Name: Ronald A. Battista
Position: President, Blue Cross & Blue Shield of Rhode Island
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Backround: A Blue Cross employee for 27 years, he was executive vice
president from 1988 to 1998
Education: Bachelor’s degree from Rhode Island College
Age: 50
Family: Married, with one son
Residence: South Attleboro
PBN: What is the relationship between Blue Cross/Blue Shield of Rhode
Island with other similar agencies around the country.
Battista: Blue Cross and Blue Shield of Rhode Island is a member plan of
an association of plans. There are approximately 55 plans throughout the
country. Our home office is in Chicago. As an association there are a
loose knit set of rules we have to play by in terms of how we have to
market the use of the name. But in general we have a lot of flexibility
in our own marketplaces. So it is not the same as all of us working for
one big nationwide company.
Financially do you stand alone?
Historically we have stood on our own. The association, however, has a
very aggressive monitoring process to make sure that to keep the name in
your service area you are meeting their financial benchmarks.
Blue Cross of Rhode Island had two successive years of losses,
estimating something like a $22 million loss in ’98 as well.
That’s correct.
Is that a third year.
That’s a third year.
Compare that with other Blue Cross agencies around the country.
That’s a difficult question. We are so different. For instance, the
first two losses, the first two years of losses were primarily
intentional losses, intentional draw downs of our reserves to invest in
our HMO (Blue Chip). Whenever you develop a new company, a new product
line, you have to expect that. It was a tremendous investment. We had to
make sure that we received all the accreditation we needed, that we had
the medical infrastructure that we needed in order to do business. There
was a known investment in Chip that we made the first two years.
The third year, however, was not the year we had hoped. We did have
three or four major reasons for those losses. Most of the losses were
unanticipated.
What were some of those reasons.
First, we had the meningitis scare. That resulted in a $2 million to $3
million hit that was not in the rates. We participated in the
vaccination of the general public. Second, we had a number of major
accounts whose rates were not sufficient. We have since worked with
those accounts to make those rates are self-sufficient. We did have some
regulatory delays that hurt, specifically our pharmacy network and the
mental health network. The pharmacy network has now been approved. We
are hoping that in the not-too-distant future the mental health network
will be approved. And last, but not least, Medicare risk, a new business
venture where the Medicare program is in essence replaced by a privately
financed program, us being the financier. That program has had some
growing pains. Those are probably the four major areas of losses in
1998.
Any reaction, any benefit to Blue Cross with Tufts pulling out one of
its products.
Probably not, at least in the short run. That product, as I understand
it was not their premier product. And as such I don’t believe there are
that many people enrolled in that product. There probably will not be a
short-term benefit from that. My understanding is that Tufts is still
aggressively pursuing the Rhode Island marketplace.
Do you feel the market is becoming oversaturated?
I think there is a little bit of a misnomer that competition is good.
That would typically be an accepted statement. I’m not sure that is the
case with health care. There’s a lot to be said for a well-regulated
monopoly, in my estimation, in health care. If you take a look at all
the redundant activities that have to take place in Rhode Island today.
The lobbying efforts, the computer efforts, the subscriber service,
advertising and so forth. Everybody is doing that. Those are all
redundant activities that the subscribers of our respective plans have
to pay for. Imagine if all of those redundancies were to go away. There
would be huge, huge savings from that alone.
Getting to rates. We have a lot of businesses, no matter who their
insurer is, projecting rate increases from 8 percent to 25 percent. What
are you projecting for Blue Cross?
We’re hoping that in the large group market, the groups over 50, we’re
talking about the high single digit numbers. That would be pretty good
rate increases, all things considered. The small group, the market is a
little different. That is a market quite frankly we see most of our
competitors leaving. Smaller groups are more volatile. A group of two or
three could be here today, gone tomorrow. So they’re more volatile, but
they also require much of the same efforts, despite their size, as a
large group, in terms of marketing, administration and so forth. You’ll
see rate increases in the small group market, probably in the mid to
high teens.
Will Healthmate eventually go away?
I don’t think it will, and as a matter of fact Healthmate has the
potential of flourishing. Our research indicates Healthmate is the
product of choice. People do resent having to perhaps select a
gatekeeper as that term has been used rather negatively in the insurance
market.having to select a primary care physician, having to go through a
formal referral process in order to see a specialist. Those two tenants
are basically there in any HMO you would enroll in. Healthmate does not
have those. That, just by itself, makes Healthmate the product of
choice.
Difference of rates between Healthmate and Blue Chip?
Probably on the order of 10 percent in general. That’s pretty much
axiomatic. The more restrictive the network, the more the protocols are
in place to control access, to control the frivolous use of services.
That will manifest itself in terms of those tighter controls, will
manifest itself in lower rates.
How do you respond to all the criticism out there about managed care
failing to provide good service for the patient?
I’m not sure I’ve heard that. There’s certainly an anti-managed care,
anti-HMO sentiment, I think, throughout the country. People worry – and
I think rightfully so – as to whether or not services are being
withheld. Are there incentives being provided, for example, to
physicians and hospitals not to use services? However, well regulated
HMOs, such as Blue Chip and quite frankly all of the HMOs in this state,
because they are regulated by the Department of Health, that’s typically
not a problem. The services are there, but people resent the loss of
choice, which they enjoyed historically through Classic and Healthmate.
The medical community is no friend to managed care. If any community has
been negative to managed care it has been the physicians. Are you
finding that and how do you deal with it?
I think that sentiment has changed quite frankly over the last few years
with respect to how the medical community views Blue Cross. One of our
tenants going forward in Blue Cross is a partnership. This has to be win
win. We can’t continue, in my estimation as a health care system, to
take dollars out of the pockets of hospitals and out of the pockets of
physicians and other health care providers and expect that to be a long
term strategy. So we are working with physicians to establish risk
groups, to find where the infrastructure problems are, for example, in
hospitals. To work with hospitals to fix some of those problems. So
we’re trying to foster those win win type of partnerships. I don’t sense
that level of animosity, at least with respect to Blue Cross Blue
Shield.
How do you view the potential merger of Lifespan and Care New England,
and do you think Roger Williams can survive without affiliation?
We’ve had some discussions with both Care New England and Lifespan
relative to the merger. We’ve made our position, I hope, clear to them,
and that is we believe, just as the public does, that these two
institutions are going to have to show that it is in the public interest
for them to merge, that we will all be better off through that merger,
that Blue Cross/Blue Shield will be better off as a result of that
merger. In terms of more efficient services and so forth, if they can
show that to us and to the public at large, I think they can count on
public support. If they can’t, however, then obviously there would be a
great level of concern, because together they would represent a
tremendous financial vehicle to basically call the shots relative to
third parties. Blue Cross/Blue Shield has a responsibility to represent
its subscribers. If this merger can be structured so that our
subscribers are better off after the merger then we will certainly be
supportive of it.
I suspect, when you look at the size of the state, that this network
would potentially be the largest in the nation.
Probably as a result of market share. They would represent together over
70 percent of the market share. They would represent almost all the
OBGYN services, virtually 100 percent of the tertiary care services and
significant shares of other kinds of markets, including emergency. I
also believe they will virtually represent 100 percent of the mental
health. With all that said and done you could see the clout they would
have in dealing with third parties and dealing with customers. So it is
important that the public interest be kept first and foremost in such a
merger.
Second half of my question. Roger Williams, what future does it have?
I’m not familiar with the ins and outs of Roger Williams specifically.
Of course they’ve done a lot in the cancer area throughout the years. I
do think, however, that some of the local hospitals are going to have to
find a niche as opposed to offering a full range of services. It is
going to be very difficult, I estimate, without some sort of affiliation
in having the scale that such an affiliation would bring, that such an
institution would be able to offer a full range of services to their
patients.
Pawtucket and St. Joseph’s would be in a different category because
they’re not quite as large as Roger Williams?
St. Joe’s has an inner city contingent to it and that might keep them
going for awhile. Pawtucket Memorial has also a very loyal, local
following in the Pawtucket area. They also, as I understand it, are
talking to other potential business partners. They have a family
practice contingent which is a very integral part of the services they
offer. I think that Frank Dietz at Pawtucket Memorial Hospital is
looking to focus in on one or two areas where his core competencies
would shine and therefore perpetuate the institution’s mission.
Recently we have seen the strike, then lock-out at Women & Infants
Hospital. Does it concern Blue Cross when the regular employees are not
in the hospitals?
That’s a tough question. We have not been privy to all of the issues
that resulted in that one-day walkout and subsequent lock-out. We
continue to monitor our patients at that institution to make sure the
quality is being rendered. I do think that some of these activities are
precipitated by bottom line pressures that the hospital views that it
has to address. Those pressures have driven all of us to do things that
perhaps in another world we wouldn’t have done.
Let me go back to the financial health of the organization, and the
strategic plan you have presented. You’re running a deficit. What do you
do to change things?
Through 1998 we have set the stage for what we hope will be a profitable
1999. We have addressed in the large groups, where we have not had
adequate rates and put rates in during 1999 that will either produce
adequacies or we will have to take a look at the relationships with
those large groups, whether they should continue. We hopefully will not
encounter more meningitis episodes like we did in 1998. We have a much
better relationship with some of the regulatory authorities, and there
was a learning curve there.
The one cloud that is on the horizon is Medicare risk. That is a very
important population to us, the over 65 group. That has been the most
loyal population to us through the years. Yet that program is quite
frankly in difficult financial situation, primarily due to the fact that
it is underfunded by the federal government. We are working with the
government to see if those payments can be modified upward, but we have
a commitment to that marketplace, to that group of people. It’s our goal
to hang in there and see if we can make a go in that program.
Do you see a change in benefit that will result in the individual paying
more?
There will not be any benefit changes during 1999. But depending on the
level of payment by the federal government in the year 2000, it is
possible that benefit changes will be made to that (Medicare level)
program.
You have mentioned the potential affiliation of Blue Cross with other
like organizations. Are we talking about the merger of say Blue Cross
with United Health Care in Rhode Island?
No, I don’t think you’ll see that any time in the near future. The more
likely scenario is some type of affiliation – whether it is a merger or
joint venture – with another Blue. That’s the more likely scenario.
Another Blue in another nearby state?
Correct, or nationwide. Let me emphasize that we’re really on the first
few steps of what will be a long journey and looking at our options and
deciding whether or not we need a business partner. One of the options
we are looking at is staying as we are. Quite frankly I don’t see that
as a viable option. But we want to make sure we look at all of our
options, but we are scanning the continental United States for a
potential affiliation that would benefit us.
How does an affiliation outside of Rhode Island help you or help Rhode
Islanders?
It would help Rhode Islanders in many many ways. An affiliation could
give us scale. It gives us size. For example, many of our competitors
are either regionally or nationally based. They are able to standardize
and centralize many of their functions. That gives them some advantages
on the administrative side. If we have 55 Blue Cross plans throughout
this country, then we have 55 technology shops, we have 55 subscriber
services, we have 55 underwriting departments. To the extent that a
merger would combine some of these services, that would result in lower
administrative expenses. That’s one example.
A second advantage is the infusion of capital. We have limited capital
in this state. The ability to rebuild the reserves that have been
drained as a result of competitors coming into the state and predatory
pricing in our estimation has had a material drain on those reserves.
While we have withstood those challenges, we always have to worry about
the next competitor, the next bump in the road. So infusion of capital
is also another attribute an affiliation brings.
Personally, I also believe in the protection of the existing jobs, but
job growth is a very big potential to an affiliation. Rhode Island has
many many core competencies that have been developed over the years at
Blue Cross Blue Shield of Rhode Island. I’m very confident that if we
were to affiliate or merge with another Blue Cross plan and they were to
do due diligence on us we would have the opportunity to actually expand,
unlike most mergers where one sees massive layoffs.
How many employees in Blue Cross in Rhode Island?
Approximately 1,500.
