that Wel­lPoint is proac­tively ad­dress­ing loom­ing in­dus­try changes by bring­ing in a leader who un­der­stands the key tenets of health­care re­form: value-based re­im­burse­ment, physi­cian-cen­tric care models, and the need for stronger col­lab­o­ra­tion be­tween pay­ers and providers.

“All of (the in­sur­ers) are try­ing to fig­ure out how they get ready for value-based re­im­burse­ment,” said David Cyganowski, man­ag­ing di­rec­tor of con­sult­ing firm Kauf­man Hall. “If this was the sta­tus-quo en­vi­ron­ment with­out re­im­burse­ment pres­sures and the un­cer­tain fu­ture we’re all fac­ing, they prob­a­bly would not have made a choice like this.”

The per­cep­tion for some has been that Wel­lPoint, the sec­ond-largest in­surer in the U.S., is be­hind the curve in terms of evolv­ing its busi­ness.

“It’s a sig­nal that Wel­lPoint is mov­ing from ag­gres­sive un­der­writ­ing to de­liv­ery-sys­tem re­form,” said Len Ni­chols, di­rec­tor of the Cen­ter for Health Pol­icy Re­search and Ethics at Ge­orge Ma­son Univer­sity in Fairfax, Va. “I think it makes a lot of sense.”

Wel­lPoint op­er­ates for-profit Blues plans in 14 states with about half of its mem­ber­ship coming from in­di­vid­ual and small-group com­mer­cial plans. The plans are likely to face sig­nif­i­cant com­pe­ti­tion next year when Amer­i­cans be­gin shop­ping for tightly reg­u­lated sub­si­dized cov­er­age un­der the Pa­tient Pro­tec­tion and Af­ford­able Care Act.

The com­pany had tra­di­tion­ally re­lied on ag­gres­sively ne­go­ti­at­ing re­im­burse­ment rates in mar­kets where its Blues plans are the dom­i­nant play­ers as a pri­mary method of cut­ting costs rather than work­ing to ad­dress uti­liza­tion and what some in­sur­ers call “the to­tal cost pic­ture,” said eq­ui­ties an­a­lyst David Windley of Jef­feries and Co.

“They used that dom­i­nant mar­ket share to

whit­tle down the rates,” he said.

This will change as busi­ness forces and the Af­ford­able Care Act push the in­dus­try to­ward value-based re­im­burse­ment and ac­count­able care in models that align the in­ter­est of hos­pi­tals, physi­cians and in­sur­ers.

“The payer com­mu­nity will def­i­nitely have to en­gage in a way that is not tra­di­tional,” said Swedish, 61, “but therein lies the op­por­tu­nity. I see providers also rein­vent­ing them­selves in terms of who they pick as part­ners go­ing for­ward. There’s tremen­dous op­por­tu­nity in th­ese new for­ma­tions that are striv­ing to cre­ate bet­ter care, more ef­fi­cient care and more ef­fec­tive care for peo­ple that we serve.”

Wel­lPoint has made some strides to­ward mod­ern­iz­ing its busi­ness. Last sum­mer, it made two sig­nif­i­cant deals: it ac­quired Amer­igroup, a pure­play Med­i­caid man­aged-care com­pany, for $ 4.9 bil­lion, and 1- 800 Con­tacts, the na­tion’s largest di­rect-to-con­sumer con­tact lenses re­tailer.

Swedish said the ac­qui­si­tion of Amer­igroup was “bril­liant.”

“It well po­si­tions Wel­lPoint in a space that is a sign of the times and it al­lows us to ag­gres­sively move for­ward to serve mem­bers and ben­e­fi­cia­ries that really need bet­ter forms of man­aged care, given their high costs and gen­er­ally tough ac­cess to care given their means,” he said.

Ques­tions about Wel­lPoint’s strat­egy re­main, though, es­pe­cially in light of the com­pany’s chal­leng­ing re­cent his­tory.

The Obama ad­min­is­tra­tion crit­i­cized Wel­lPoint for propos­ing in 2009 to raise rates by up to 39% in Cal­i­for­nia, where it is the largest for-profit in­surer. The con­tro- versy came at a crit­i­cal point in the frac­tious po­lit­i­cal fights over health­care re­form, and many blamed it for the even­tual pas­sage of the Af­ford­able Care Act.

In ad­di­tion, the com­pany has un­der­per­formed fi­nan­cially, com­pared with other large in­sur­ers such as Aetna, Cigna and Unit­edHealth Group. Wel­lPoint’s chief fi­nan­cial of­fi­cer re­signed in 2007 af­ter vi­o­lat­ing the com­pany’s code of con­duct. Former CEO An­gela Braly, who re­signed in Au­gust, pre­vi­ously served as gen­eral coun­sel. Some felt she lacked a strong op­er­a­tions back­ground and did not have a clear strate­gic di­rec­tion for the com­pany.

“There was a feel­ing that there was a tremen­dous amount of drama,” said Carl Mer­cu­rio, pres­i­dent of the Cor­po­rate Re­search Group, a re­search and con­sult­ing firm fo­cused on the man­aged-care mar­ket.

Mer­cu­rio added that Swedish’s ap­point­ment presents an­other layer of un­cer­tainty for the com­pany. Nev­er­the­less, he noted that Swedish’s strong op­er­a­tions back­ground and hospi­tal ex­pe­ri­ence, in­clud­ing his work with ac­count­able care con­tracts and shared-risk models, could be ben­e­fi­cial.

“There’s a grow­ing ra­tio­nale for hav­ing some­one with hospi­tal ex­pe­ri­ence head­ing up a health plan—given the emer­gence of provider risk-shar­ing and the con­cept of in­te­grated, ac­count­able care,” he wrote last week on his blog.

Wel­lPoint’s short list re­port­edly in­cluded James Carl­son, Amer­igroup’s pres­i­dent and CEO; Ron Wil­liams, the re­tired CEO of Aetna; and David Snow, former CEO of Medco Health So­lu­tions, the phar­macy ben­e­fit man­ager that Ex­press Scripts ac­quired in 2011.

While the se­lec­tion of Swedish was a sur­prise, it’s not the first time that an in­surer has put a hospi­tal ex­ec­u­tive in charge. In 2000, Aetna named Dr. John Rowe, then the pres­i­dent and CEO of Mount Si­nai Hospi­tal in New York, as its CEO.

Rowe, now a pro­fes­sor at Columbia Univer­sity, said he ex­pects to see more in­sur­ers hire hospi­tal ex­ec­u­tives as CEOs or in other C-suite-level po­si­tions.

“For a long time, many in­surance ex­ec­u­tives viewed physi­cians and hos­pi­tals as an ad­ver­sary who had to be de­feated in ne­go­ti­a­tions,” Rowe said. “And now, we see that they are part­ners work­ing to­gether in or­ga­ni­za­tions like ac­count­able care or­ga­ni­za­tions.”

Un­der Swedish’s lead­er­ship at Trin­ity Health, the health sys­tem re­ported that rev­enue in­creased to $8.9 bil­lion in 2012 from $5.7 bil­lion in 2005. Dur­ing the same pe­riod, Trin­ity ac­quired 10 hos­pi­tals, a num­ber that does not in­clude a pend­ing merger with Catholic Health East, an­other large health sys­tem.

The sys­tem an­nounced its first ac­count­able care con­tract with Blue Cross and Blue Shield of Michi­gan in May of last year.

“Health­care re­form, as it’s con­structed, given that it is the law of the land, is de­mand­ing th­ese kinds of in­no­va­tive ap­proaches that break the mold re­gard­ing tra­di­tions of en­gage­ment be­tween the provider and payer,” Swedish said.

An­other ques­tion in Wel­lPoint’s fu­ture will be whether Swedish’s strat­egy for the com­pany in­cludes own­ing provider or­ga­ni­za­tions.

Some in­sur­ers have started buy­ing hos­pi­tals and physi­cians groups. The in­surer High­mark has been pur­su­ing an ac­qui­si­tion of West Penn Al­legheny Health Sys­tem in Pitts­burgh since 2010. Unit­edHealth Group ac­quired Monarch Health­Care, a physi­cian group in Irvine, Calif., while Hu­mana now owns Con­cen­tra, an ur­gent-care provider.

Wel­lPoint dipped a toe in that pool with a 2011 ac­qui­si­tion of CareMore, a Medi­care man­aged-care com­pany that also op­er­ates care cen­ters—the di­vi­sion now has 25 cen­ters in four states.

“It wouldn’t sur­prise me the least bit if they wound up ac­quir­ing hos­pi­tals in the right sit­u­a­tion,” Kauf­man Hall’s Cyganowski said.

Joseph Swedish is leav­ing Trin­ity Health to take the helm of in­surer Wel­lPoint.

AP PHOTO

Former Wel­lPoint CEO An­gela Braly, who re­signed in Au­gust, tes­ti­fies be­fore Congress about rate in­creases dur­ing the re­form de­bate.

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