Anthony Marlon, a cardiologist turned founder of insurance giant Sierra Health Services, is the first to admit that he is an odd duck. It's a given, he says, that physicians don't make good businesspeople.
"The average doctor is completely un-equipped to run a company, insurance or otherwise," says Marlon, who has been Sierra Health's chairman and chief executive offi-cer since the company's incorporation in 1984. "It's the odd duck who is able to make the transition."
The 62-year-old executive was chief of cardiology at University Medical Center of Southern Nevada, Las Vegas, when he formed a multispecialty physician group to bring more patients into his private practice. After securing an HMO license in 1982, the group eventually evolved into Sierra Health--now a publicly traded, diversified managed-care company that dominates the Nevada market with 500,000 members. Last month, Sierra reported third-quarter earnings of $30.7 million, up 38% from a year ago, on revenue of $393 million.
Marlon is one of an elite set of healthcare executives--medical doctors who have successfully swapped their scrubs for business suits and parlayed their firsthand experience with patient care and provider operations into top positions at some of the nation's largest health insurance companies. According to executive recruiters, only a handful of today's health insurance CEOs have an M.D. after their names.
Some industry experts view physician-CEOs such as Marlon as a dying breed within the increasingly complex and financially oriented world of managed care, which has moved far beyond the provider-run, community-focused HMOs of yore. Others, however, say the time is right for insurers to embrace a new generation of business-savvy physician leaders with the skills needed to deftly join the financial and clinical sides of healthcare.
"Especially with the advent of joint M.D./MBA programs, we're likely to see a growing number of physicians entering the administrative echelon of managed care and shaping health policy," says Howard Horwitz, vice president of professional development for the American College of Physician Executives.
Since the late 1990s, the managed-care industry has witnessed the retirement of several notable physician-CEOs, including David Lawrence of Kaiser Permanente; Norman Payson of Oxford Health Plans; Harris Berman of Tufts Health Plan; Daniel Gregorie of ChoiceCare Corp.; and Malik Hasan of Foundation Health Systems, now Health Net. All were replaced by nonphysician executives.
This shift in leadership, industry observers say, followed the managed-care backlash of the mid-'90s, when HMOs were attacked for what was viewed as intruding into the patient-provider relationship and meddling in medical decision-making. Health plans responded by distancing themselves from the delivery of care and refocusing on the insurance side of the business, namely underwriting, product design and claims processing.
"Companies always choose their executives based on what their needs are at the time," says Lawrence, 64, a preventive-medicine specialist who retired in 2002 after a decade as chairman and CEO of Kaiser. "In this particular phase of managed care, there has been less demand for the skills and perspective of clinicians. It's made more sense for managed-care companies to select their leaders from the financial-services and insurance fields."
That business-operations focus has been reflected in some of insurers' recent appointments. WellPoint Health Networks has been hiring away several top managers from such companies as FedEx Corp., General Electric Co. and Hewlett-Packard Co. to help overhaul its information technology. And industry leader UnitedHealth Group--whose own chairman and CEO, William McGuire, is a cardiopulmonary specialist--last month tapped Northwest Airlines CEO Richard Anderson for the No. 3 spot of executive vice president.
But now the pendulum may be swinging back. Health insurers are once again becoming intricately involved in the delivery of healthcare, this time through disease-management programs and pay-for-performance initiatives that reward doctors and hospitals based on the quality of their care. Many are also working to improve their relationships with patients and providers, who have been chafing under the industry's aggressive attempts to cut costs.
"The industry is now getting down to the heavy lifting of building providers and consumers back into the process, and that re-engineering requires the participation of physicians," says Carol Emmott, head of the health-services division of global executive recruitment firm Russell Reynolds Associates. "Physician leaders, especially if they have legitimate business skills, can make all the difference in the world. They can be absolutely transformative."
Perhaps the most notable example has been Jack Rowe, a geriatrician and former head of Mount Sinai NYU Health in New York, who was hired in September 2000--in what was then considered a curious move by many financial analysts--to lead Aetna's corporate turnaround.
Although Rowe had no formal insurance experience or advanced business degree, he brought an ideal mix of strategic vision, business acumen and people skills to both rebuild the insurer's sagging bottom line and mend its frayed relations with providers, says Emmott, whose firm led Aetna's executive search. "When you find all of these qualities in one person, it's golden," she says, adding that Aetna had not specifically sought to hire a physician.
As Aetna's new CEO (and now also chairman), Rowe immediately set out to make allies of former enemies, launching a "listening tour" to improve communication with doctors who had been alienated by the abrasive management style of the insurer's former CEO, Richard Huber. "My first priority is to ensure that Aetna has a clear understanding of the needs of its providers," Rowe, 59, told Modern Healthcare when he was hired (Sept. 11, 2000, p. 14).
Soon afterward, Rowe earned praise from the medical community for loosening the insurer's much-criticized preapproval requirements and scrapping its infamous "all products" policy, which forced doctors to take part in all of its plans or none at all.
Aetna fostered further goodwill last year, when it broke from the rest of the industry and became the first insurer to set-tle its part in an ongoing class-action lawsuit filed on behalf of the nation's physicians (Oct. 20, 2003, p. 14). The $470 million deal included $100 million in payments to doctors, $50 million for a healthcare foundation and $300 million to overhaul its claims-processing system.
"Aetna has become a much more physician-friendly company in recent years," says Tim Norbeck, executive director of the Connecticut State Medical Society, which had once run newspaper ads criticizing the insurer. "I think Jack, because he was a practicing physician himself, is a little more attuned to how physicians operate. He was able to put himself in physicians' position, and felt uneasy about the deteriorating relationship between providers and managed care. And he made it incumbent upon himself to improve that."
Rowe, whose background is in hospital operations and education, also earned kudos from Wall Street in 2001 by snagging Ronald Williams, former president of WellPoint's large-employer group, to aid in the financial aspects of Aetna's turnaround. Williams, who is now Aetna's president, holds a master's degree in management from the Massachusetts Institute of Technology and is widely regarded as one of the best minds in the industry.
Together, the two have streamlined Aetna's once-bloated operations while launching new disease-management programs and other innovative products, including one of the industry's first consumer-driven health plans. Just last month, the insurer announced that its financial metamorphosis was finally complete: Having battled back from a 2001 loss of $279.6 million, or $1.95 per share, it now expects per-share earnings of $7 this year and $8.40 in 2005.
"Physicians get dinged all the time for presumably lacking the financial piece. But these are very, very bright individuals who are familiar with such things as debt restructuring and raising capital," says Lois Dister, senior vice president and managing principal of the executive search division of Cejka Search.
A changing market
Still, Rowe is far more the exception than the rule when it comes to an M.D. becoming an insurance CEO, executive recruiters say.
In many respects, Rowe's career trajectory is reminiscent of the early years of managed care, when bright, determined physicians were able to rise quickly through the ranks at HMOs. UnitedHealth's McGuire, for instance, left his private practice in 1985 to become vice president of Peak Health Plan. By 1989, he was UnitedHealth's president and chief operating officer. He assumed the top post just 18 months later.
Much of the managed-care industry was built by physician entrepreneurs, like Sierra Health's Marlon, who launched their own HMOs as a better alternative to traditional indemnity insurance, typically without any formal business education. Health Net's roots, for example, date back to 1985, when neurologist Malik Hasan founded a QualMed, a small, doctor-run HMO in Pueblo, Colo., which evolved into Foundation Health and was later renamed Health Net. And Medicaid giant Molina Healthcare was founded in 1980 by C. David Molina, an emergency room doctor who opened a handful of clinics to treat the poor and underserved in Long Beach, Calif. (The company is now headed by J. Mario Molina, the founder's eldest son and also a physician.)
Many of these managed-care mavericks are still widely respected in the industry for their ability to balance bottom-line growth with a provider-focused approach to business. Norman Payson, a family physician known most recently for reviving a once-ailing Oxford, is credited with founding in 1985 former Wall Street darling Healthsource as a doctor-friendly HMO. And Harris Berman, an infectious-disease specialist who co-founded Matthew Thornton Health Plan in 1971 before becoming chief of Tufts, won praise for growing the latter's membership from 60,000 to 900,000 while emphasizing physician involvement, clinical expertise and preventive care.
"Some of the greatest minds in managed care have been physicians," the ACPE's Horwitz says.
But even some of these managed-care pioneers admit that times have changed.
"With us early guys, our focus was on improving the delivery of care; the rest we picked up as we went along," says Berman, who retired in 2003 after 17 years as Tufts' CEO. "That `learn on the job' approach doesn't cut it anymore with the highly competitive, multibillion-dollar commercial insurance corporations we have today."
"There's still a role for physician-executives in managed care," he says. "I'm just not sure CEO is the right one."
Getting back to business
The annals of managed care are dotted with examples of physician-CEOs who stumbled as the industry consolidated and its focus shifted from local, integrated plans to national, commercial payers.
Take E. Stanley Kardatzke, a family physician and ER doctor who founded and served as chairman and CEO of former HMO giant Physician Corporation of America. Kardatzke was unable to pull the fast-growing insurer out of a financial tailspin, which culminated in 1996 with the company losing $278 million. Facing major debt and threats by state regulators to seize its failing workers' compensation unit, the 1 million-member insurer was sold to Humana a year later for $270 million plus the assumption of $130 million in debt.
Kardatzke, who received a pink slip during the transaction, returned to medicine for a number years and now serves as chief medical officer of America's Health Choice, a 13,000-member, staff-model Medicare HMO in Florida. He could not be reached for comment.
Payson, too, lost the reins of Healthsource during its wildfire growth from a local HMO into the nation's sixth-largest managed-care firm with 3 million members. The company slipped badly in 1996, losing $3.9 million on $1.7 billion in revenue and enduring a 75% plunge in its stock price. It was sold to Cigna Corp. the next year.
These days, physician-executives who aspire to the C-suite face increased competition from their nonphysician counterparts, especially those with business degrees or proven experience on the payer side. Today's health insurers, in particular, are looking for leaders with not only a knack for finance but also a keen understanding of business operations as diverse as underwriting, marketing and information technology, executive recruiters say.
These are areas that "may not be commensurate with physicians' traditional skill sets," Horwitz says. "That's why their transition to the payer side may not be as clear or seamless as it has been with medical groups or hospital systems," which have begun hiring more physicians--and nurses--into their top management ranks in recent years (Sept. 30, 2002, p. 6; April 19, 2004, p. 24).
Craig Keyes, an internist/geriatrician and CEO of UnitedHealth's Colorado and surrounding region, says physicians are typically well-suited to become business leaders because of their ability to diagnose problems and make quick decisions based on the data available. These skills just have to be honed for the insurance world.
"It's not so much having a formal degree as having a sensitivity to the financial issues," says Keyes, 48, who earned an MBA while working at NYLCare Health Plans. "You need to understand business concepts and speak the language of business. ... If you have that, adding clinical skill sets to the mix only helps."
But Michael van Duren, chief medical officer and second in command at 43,000-member San Francisco Health Plan, points out that doctors' clinical backgrounds can sometimes prove to be an extra impediment in their climb up the managed-care ladder.
"Physician-executives often say they hit a glass ceiling (at insurers) because of a general mistrust about their ability to leave their white coats behind. It's like, `Can they really put business issues first, or are they just going to be advocates of the medical community and protect each other?' " says van Duren, 44, an obstetrician-gynecologist who earned an MBA in 2000. "That trust has to be earned."
As such, health plans have largely tended to promote from within or lure top managers from rival insurers when looking to fill their corner offices, executive recruiters say. Internist Kenneth Melani, for example, was tapped as president and CEO of Highmark in 2003 after serving 14 years in various management positions at the Blue Cross and Blue Shield plan. And family physician Michael Stocker was named president and CEO of WellChoice in 1994 after serving executive stints at Cigna, U.S. Healthcare and Anchor, a staff-model HMO affiliated with Rush University Medical Center, Chicago.
"For the most part, (doctors) are not ready for a job as a senior leader coming right out of their direct practice," Cejka's Dister says. "In the business world, it's about paying dues. There are steps they have to take and life experiences they have to gain before they can become CEO."
For obvious reasons, most physician-executives cut their managed-care teeth as medical directors charged with such semiclinical tasks as utilization review and provider contracting. These positions allow them to make use of their clinical skills while acquiring management experience and a feel for the company's operations, Dister says.
Lawrence, who began his decade-long ascent up Kaiser's corporate ladder in 1980 as vice president of medical operations for the Northwest region, says the experience gave him a sense of the business "from the front lines back." The former Peace Corps doctor and public-health administrator worked his way from regional manager for Northern California to chief operating officer before being named CEO in 1991 and chairman in 1992.
Similarly, Melani, who declined to be interviewed, started his career at Highmark in 1989 as corporate medical director in the medical affairs department. Later, as vice president of strategic business development, he successfully led the insurer through contentious negotiations with Pittsburgh's UPMC Health System--an achievement that ultimately helped him edge out other candidates for the top post when Highmark's former CEO retired in 2002.
In a news release, Highmark Chairman John Shaffer said Melani was chosen because of his "strong understanding of the many groups with which Highmark and its staff interacts--group customers, government, healthcare institutions, healthcare professionals and the individuals we ultimately serve each day."
Back to school
Such a climb to senior management could become less arduous as more physicians earn advanced business degrees, experts say.
The number of joint M.D./ MBA programs at medical schools in the U.S. has jumped from 28 in 1997 to about 40 today.
Horwitz says he has seen a spike in the number of doctors taking courses offered by the ACPE, such as the recently launched Physician Executive Leadership Academy. The invitation-only program, which offers training for doctors who want to move from senior medical positions to a top executive post, was limited to 45 physicians this year, but will be expanded because of high demand, he says.
These and other programs not only help physicians acquire skills in accounting, economics and management theory, but also help them to develop the people skills needed for success as a top-flight leader, Horwitz says.
Shaped by their rigorous education and independent practice experience, physicians tend to develop individualistic, take-charge personalities that don't translate well to the business world, where teamwork and the ability to motivate others are virtual necessities. One industry expert who asked not to be identified by name, pointed to Foundation Health System's Hasan who "ran his company like a chief surgeon with aides at his side."
For physicians, the practical benefits of having a business degree are clear. Not only does it typically ease their entry into the business world and speed their ascent up the corporate ladder, it also usually means better pay. According to a study by the ACPE and Cejka, doctors with MBAs who serve as presidents and/or CEOs of healthcare companies earned an average of $350,000 in 2002, compared with $300,000 for physician-CEOs with master's degrees in health administration and $260,000 for those with no postgraduate business degree.
And physician-CEOs at large insurers can earn far more than that. Payson was the highest-paid health insurance executive in 2002, the year he retired from Oxford, reaping $76 million in total compensation, including $73 million in exercised stock options (Aug. 4, 2003, p. 6). UnitedHealth's McGuire topped last year's list for 2003, earning $94.2 million in cash and options. Aetna's Rowe received $18.2 million in 2003, and WellChoice's Stocker $5 million (Aug. 2, 2004, p. 6).
But for many physicians, the lure of a managed-care career is more ideological than financial. After decades of watching healthcare become ever more a business and griping that bean counters were taking over, many doctors are looking to enter the insurance industry so they can affect healthcare on a more global level.
UnitedHealth's Keyes, who founded New York's first publicly funded assistance program for uninsured patients with AIDS, says he was inspired to seek a leadership role in managed care by his brother, who suffered from the condition. His brother's half-serious joke that "Health insurance is great as long as you don't need anything," Keyes says, prompted him to seek "a seat at the table where healthcare financing decisions are made."
It might seem that idealism would be hard to hang onto after physicians move to what many jokingly call "the dark side." But doctors who've made the switch say they can make a difference.
Van Duren, for example, says he is proud to have spearheaded several new programs--including an asthma-management program, a teen obesity project and a child wellness program--since joining San Francisco Health Plan last year. He practiced medicine for seven years before deciding to switch to management, starting as a regional medical director for PacifiCare Health Systems in fall 2000. (He says he ultimately left PacifiCare because it was harder to implement rapid change at such a large company.)
"Ultimately, it came down to how can I really make a difference," van Duren says of his move to the insurance realm. "Rather than helping one patient at a time, I can help the entire system. That's much closer to what we all want written on our tombstones."
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