A boardroom dispute over strategy leaves Health Care Service Corp. in limbo at a time of convulsive change in healthcare.
After three years at the helm, CEO Paula Steiner left the Chicago-based health insurance giant last month—followed by Chief Financial Officer Eric Feldstein. Crain's has learned Steiner clashed with HCSC directors over long-term growth plans at the nation's sixth-largest health insurer. Board members had grown frustrated with Steiner's relatively cautious expansion strategy amid rapid industry consolidation.
HCSC, which owns Blue Cross & Blue Shield plans in Illinois and four other states, has stayed out of the large-scale dealmaking that's reshaping healthcare in the U.S. Under Steiner, the $36 billion-revenue company has focused on its local markets and financial performance. Other big insurers, meanwhile, have engineered multibillion-dollar transactions that obliterate traditional boundaries between insurers, pharmacies and doctors.
"There's a universal agreement that the way health insurance and healthcare overall currently operate is not sustainable," says Doniella Pliss, an associate director at insurance rater A.M. Best. Insurers are under pressure from employer groups, the government and the market "to go out there and do something different."
Among those taking the cue is UnitedHealth Group. The nation's biggest health insurance company paid $13 billion for pharmacy benefit manager Catamaran in 2015 and spent additional billions acquiring physicians groups, including the $4.3 billion purchase of DaVita Medical Group in June.
Last year's $70 billion merger of Aetna and CVS Health joined one of the nation's largest health insurers with its biggest pharmacy chain. The two, which intend to transform healthcare delivery, are in the process of launching a network to provide more vulnerable beneficiaries with access to local resources to address social factors that affect health.
Meanwhile, Cigna bought pharmacy benefit manager Express Scripts for $67 billion last year. And Anthem this year launched its own pharmacy benefit manager, IngenioRx. Humana, for its part, has opened clinics—some inside Walgreens stores—while doubling down on Medicare Advantage business. The insurer says it expects 16 percent growth in the lucrative, fast-growing segment this year.
Under pressure to reduce healthcare costs and improve outcomes for members, HCSC's rivals have found creative ways to get closer to patients. Companies are positioning themselves to become not only insurers but providers of services by building more efficient delivery systems that they can control, Pliss says.
Bulking up has helped larger payers create economies of scale and expand capabilities as the healthcare landscape shifts.
It's clear, Pliss adds, that HCSC's focus has been, "What's valuable for our members today, rather than what's going to be valuable for the market three years from now?"
As competitors have pursued mergers and acquisitions, HCSC has mostly opted to invest in its existing markets and offerings. With 16 million members, HCSC's revenue increased 10 percent to $35.9 billion last year. It's the dominant insurer in Illinois, Montana and Oklahoma—and it's a close No. 2 in New Mexico and Texas, according to data compiled by the Kaiser Family Foundation.
For more than a decade the insurer has partially owned pharmacy benefit manager Prime Therapeutics, along with other Blues plans. And to better control the cost and quality of medical care, it's opening 10 primary care clinics in Dallas and Houston next year. Blue Cross & Blue Shield of Illinois recently opened the Blue Door Neighborhood Center in Pullman, which aims to connect residents with community resources.
Still, HCSC directors worried the company wasn't building the heft and capabilities to keep pace with larger competitors and marketplace changes. Now it needs a new CEO pronto.
HCSC board member and former energy executive David Lesar is serving as interim CEO. A potential contender for the permanent role is newly named HCSC President Maurice Smith, who has been with the organization for more than two decades and led Blue Cross of Illinois before Steiner's departure.
Steiner and Feldstein could not be reached for comment. HCSC declined to make someone available for an interview.
"The person that is the right leader for the last five years may not necessarily be the right person for the next five," says Nate Akers, associate director of healthcare at Chicago-based Navigant Consulting. "This is a good example of proactive corporate governance and, frankly, you don't see that every day."
Moving forward, HCSC will likely seek growth in Medicaid and Medicare Advantage, Akers says. Behavioral health could be another opportunity for the insurer, he adds. But getting bigger quickly, likely through acquisitions, may be the top item on the new CEO's agenda.
"Here's why Health Care Service Corp.is looking for a new CEO" originally appeared in Crain's Chicago Business.