Monday, May 17, 2010

Reading Between the Lines: "Scrappy" WellPoint as an Illustration of Contemporary Health Care's Flaws

Giant US for-profit insurance company/ managed care organization WellPoint has provided numerous examples of problems with the current way health care organizations are lead.  Here we discussed charges that recent rate increases by its Anthem subsidiary may have violated previous agreements not to directly fund from premiums the golden parachutes of executives who left after the merger of Anthem and WellPoint; that WellPoint used magical accounting to make administrative costs appear to be from patient care; and that WellPoint investigated patients who developed cancer to find minor errors in their policy applications, and  used these as excuses for post-hoc cancellations (rescissions) of their policies.  And here we discussed a long list of WellPoint's previous ethical issues.

Recently, Reed Abelson penned a discussion of WellPoint's leadership in the New York Times, entitled "A Scrappy Insurer Wrestles With Reform."  Reading between the lines suggests some fundamental flaws in our current model of leadership for health care organizations.

The Halo Effect

Over long years of service in the last century, many health care organizations built up sterling reputations. Blue Cross and Blue Shield health insurance plans, which were all originally not-for-profit, regionally (state-wide) based organizations, became known for paying for care rather generously and with little fuss. (However, in retrospect, this may have certainly contributed to rising health care costs.)  However, their reputation was clearly for good service leading to generous care.

However, in the last 20 years, many of these plans converted to for-profit corporations, and/or were bought out by for-profit corporations. WellPoint is now a for-profit corporation that operates many subsidiaries that still do business as "Blue Cross" and "Blue Shield."

Over the last decade, WellPoint has become one of the nation’s largest insurers by buying up the Blue Cross plans that dominate the individual and small group markets in their states.

[WellPoint CEO] Ms. [Angela] Braly argues that WellPoint is well positioned because of its size and the strong appeal of the Blue Cross name. 'We have a lot of historical strengths,' she said in an interview

However, it is likely that the "strong appeal" of many of these Blue Cross plans is based on a halo effect. Many individuals and small businesses may still think that the plans are relatively local, not-for-profit organizations. If not, they may still believe the plans are run as mission-driven organizations, not subsidiaries of a massive for-profit corporation.

Thus many health care organizations may so profit by an outdated "halo effect." People may not realize that leadership of these organizations is no longer a calling, but a way to become very rich.  The strong appeal of the Blue Cross name may, in fact, be misleading.  Such confusing, if not deceptive marketing has become a hallmark of our era of commercialized health care.

Market Domination and Health Care Costs

Prior to almost every merger, one hears an argument that larger organizations and corporations are more efficient, and hence will charge lower prices and lead to lower costs. Mr Abelson wrote,
WellPoint now has about 34 million customers, putting it ahead of the UnitedHealth Group in membership, and $60 billion in revenue, second behind UnitedHealth. While UnitedHealth and the other national companies tend to focus on providing services to large employers with workers in multiple locations, WellPoint’s focus has been on the local markets. Its strong presence allows it to demand the lowest prices from doctors and hospitals, while still offering customers a broad network of providers from which to choose.

I doubt there is any good data to show that such market power has resulted in lower premiums or lower health care costs.

In fact, Mr Abelson also wrote,
Because of its dependence on the higher profit margins of its traditional business, WellPoint has also not been as adventurous in trying new approaches,....

If WellPoint really meant to use its market dominance to force down its costs, it appears that the main beneficiary of this has been the company's profit margin, not its policy-holders.

Starting in 2014, WellPoint and its competitors will have to offer coverage to anyone who wants it, including people with potentially expensive pre-existing conditions, rather than carefully selecting the people they are willing to cover. As soon as next year, insurers will also have to spend at least 80 cents of every dollar they collect in premiums on providing health care to individual customers.

So WellPoint used its market power to "carefully select" the people it insured so as to avoid anyone who might get sick, thus making a mockery of the concept of health insurance. Furthermore, the implication is that WellPoint spent more than 20% of premiums on management and administration (including the breathtaking compensation of its top leaders), and less than 80% on actually paying for health care.

As Mr Abelson noted, (as we did here), just how personally remunerative WellPoint's market power has been for its top leader:
Ms. Braly, ... received $13.1 million last year in compensation....

In fact, as we should have learned in this country more than 100 years ago, market domination leads to higher profits for the dominant company, higher compensation for its employees, and higher prices. However, in health care, for some reason people still believe that concentration of power leads to efficiency.

Health Care Leaders Who Know Little About Health Care

Ms Braly appears to have no direct experience, training, or expertise in health care, medicine, public health, or biologic science.
Ms. Braly, 48, a native of the Dallas area who received a law degree from Southern Methodist University, worked as a lawyer before she became general counsel to a small Blue Cross insurer in Missouri. She eventually ran that company, which is now part of WellPoint. Before being picked for WellPoint’s top job in June 2007, Ms. Braly worked as both a corporate executive and the company’s general counsel.

Her selection as C.E.O. surprised many analysts and investors. While some believed that she would bring a warmer touch to the company, others worried that she did not have enough years as a manager to navigate a highly regulated and often highly political environment.

In the last year, WellPoint became a favorite example of Congress and the administration for why health care overhaul was needed. Even people inside the industry say the company has been painfully slow to recognize consequences of some of its controversial actions, whether canceling a sick patient’s coverage or raising premiums on policies that lawmakers already call too expensive. And some say that Ms. Braly’s quickness to argue with WellPoint’s critics, revealing her training as a lawyer, is not always productive.

'WellPoint is the most incredibly tone-deaf insurance company in an industry full of deaf executives,' says Mr. Laszewski, the Virginia consultant. He criticizes Ms. Braly, who received $13.1 million last year in compensation, as being insensitive to the politics involved in running a health insurer, at both the state and federal levels. 'I don’t think she has the scar tissue and experience,' he says. 'I don’t think she has the marketplace instincts.'

Ms. Braly says her experience in government affairs makes her well suited for handling a complex regulatory environment.

Ms. Braly's background was cited as unusual for a health care CEO not because she has no obvious experience in direct health care, or its scientific or social scientific bases, but because she is a lawyer, not an MBA. It is interesting that we as a society have become so used to health care run by businesspeople that nothing in the article even obliquely suggested that Ms. Braly could benefit from some direct knowledge of or experience in caring for patients (or in biology, epidemiology, public health, etc), much less some sympathy for the values of health care professionals.

So I submit that this profile of the leadership of WellPoint provides another reason to reconsider why we have journeyed so far from an era when the AMA asserted, "the practice of medicine should not be commercialized, nor treated as a commodity in trade."  Current commercial health insurance (and the power that generally has been concentrated in large health care organizations) has certainly turned medicine into a commercialized venture, and treated the work of the individual health care professional as a commodity in trade.  Yet so far, what we have called health care reform in the US has just reinforced the power of large health care organizations. 

It also suggests that true health care reform ought to address the power now concentrated in large health care organizations, and ought to foster more honest and less profuse marketing by companies lead by people who have some knowledge of health care, and sympathy for its values.  We need to reinforce the neglected idea that health care ought to be a calling, not simply a way for some to become rich.


Linda said...

Interestingly it is saying that it suggests that true health care reform ought to address the power now concentrated in large health care organizations. May be this will be the main motive of health care organizations.

Prate said...

I don't like those health care organization personally, most of them won't treat you nicely unless you are kind of Bill gate or Mark Zuckeberg.