WellPoint Goes Outside Industry to Pick New CEO

After a six-month search, the health insurer announced hospital head Joseph Swedish will fill its vacant chief executive role.

Insurance Networking News, February 13, 2013

Drew Armstrong and Alex Nussbaum, Bloomberg News

WellPoint Inc., the second-biggest U.S. health insurer, picked a new CEO from outside the industry who says his work with hospitals and doctors will help smooth the insurer’s path in a time of change.

WellPoint named Joseph Swedish, 61, CEO of the nonprofit Catholic hospital system Trinity Health Corp., as its next leader after a six-month search. He replaces Angela Braly, who left WellPoint last year amid investor discontent over the Indianapolis-based insurer’s performance.

The insurer fell the most in three months in New York trading, with analysts saying the pick wasn’t likely to go down well with shareholders. Swedish lacks the extensive insurance experience that investors were looking for to turn around a company that has struggled to control medical costs and meet profit forecasts, said Carl McDonald, a Citigroup analyst based in New York.

“Swedish may ultimately be viewed as the best CEO in the history of managed care,” McDonald wrote in a note to clients today. “But it’s likely going to take the market some time to figure out if that’s the case,” he said.

The concern with picking a hospital CEO to run WellPoint is that almost all of the company’s earnings and “problem areas” come from the health insurance business, McDonald wrote.

Shares Fall

WellPoint, the top seller of small business and individual plans, fell 3.4 percent to $63.78 at 9:56 a.m. New York time, after dropping as much as 4.4 percent in its biggest intraday drop since November. The new CEO will be under pressure as the U.S. health-care law transforms insurance markets starting next year, said Sheryl Skolnick, an analyst at CRT Capital Group in Stamford, Connecticut.

“I don’t think this is the time to experiment,” Skolnick said in a telephone interview. “Bringing a little hospital knowledge to a health plan won’t hurt. But not hurting, in my view, isn’t enough.”

Swedish headed Livonia, Michigan-based Trinity Health, a system of 47 hospitals in 10 states, since December 2004. He said his hospital experience and financial results were plenty relevant to the health-insurance industry.

‘Fundamental Shifts’

“There are some very fundamental shifts going on that represent a convergence of the provider and payer sectors,” Swedish said yesterday in an interview. He plans to focus on tighter coordination with doctors, investing in information technology to help consumers learn more about their care choices and working to bring medical costs down.

Swedish said his first job when he takes over March 25 is reassuring WellPoint’s investors.

“What I’ll be working on in the coming weeks and months is developing a significant, credible, strong story regarding the growth and performance of this company,” Swedish said. “That’s what the investor community wants to hear. I think they want to get a strong sense that we are in fact predictable and reliable.”

Before Swedish’s selection yesterday, investors and analysts had focused on industry candidates, including Ronald Williams, the retired head of insurer Aetna Inc., and James Carlson, who ran the Medicaid insurer Amerigroup Corp. and engineered the sale of his company last year to WellPoint for $4.9 billion. Also rumored was interim CEO John Cannon, who served as WellPoint’s general counsel and will remain with the company.

Surprising Choice

WellPoint shares had gained 2.9 percent over the past 12 months through yesterday, as the top U.S. insurer, UnitedHealth Group Inc. of Minnetonka, Minnesota, rose 6.9 percent.

Swedish said his lack of recent for-profit experience wasn’t an issue. “We may have been non-tax, but that doesn’t mean we were nonprofit,” Swedish said of his time at Trinity. “Our performance statistics rivaled most organizations, even the investor-owned. I’m not going to hide from that fact.”

WellPoint will pay Swedish a salary of $1.25 million, with a bonus of as much as $3.75 million more, according to a company filing with U.S. regulators. He will also get stock options this year worth as much as $8 million and $3.56 million to compensate for leaving Trinity.

It’s not clear whether Carlson, of Amerigroup, will stay after not getting the top job. He signed a two-year contract to remain with WellPoint after the deal closed in December. The contract allows for the two sides to part under “changed circumstances,” Citigroup’s McDonald said.

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