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

Breaking the mold

Swedish to lead WellPoint through reform's changes


By Jaimy Lee
Posted: February 16, 2013 - 12:01 am ET
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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.

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“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 pure-play 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.

Former WellPoint CEO Angela Braly
Former WellPoint CEO Angela Braly, who resigned in August, testifies before Congress about rate increases during the reform debate.
Photo credit: AP PHOTO
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 controversy 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.


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