Rivals keep revamped Blue Cross under siege

October 30, 1994|By Jay Hancock | Jay Hancock,Sun Staff Writer

In 18 months since William L. Jews became its president, Blue Cross and Blue Shield of Maryland has sold two businesses, scrambled its organization chart, cut staff by hundreds, repaired its profits and quadrupled its net worth.

Now comes the hard part.

Blue Cross is still under siege. Although its financial turnaround has pleased regulators, Maryland's biggest health insurer is far from posting a clean checkup. Its finances are still below grade by some measures.

Worse, rivals continue to swarm, paring prices, swiping customers and threatening Blue Cross' long-term franchise. Competition in the state has never been more intense, say people who buy or sell health policies. "It's sort of frenzied," said Elaine Johnston, benefits director for Baltimore Gas and Electric Co.

As the 10-ton whale of Maryland medical coverage, Blue Cross has the most business to lose and less room to adjust. It is trying, nevertheless. In doing so it is sending waves over patients, employers, doctors and hospitals.

Nine days ago the insurer announced it would cut 350 more jobs -- 9 percent of its work force -- as part of several sharp price reductions. It may increase pressure on physicians and hospitals to cut prices. It might buy more HMOs.

"What we're trying to do is appropriately reduce our costs and price our products right," said Mr. Jews, 42, an Eastern Shore native who ran his first hospital at age 29.

More drastic changes could follow. A Blue Cross subsidiary might soon be quoted on stockbrokers' tickers along with General Motors and IBM. The company is seriously considering trying to sell stock in its HMO division -- a sharp and possibly controversial reversal at historically not-for-profit Blue Cross, according to interviews with executives.

That might not be all. If Blue Cross of Maryland keeps losing customers, it could eventually be forced to merge with a nearby Blue Cross plan or some other insurer, analysts said. It may have to merge even if enrollment grows.

Maryland Blue Cross isn't involved in any merger discussions now, executives said. Even so, financial analyst Thomas Hodapp believes that one-state plans like Maryland Blue Cross will become increasingly scarce.

"We're in the very early stages of, basically, the restructuring of the [health insurance] market," said Mr. Hodapp, who follows the industry for investment house Robertson, Stephens & Co. in San Francisco. "I think we're going to see massive consolidation."

Upheaval at Blue Cross vividly shows that health care change hasn't been slowed by the failure of federal reform legislation this year.

To understand why many physicians' pay won't rise as fast in the future, look at Blue Cross. To see why medical costs are moderating, at least for now, check Blue Cross. To learn why you're likely to get new choices in medical insurers and less choice in doctors, examine what's going on at Blue Cross.

The Owings Mills-based insurer "is having a tough time," said Robert Davis, executive director of the Maryland Health Cost Coalition.

But, he said, "they'll land on their feet. . . . They still have formidable market share, and they're still a formidable company. We're not talking about Studebaker here. They can shape prices just because of their size."

Blue Cross was a wreck when Mr. Jews arrived in April 1993. Its computers were clunky. Its claims service record was among the worst of Blues nationally. Its net worth had plunged from $121.9 million in 1985 to $24.9 million in 1992. It had been harshly criticized by legislators in Washington and Annapolis for allegedly excessive pay and perks for executives. Most of its top managers had left.

Mr. Jews, a methodical, analytical manager partial to expensive suits and long sentences, has spent much of the time simply stabilizing the business. He unified Blue Cross' multiple sales forces, dropped a big, money-losing job of processing Medicare claims and sparked a sharp improvement in service.

"We've had a lot fewer complaints," said William F. Simmons, president of Group Benefit Services Inc. in Lutherville.

Now bigger change is coming, and the company's already-traumatized 3,700 workers are on edge again.

Layoffs by year-end are inevitable, executives said, although they're trying to eliminate some of the 350 positions through attrition. Managers are huddling behind closed doors to plan the reduction. Few of the company's workers know who'll get hit.

"The morale here is absolutely awful," one worker said.

Employee chats by Mr. Jews and other executives haven't eliminated bitterness that Blue Cross is firing people even as its profits are growing, and so close to the holidays. The company has strengthened security, making guards more visible and adding surveillance cameras in its modern office buildings and parking areas. The measures are partly the result of a routine security study, Mr. Jews said.

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