Humana has come a long way from its earlier incarnation as a hospital company. Having shed its hospitals and the bulk of its clinics, the insurer is bent on keeping up with the fleet-footed, winged figure in its logo.
Humana's management team-whose average age is 42-believes the Louisville, Ky.-based company is 18 months ahead of the pack in solving problems facing everyone in the business of financing and arranging healthcare.
That's why, they say, Humana wasn't surprised by unexpectedly higher claims losses last year-as were major competitors like Aetna U.S. Healthcare, Oxford Health Plans and PacifiCare Health Systems.
Humana earnings soared to $173 million in 1997 from $12 million in 1996, when the company took special restructuring charges of $215 million. Total revenues for the 6.2 million enrollee plan were $2.4 billion in 1997.
Humana, which operates in 38 states, now covers approximately 6.2 million managed-care enrollees. According to Minneapolis-based InterStudy, Humana ranked eighth among all plans based on HMO enrollment as of January 1997.
"There aren't many firms that are particularly successful in the difficult managed-care environment, and Humana happens to be one of them," says Doug Sherlock, an HMO analyst in Gwynedd, Pa. Humana is "doing a fine job of blocking and tackling, like other successful firms."
It wasn't always among the winners.
The restructuring, which involved the layoff of two dozen mid- to upper-level managers, was meant to signal a shift in "structure and philosophy," Humana said in August 1996.
The overhaul was necessary because the company was lumbering along with baggage it had tried to jettison along with its 90 hospitals.
History of change. Humana was among the first healthcare companies to build an integrated delivery system and then to dismantle it. Founded in 1961 as a nursing home company, it evolved into a hospital company, but executives decided in 1992 that Humana couldn't be both a provider and an insurer.
Humana's demands for discounts had alienated physicians, who fought back by reducing admissions to the company's hospitals. Conceding that integration efforts had failed, Humana's board voted in August 1992 to split into two separate, publicly traded companies. The 76-hospital unit, Galen Health Care, was sold to Columbia/HCA in 1993. Humana went forward as a managed-care company, its management thinned, saddled with damaged relations with physicians and plagued by charges of substandard care in its Medicare operations in Florida. Those problems prompted a federal investigation in 1995.
But in a watershed event, Humana in 1995 acquired Emphesys Financial Group, a Green Bay, Wis., insurer, whose president was Gregory Wolf.
Humana's longtime president, Wayne Smith, heir apparent to founder, Chairman and Chief Executive Officer David Jones, resigned in July 1996. Wolf, then 39, was named the company's new chief operating officer. He announced the management layoffs in August-with a looming second-quarter loss of $95 million.
On Sept. 12, 1996, Wolf was named president. Humana shed money-losing health plans in Alabama and the District of Columbia. Its $400 million purchase of Physicians Corporation of America, a Miami-based insurer, made Humana the biggest Medicaid managed-care company.
Robert Hoehn, an analyst at Salomon Brothers, said in November 1996, "The new management at Humana is basically reinventing the company."
By the second quarter of 1997, earnings exceeded the previous year's quarter for the first time in over a year. About 800 positions in a total work force of about 200,000 employees across the country were cut to streamline operations.
Humana bought ChoiceCare, Cincinnati's largest HMO, and Health Direct, a provider-owned plan in Chicago. Effective Jan. 1 of this year, Wolf was named Humana CEO, replacing Jones, who remains chairman.
Making news. Since then, Humana has made news with a number of high-profile moves. Among them, the company was the first to launch a subsidiary, called MedStep, to help providers get into the PSO business (Jan. 19, p. 6). And earlier this month, Humana announced deals to break off 27 physician clinics in five markets (April 13, p. 14).
Humana also is in the news because of its interest in buying the ailing healthcare operations of Prudential Life Insurance Co. But Wolf says that although he's always looking for acquisition opportunities, he's "not very bullish" there will be an acquisition this year. "We don't feel compelled to do a deal this year," he says.
If Humana does pursue a deal, it has plenty of experience to put to work. "This is a company that has a rich history of doing acquisitions. We've done 23 of them in the past 10 years," Wolf says.
They include Maxicare plans in Texas, Kentucky and Florida; Prime Health in Kansas City; and Health Chicago and Chicago's Michael Reese Health Plan.
"Probably there's no other company that has been more active in the acquisition and divestiture business over the past five or 10 years. We're also the only company that acquisitions haven't brought to their knees," Wolf says.
That's because Humana buys wisely, says George Vieth Jr., vice president of development and planning. It paid only $400 per enrollee for PCA. Many HMOs have completed deals that cost up to $2,000 per enrollee. Aetna's acquisition of U.S. Healthcare cost about $3,000 per enrollee.
Humana also integrates carefully, moving all the products and enrollment of an acquired company onto Humana's single computer platform and rationalizing the products to simplify their administration, Wolf says.
Before new enrollees from an acquired company are moved onto Humana's computer system, Humana hires more staff. "We hire the people before we move the business," Wolf says. "So we've got more customer-service and claims people here right now than our book of business would probably normally have. But it's because we're going to convert all these PCA and ChoiceCare members to our platform.
"We don't want claims stacking up; we don't want people calling us with customer-service problems. We also don't want to be in a position where we don't know what the underlying truths are because we've got an unusual backlog of claims. That's expensive," Wolf adds. "But if you don't do that, you run the risk of not knowing your costs. And we're just not going to go there."
Acquisition criteria. Humana's basic criterion for acquisitions is that they bolster its identity. "We like to think of ourselves as a super-regional healthcare services company. So we're narrow and deep. We're not in a lot of markets across the country. But where we do business, we're big," Wolf says.
Humana has other criteria. "They can't disrupt us from the path we're on, which is finding ways to improve the health of our members, strong long-term earnings improvement for our shareholders and expertise in a particular discipline," Wolf says. "Unfortunately, because of these criteria, there are fewer and fewer companies that seem suited" for acquisition, he says.
The acquisition of Emphesys in 1995 shaped Humana's current identity. Emphesys grew by "pricing products right, being better at distribution and by processing claims correctly," he says.
But before the salutary effect of the Emphesys acquisition was felt, Humana led the parade of HMOs that lost money in 1995-96.
"Everybody*.*.*.*went out and wrote business on an unsound financial basis. They underpriced their product," Wolf says. "And there are still people today who literally don't know what they'd say to Wall Street if they weren't growing."
By contrast, Humana relinquished about 500,000 enrollees last year when it divested unprofitable plans and raised premiums. Wolf says higher premiums alone drove off 250,000 enrollees last year.
The newsmaking stumbles by big HMOs in recent months-led by Oxford-were the result of overreaching and poor financial planning, Humana executives say. Healthcare companies have to remember that managed care is insurance, they say.
A reminder for health plans is the fact that the biggest cause of enrollee dissatisfaction is a mishandled insurance claim, says Dave Astar, Humana's vice president, customer service and quality.
Medicare tightening. With the discipline in risk-taking that Emphesys brought to Humana, the company is steering a straight course, its executives say. But one thing that keeps James Murray, chief financial officer, awake at night is the scant 1.8% Medicare payment increase Humana received for 1998. "Managing (to keep costs) below that 1.8% is for me our most critical initiative for 1998," he says.
Humana is now the second-largest Medicare HMO, behind Santa Ana, Calif.-based PacifiCare Health Systems.
Murray is looking to more positive indicators "on the other side of the ledger" to balance the meager Medicare increase. Commercial premium increases will be around 6% or higher this year, he says.
With pharmacy costs rising 12% to 14% last year, a new executive, Carol McCall, has been hired as vice president of pharmacy management to try to ratchet costs down. McCall comes from actuarial firm Milliman and Robertson.
In the past, Murray says: "Our medical director was responsible for one piece of pharmacy, our old vice president of operations was responsible for another portion of pharmacy, and one other person was responsible for our claims-processing function. So there were three people who were in charge of our pharmacy programs here. And it was finger-pointing at its finest."
Murray says he's also excited about a newly formed competitive advantage team, overseen by Vieth. The 20 senior-level managers from all areas of Humana have been excused from their regular duties and will work for up to two years at product and contract standardization. They're looking at every Humana product and procedure and asking: "Why are we doing it, and what should we be doing with it?" says Greg Donaldson, Humana's director of communications.
To offset modest premium increases, Murray also is counting on "process discipline" brought by managers from Emphesys to spread best practices throughout the company. By contrast, he says, he can remember sitting at a table with previous Humana managers. They were loudly praising a system or program that was working in one region and arguing about why it couldn't work anywhere else.
Humana has implemented other cost-saving strategies. For example, it has the largest hospitalist program in the country, Wolf says. The practice of assigning doctors who specialize in overseeing hospitalized patients has paid off to the tune of $20 million in savings last year, he says.
The hospitalist and PSO strategies are "very unusual. They're creative and a good solution to a lot of different issues," Sherlock says.
Medical management. But it is primarily in the area of medical management that Humana counts on achieving the twin goals of improving quality and lowering costs.
Jerry Reeves, M.D., Humana's chief medical officer, articulates a vision of "organized care," a term he prefers to managed care. "We're trying to organize care into more effective patterns*.*.*.*to bring integrity back to care." That process was fragmented when medical specialization carved the human being into isolated areas, each treated by a raft of specialists, he says.
"Our patients have two or three significant chronic conditions if they have one," Reeves adds. That's why providing "seamless" care management is so important-and cost effective.
For example, Humana's education and monitoring program for 2,000 enrollees with congestive heart failure improved the quality of their lives and decreased overall medical costs by $9.3 million last year, Reeves says. The program is home-based, physician-directed and nurse-monitored.
"Before the program was put in place, one in five (congestive heart failure) patients was admitted to the hospital at least once a month. Now the number of admissions has dropped 60%."
About 30 medical conditions account for 80% of Humana's medical costs. The company is trying to set up intervention programs similar to the one for congestive heart failure for all those conditions, Reeves says.
Stronger relationships. One of the benefits of Humana's increasing size is the information the health plan can offer providers. And better information equals better provider relations, which is the Holy Grail for every managed-care company.
If a plan can give providers information they can use-clinical protocols and utilization management information comparing them with their peers-"that means a lot to providers," Wolf says. "That is a different strategy. The company, historically, was good at contracting, and I think we're good at contracting still, but with a little different orientation. The old way was going out there and getting the best possible reimbursement rate. Now you're better off maybe giving them a little more money and having a better relationship," Wolf says.
Humana also is working on its relationships with enrollees. It was among the first managed-care companies to create a position to develop strategies and "breakthrough initiatives" in women's healthcare, the company says. Last year Humana named Mitzi Krockover, M.D., its vice president of women's health. She was formerly medical director at the prestigious Iris Cantor-University of California-Los Angeles Women's Health Center.
Women's issues haven't received enough attention in healthcare, Wolf says. But beyond that "in many ways, just one area where I think we can improve the healthcare system is by improving the way healthcare is delivered for women," he says.
"Women make the majority of healthcare decisions, not only in terms of which healthcare plans get chosen, but which physicians get chosen, which hospitals get chosen and whether care will be rendered at home," Wolf says.
Humana also wants to carve out attention for other areas like men's health and "segments of the community that may have been underserved." For example, Humana has about a million Hispanic enrollees, Wolf says.
Customer satisfaction. Although superior customer service is every managed-care plan's mantra, it's important to see what a company is actually doing about it, Astar says.
Since Humana pays 2 million claims a year, "the claims encounter is one of our key encounters with customers," he says.
Humana found that 40,000 claims were rejected unnecessarily in the first quarter of 1997, for reasons such as not having a provider address, diagnosis code or some other minor impropriety, causing a long delay in payment.
"That's 40,000 very dissatisfied customers a month," Astar says.
Although some insurers-critics say most insurers-don't pay claims until it's absolutely necessary, that's "poor systems thinking," Astar says.
Humana has sped up its claims payment process so 94% are paid within 15 working days, up from 84% in 1995, he says.
Humana also has added other customer-friendly touches. It pulled out the automated voice from its customer call center, which fields 10 million calls a year. A customer may call 1-800-4HUMANA from anywhere in the country until 8 p.m. Eastern time weekdays and noon on Saturdays, and get a real person.
Humana also provides enrollees a free 24-hour medical information hotline staffed by registered nurses.
Initiatives like these were unthinkable in the old regime. "In a very real sense, it's a new company," Wolf says.