Blues try to regain footing

April 03, 1994|By Patricia Meisol | Patricia Meisol,Sun Staff Writer

William L. Jews wasn't quite sure what he had stepped into when he took over embattled Blue Cross and Blue Shield of Maryland one year ago.

"I started out apprehensive," recalled Mr. Jews, chief executive of the giant insurer. "Then I went through a phase of focusing on the issues."

There was a lot to focus on.

After all, the state's largest insurer was almost insolvent. It had the worst customer service record of any Blue plan in the country. It was losing market share, angering corporate clients with its arrogant "love it or leave it" attitude, even as competitors flooded the state with cut-rate deals. It faced a public relations crisis after it was discovered that the company's previous chief executive was paid more than $900,000 and a U.S. Senate subcommittee exposed the Maryland Blues' poor financial health and mismanagement.

Underscoring the depth of its problems, two former executives of the company were indicted by a federal grand jury last week on charges of defrauding more than $1 million into businesses in which they held a secret interest.

Mr. Jews set out immediately to try to regain the credibility and integrity the Blues had lost.

Since then, the insurer has made inroads -- reorganizing its sales force, modernizing its products, shedding some assets to shore up finances, and repairing relationships with customers, lawmakers, regulators and physicians.

Mr. Jews said results in the first two months of 1994 exceeded expectations, and he insists the insurer is positioned to reverse the trends that have clobbered Blue Cross and Blue Shield.

At the same time, he acknowledges that much remains to be done.

"You don't kind of snap your fingers and say everything will change overnight. I'm afraid people have amnesia. Everybody has to realize it took three or four years for this company to end up in the position it did at the end of 1993," Mr. Jews said.

The company hasn't been able to make the kind of dent in expenses it needs to compete with the competition. And despite improvements, it remains on probation for poor service on federal contracts.

Furthermore, it still can't turn a profit in one of its most important businesses -- managing health care plans for others. And it faces daunting competition: the market is flush with national and regional companies anxious to gain market share before national health reforms kick in.

In 1993, only about half the insurer's $71 million profit came from operations. The rest resulted from selling assets, which helped boost Blue Cross' reserve to safe levels. Its reserve is now $98 million, up from an unacceptable $9 million in December 1992.

To remain profitable, the insurer must make money on its base business and lure new customers into its health maintenance organizations, neither of which did as well as expected last year.

Barring one-time accounting changes, revenues from its base business operations last year actually fell because of continued losses on its biggest chunk of business -- managing health care plans for self-insured corporations.

This business -- ironically called "non-risk" because the corporations pay their own medical bills -- lost $12 million last year, up from $10 million the previous year.

In the past those losses stemmed in part because the Blues underpriced services to win market share, but they had promised to stop under orders from state regulators. Regulators said the practice was unfair to individuals and small businesses, who were forced to pay higher prices.

Extra liabilities

John M. Friesen, acting chief financial officer, said losses grew in 1993 because Blue Cross discovered extra liabilities on several big accounts and had to put aside money in anticipation of more medical bills from them. He and Mr. Jews insisted that the practice of pricing below cost to win market share has stopped.

"We are striking a balance between gaining market share and profitability," Mr. Jews said.

He predicted that that end of the business would be profitable this year. But state insurance commissioner Dwight K. Bartlett is skeptical.

"I am not satisfied they have a plan," Mr. Bartlett said, adding he has called in Blues officials to detail what they will do to turn around the business.

Mr. Bartlett also is puzzled by the Blues' decision to stay with another money-loser -- processing Medicare claims.

The Blues lost $4 million last year in that area. Even so, they agreed to process claims this year at a lower price to keep the prestigious contract. Although plagued by overpayments to doctors and hospitals, Mr. Jews predicts the Blues will make a profit on that business this year.

In the first year under Mr. Jews, a strategy has begun to emerge for Blue Cross and Blue Shield. The company has begun aggressively pricing its products, hoping to broaden its base of customers before state and national health care reforms take effect.

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