When Joseph R. Swedish was deciding whether to become chief executive of WellPoint Inc., he and his wife sat down with a pad and pen to list reasons why he should go to the troubled health insurer rather than continue leading Catholic hospital operator Trinity Health.
In the hospital category, they listed "unfinished business." But under the WellPoint heading, Mr. Swedish noted opportunities to "restructure [the] company for success," and affect the "transformation of [the] nation's health care."
Now four months into his stint atop the second-biggest U.S. insurer, Mr. Swedish is working to deliver. It is a tall order for the veteran hospital leader, 62 years old, who hasn't been an executive at a health plan before. Much of the federal overhaul law goes into effect next year, and WellPoint may be the company with the most at stake. "It's a revolutionary time in health care," Mr. Swedish said in an interview. "We've got to get this right."
Indianapolis-based WellPoint has a good shot at ending up with the biggest enrollment of any insurer in the new consumer marketplaces the law is creating. Analysts say around a quarter of its revenue, and a fifth of operating earnings, are tied to the consumer and small-business segments, the types of coverage for which the overhaul is rewriting the rules.
On Wednesday, WellPoint unveiled its second-quarter earnings, with net income up 24% to $800.1 million, or $2.64 per share, in the three months that ended June 30, compared with $643.6 million, or $1.94 per share, a year ago. The result, fueled partly by lower-than-expected medical costs, beat analysts' projections. Shares slipped 7 cents to $87.44 Wednesday, after a 26% run-up since the day before its first-quarter results came out.
Mr. Swedish has been operating under intense, and often skeptical, scrutiny. His predecessor, Angela Braly, stepped down last August amid pressure from investors displeased with the company's performance, including earnings shortfalls and public clashes with the Obama administration.
The day after WellPoint surprised Wall Street with its choice of Mr. Swedish last February, its stock dropped 4.6%. Well regarded as the CEO of then-47-hospital Trinity, based in Livonia, Mich., he was an unknown to managed-care investors. Many were expecting an industry veteran who could end what had been seen as a series of operational missteps and position WellPoint for the coming challenges.
The health law's changes, including the new online marketplaces where consumers will buy plans, are "really a minefield they have to manage," said Matthew Borsch, an analyst with Goldman Sachs . Some investors have felt "skepticism or uncertainty around the fact that his background is all around the provider side."
While the new marketplaces, and federal subsidies to help people get coverage, are expected to draw customers, the new business could be unprofitable if pricing and the mix of consumers aren't right, analysts say.
On Mr. Swedish's third day as CEO this March, he sat down with big shareholders in New York, and he had a tough evening session with analysts who quizzed him about why he was chosen over particular insurance executives rumored to be in the running, according to people who attended.
"I don't back down," Mr. Swedish said of the meetings. He said his first task as CEO was to re-establish the "credibility of the company."
In addition to Wall Street, Mr. Swedish has met with Capitol Hill leaders, and was one of several health-insurance CEOs to sit down with President Obama at the White House in April for a meeting focused on the administration's health-law collaboration with the industry.
Investors and analysts offer praise for Mr. Swedish's early moves. Still, they say, it is too soon to judge how well he will handle next year when the law is in full swing—for which the planning was well advanced before he arrived. "Get the basic blocking and tackling done, and build off that," said Rouven Wool-Lewis, a buy-side analyst with WellPoint shareholder T. Rowe Price Group Inc., who has met twice with Mr. Swedish. "That's what we'll need to see."
Friends and colleagues warn against underestimating Mr. Swedish, who keeps a copy of the children's book "The Little Engine That Could" propped up in his office. The Virginia-born son of European World War II refugees, he worked his way through the University of North Carolina at Charlotte loading trucks on a 1 a.m. to 4 a.m. shift, according to his wife, Gene. Mr. Swedish, a father of three, has a competitive streak that comes out during fly-fishing—he was once dragged about 2 miles by a giant tarpon, said friend John Short, before finally reeling in the 135-pound fish.
Inside WellPoint, Mr. Swedish has set a different tone from past leadership, according to current and former employees. He doesn't use the chauffeured SUV the company provided to Ms. Braly for security reasons, and he has downsized the CEO's office staff. In May he reconfigured the company's leadership structure, trimming the ranks of the top executives to seven from 11 but leaving most of the existing team intact.
Mr. Swedish has been touring WellPoint's sprawling operations, taking questions from staffers in lunchrooms. The company has long been seen as tough to run, partly because of its origins as 14 separate Blue Cross and Blue Shield plans. Mr. Swedish has focused on trying to knit together the culture with a new mission statement forged with employee input, as well as more concrete moves like a push to winnow down WellPoint's eight current claims-processing systems, part of a broader effort to upgrade technology infrastructure.
He has also plunged into the company's rollout for the health-insurance marketplaces, called exchanges, quizzing executives about such details as why WellPoint was pricier than a competitor in one local California market. WellPoint has said it would aim for "competitive" pricing and expects profit margins of around 3% to 5% for exchange plans.
On Wednesday, the company projected that exchange enrollment, along with expansion of the Medicaid program and growth in members who qualify for both Medicaid and Medicare, could help fuel an increase in company revenue to $90 billion by 2016, from a projection of $70 billion to $72 billion for this year.
Mr. Swedish argues that WellPoint's assets and brand, among other resources, position it to do well in the new environment. "We are very mindful of the risks," he said in the interview. "We're making our bet and I think we're going to win."
In the wake of a change in how the government pays insurers for privately run Medicare Advantage plans, WellPoint said Wednesday it will scale back by around a third its planned $150 million investment in Medicare expansion, redirecting the money toward the exchanges and expected new growth in self-insured employer clients.
Another key focus for Mr. Swedish, who has argued that his background is well suited for a future in which lines are blurring between health-care providers and insurers, is to forge new ties with hospitals and doctors. These may include joint ventures to offer health plans, WellPoint executives said.
Mr. Swedish is slated to visit hospital-company center Nashville this fall to meet with top executives, including leaders of Community Health Systems Inc., said Community's chief financial officer, Larry Cash, who said he has known Mr. Swedish since they worked at the same hospital firm in the 1990s.
Lloyd Dean, chief executive of Dignity Health, a big hospital nonprofit with a major presence in WellPoint's key California market, said he has talked with Mr. Swedish about "opportunities to work together." The two have known each other for more than a decade.
"We've been on the same side of the table and advocated for the same issues," Mr. Dean said, "and now he's on a different side of the table." He said the two "fall back on the respect" they have as longtime colleagues in the hospital industry, which can help them cut to the chase: "I don't have to hesitate to tell him how wrong I think he is. He doesn't sugarcoat it back, either."
Write to Anna Wilde Mathews at anna.mathews@wsj.com
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