Corporate Research Group’s Weblog

WellPoint’s firing “without cause” of its third highest ranking executive Dijuana Lewis, 51, was actually a mutual decision tied to her dissatisfaction with an organizational change that shifted some of her responsibilities to a newly formed business unit, according unnamed sources quoted in the Indianapolis Business Journal, where the company is based.  More in this week’s issue of Health Plan Market Trends Letter.

Citi analyst Carl McDonald has downgraded WellPoint Inc. to “hold” from “buy,” in part because shares in the company have done well of late.  “WellPoint’s stock is up 11% over the last three months, and it now trades at 9x [i.e., nine times projected 2011 earnings], which we think is a fair multiple given how much reform related exposure the company has,” McDonald says.

“Like many other plans in the industry, WellPoint’s growth opportunities are limited, and margin expansion will be difficult,” McDonald says.  He expects WellPoint’s commercial risk membership to fall in 2011 — as more employers go self-insured.  He also expects margins to be capped by minimum MCR regulations.  The establishment of insurance exchanges in 2014 will impact WellPoint’s individual and small group business, historically an area of strong profitability for the company, McDonald says.  “The standardized benefits on the exchange will commoditize the products, and make premium rates the primary variable consumers will [look] at in selecting a plan,” he says.

I’ll have more to say in my weekly newsletter Health Plan Market Trends on last week’s two big health plan management changes:

1. Aetna announced that chairman and chief executive Ron Williams, 60, (my choice for the smartest guy in managed care) was retiring from the company.  Aetna president Mark Bertolini, 54, will take over the CEO slot effective Nov. 29 and join the company’s board.  Williams will hold the title of executive chairman until April 2011, after which Bertolini will become chairman as well.

2. WellPoint fired Dijuana Lewis (my choice for the best name in managed care) without cause from her position as president and chief executive of the company’s comprehensive health solutions business unit, according to an SEC filing.  She will remain with the company through 2010 to “assist in the transition of her duties.”

Meanwhile, here’s what Forbes columnist David Whelan had to say about Williams (click here) and Lewis (click here).

Deadly Spin
by Wendell Potter
Bloomsbury Press, 2010

Reviewed by Carl Mercurio

About forty-five thousand people die in America every year because they have no health insurance.  I am partly responsible for some of the deaths making up that shameful statistic. – Wendell Potter, Deadly Spin

Who in the managed care industry could forget Wendell Potter?

He’s the former health plan public relations executive who skewered the industry in Congressional testimony last year – playing the role of “whistleblower” during the final months of the healthcare reform debate. 

Now, two years after pulling the plug on a 20-year managed care career and a six-figure job as Cigna’s top PR man, Potter has released a tell-all book: Deadly Spin: An Insurance Company Insider Speaks Out on How Corporate PR is Killing Health Care and Deceiving Americans.

What’s truly novel about Deadly Spin is that it provides an inside look at how health insurance industry spinmeisters mobilize to justify the actions of health plans that deny care, to discredit supporters of healthcare reform, and to position the industry as “part of the solution” to our healthcare problems.  The formula: extensive use of industry-funded front groups, fearmongering campaigns, disinformation and reliable industry allies (third-party advocates and pundits) to disseminate pro-health plan messages that can’t be traced to insurers.

Potter describes, for example, a successful stealth campaign in the late 1990s to kill the Patient’s Bill of Rights – which would have required external review of health plan coverage denials.  He outlines how the industry hired PR firm Porter Novelli to form the Health Benefits Coalition as a front to conduct “a fearmongering campaign” to convince the public and lawmakers that the bill would lead to “a tidal wave of frivolous lawsuits that would cause health insurance premiums to skyrocket.”

In another example, Potter describes the use of PR firm APCO Worldwide in the industry’s campaign to bash Michael Moore’s HMO-bashing documentary Sicko.  APCO established a front called Health Care America to place industry-friendly advertising, news and commentary — a strategy the firm had used in its work with Big Tobacco.*  (See my review of Sicko).

Cigna itself used a similar strategy in the case of a 17-year-old health plan member who died of cancer after being denied coverage of a liver transplant, hiring APCO “to place stories with reporters, editors, and producers it had good relationships with and to get ‘third parties’ to convey Cigna’s messages.”

Potter’s Epiphany

It’s commendable that Potter has come clean about his role in the industry’s PR machine.  (More broadly, Deadly Spin gets a lot right about what’s wrong with the U.S. health insurance industry — albeit, much of it well-covered ground). Still, it’s hard to feel much empathy for a guy who was paid handsomely to lie to news reporters, deceive the public, demonize the uninsured, suppress HMO horror stories, and undermine efforts to reform the U.S. healthcare system – all with very little remorse.

I didn’t feel then that we were doing anything unethical or underhanded.  We were all well read and well educated….We all wore nice clothes and ate at the best restaurants and had kids in good schools and houses in the right zip codes.  We knew people in Congress and the White House.  We talked every day to reporters at the Wall Street Journal and the New York Times.  We were powerful and influential….The American dream didn’t get any better than this.

Potter can also sound a bit presumptuous at times, such as when he says of his Congressional testimony: “Telling the truth is very cathartic. I highly recommend it” – advice that’s probably unnecessary for those Americans who never made “deep into six figures” or ate off gold-rimmed dishes on corporate jets and yet still managed to tell the truth for much of their lives.

Potter’s says his epiphany came in 2007 in Wise County, VA, in the southern Appalachians at a health fair organized by Remote Area Medical – a relief group founded to deliver basic medical care to third-world countries and now meeting similar needs among the uninsured and underserved in the U.S.

Hundreds of people, many of them soaking wet from the rain that had been falling all morning, were waiting in lines that stretched out of view….Some of those lines led to barns and cinder block buildings with row after row of animal stalls, where doctors and nurses were treating patients….Those people in Wise County would not have had to stand in line in the rain for hours to get care in animal stalls if so much of the money Americans spend for health care didn’t wind up in the pockets of insurance company executives and their Wall Street masters.

The Last Straw

Potter cites three other drivers of his 2007 spiritual awakening.  The first: He attended the first U.S. public screening of Sicko, which depicts the very type of HMO horror stories Potter had worked so hard to suppress over the years.  “I had to fight to hold back tears,” he writes.  (The next day, Potter relates, APCO launched the industry’s campaign to discredit Moore and Sicko).

The second: The case of Nataline Sarkisyan, the 17-year-old Cigna member who lost a three-year battle with leukemia after initially being denied coverage for a liver transplant.  (A week later, Cigna reversed its decision in the face of public protests; however, Sarkisyan died before the procedure could be attempted). 

Sarkisyan’s case is a complex example of a very real problem: what happens when an insurer denies coverage to one of its own sick members.  It’s complex because Sarkisyan was a very sick woman.  She was suffering serious complications from a bone marrow transplant, and she was on life-support.  Other credible independent transplant specialists also questioned the efficacy the procedure.  Nor is it clear the transplant would have been approved in nations with nationalized healthcare.  Even Potter admits, “Who was right?  The reality is that in many cases no one ever knows.”  The real issue is that a conflicted for-profit company shouldn’t be making this kind of decision.  (See Maggie Mahar’s excellent coverage of the Sarkisyan Case).

Potter had to spin the story of Sarkisyan – a girl just three years younger than his own daughter – and that was the last straw for him: “I didn’t feel up to the task of spinning.  I felt, instead, burned out.”  But he did spin, and shortly after, quit.

It’s ironic that such a complicated case pushed Potter over the edge – as opposed to a clear-cut example of a health plan denying warranted coverage.  All of which brings us to the final driver of Potter’s spiritual awakening: he quit drinking on Oct. 17, 2006.

If I had not quit drinking, I would not have been affected by Sicko the way I had been, and I probably would not even have thought about going to the [Remote Area Medical] expedition in the first place.  I also doubt that I would have allowed myself to get so emotionally involved in the life and death of Nataline Sarkisyan.

The alcohol made him do it?  Just kidding.  But Deadly Spin does feel like the story of a 50-plus American executive who has a midlife crisis as much as it’s about one man’s realization that spending 20 years lying to cover-up the unconscionable practices of the health insurance industry is a bad thing:

I couldn’t get out of my head the nagging belief that I was put on this earth to do something much more important than what I had been doing for the last twenty years.

Dude, what guy in his fifties doesn’t feel that way?

*Addition, Nov. 23, 2010: Potter later clarified that APCO originally formed Health Care America with funding from the pharmaceutical industry.

As far as I can tell, the key to the Justice Dept.’s antitrust lawsuit against Blue Cross Blue Shield of Michigan isn’t that “most favored nation” clauses in hospital contracts guarantee a health plan receives competitive prices for medical services; rather it’s the allegation that the clauses provide BCBS-MI with a competitive edge by driving up the cost of doing business for competing plans.

Attorney Art Lerner of Crowell & Moring (Washington) tells me that MFN clauses aren’t inherently illegal.  They can be legitimate hedges in long-term contracts to ensure a health plan pays no more than the “market price” for provider services.

Concerns may arise, however, when a health plan’s market share is so big it can effectively set the “market price.”  For example, a hospital would think twice before offering a small health plan a discount to win its business when any gains would be outweighed by having to provide the same low rate to a market-dominant MFN plan.

The Justice Dept. argues that BCBS-MI goes even further, in some cases stipulating that competing health plans must pay up to 40% higher rates.  BCBS-MI has even agreed to increase the rates it pays a hospital in order to win MFN status, the Justice Dept. says, “thus buying protection from competition by increasing its own costs.”

Strong words — even for a guy like me who has a brother named Rocco.  But more important, Lerner argues, is whether BCBS-MI is using its size in combination with MFN clauses to lock out the competition.  According to the Justice Dept., BCBS-MI has a 60% statewide market share (although that share may vary considerably by city and county) and at least 70 of the Michigan’s 131 hospitals have MFN clauses in their contracts with BCBS-MI. 

BCBS-MI defends MFN clauses in general, noting that it’s bad business “to reimburse a provider at a higher rate than we can otherwise negotiate.”  BCBS-MI adds that “low cost guarantees are widely used in a variety of contracts in a number of industries.” 

The Justice Dept. says it will challenge misuse of MFN provisions by health plans nationwide – a potential problem for other BCBS plans like WellPoint, which tend to use MFN clauses the most, says Charles Boorady of Credit-Suisse.  Boorady adds, however, that WellPoint’s contracts don’t appear to “require competitors to be priced higher,” only that WellPoint gets the same discounts as competitors.

The lawsuit also has potential antitrust implications for hospitals, says David Marx of McDermott, Will & Emory.  “Healthcare providers should exercise caution in agreeing to explicit price differentials between an insurer and its competitors, especially if that insurer has a dominant market share,” he says.

HHS Secretary Sebelius is asking states to help ensure that health plans continue to offer child-only coverage in the individual market.  In a press release, she notes that health plans Kaiser and CareFirst will offer individual child-only policies in Maryland through uniform open enrollment as part of an agreement with state regulators.  She also points to a new California law that would bar health plans from the individual market for five years if they refuse to offer new child-only policies. 

Several health plans stopped offering new individual child-only policies after Sept. 23, when healthcare reform made it illegal to deny coverage to sick children (i.e., kids under 19 with pre-existing conditions).  Health plans argue that the lack of a strong mandate forcing people to buy insurance will result in adverse selection, i.e., the healthy will avoid buying coverage while the sick sign up.  Adverse selection can intensify when a plan exits a market, leaving other plans holding the bag.  Plans also worry people will game the system — i.e., wait until a child is sick before buying coverage.

“While we recognize industry concerns about adverse selection, we believe that there are options other than abandoning families who seek this coverage, as evidenced in states with similar laws already in place,” says Sebelius.  For example, she says federal law doesn’t prohibit the establishment of uniform open enrollment periods, adjustment of rates by health status (until 2014), and surcharges for people who drop coverage and then reapply.

Mary Brainerd, chief executive of HealthPartners (St. Paul, MN), which has stopped offering new individual child-only policies (a tiny part of its business), says a uniform open enrollment period in which every plan participates simultaneously is key.  Otherwise, she says, “There isn’t an insurance company in the country that is going to promote its open-enrollment for sick kids.”  She said health plans are calling for a similar solution in Minnesota. 

In Colorado, for example, insurance regulators recently passed emergency regulations establishing a uniform open-enrollment period for individual child-only policies.  Kaiser and Rocky Mountain Health Plans agreed to offer the policies in the state.

As for Maryland, the uniform open enrollment periods will be in January and July.  For Kaiser, individual child-only insurance will be a new product offering in Maryland. CareFirst had already offered the product in the state as had Aetna.  According to Maryland acting insurance commissioner Beth Sammis, Aetna is still considering whether to sign on to the uniform open enrollment agreement.  I’ve put a call into Aetna for comment and will let you know if I hear back.

(Note: edited 10-18-10 to add Colorado information).

Charles Boorady of Credit-Suisse has initiated coverage of Aetna (NYSE: AET) with a “neutral” rating:

AET is a leading diversified employee benefits organization that is navigating successfully through a repositioning year, which includes increasing yields and bolstering underwriting margins….AET must avoid a whole litany of landmines which are present in managed care, including regulatory risk, especially guarantee issue, minimum loss ratio and rate review….and funding challenges associated with the MA and Medicaid programs.