Name: Ron Battista
Position: President and CEO, Blue Cross & Blue Shield of Rhode
Island
Background: Joined Blue Cross in 1971. Was an executive vice president
from 1988 to 1998, before becoming president in 1999.
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Education: Bachelor’s degree from Rhode Island College
Age: 54
Residence: Warwick
Blue Cross & Blue Shield of Rhode Island, founded in 1939, is the state’s
largest health insurer, covering more than 650,000 Rhode Islanders. The not-for-profit
company is an independent licensee of the Blue Cross and Blue Shield Association.
PBN: Blue Cross went from more than $73 million in losses from 1996 to
1998 to more than $100 million in gains the last three years. What’s behind
the turnaround?
BATTISTA: We’ve worked hard on reducing administrative expenses, from
the senior staff right on down. The senior staff today still is approximately
the same size if not smaller than it was in 1999. We’ve also made sure that
our rates are self-supporting. Sometimes in your zest to get new business, you’re
too aggressive in pricing. Quite frankly some of our former competitors were
in that boat. Trying to sell 10-cent apples for 8 cents, hoping they could make
up the 2 cents in medical management and other techniques, and then when they
couldn’t, having huge losses. This is a very fragile system. You don’t have
to under-rate very many groups to have a huge underwriting loss. So when it
comes to mega-accounts like the state of Rhode Island, Lifespan, the municipalities,
do you want to be very aggressive and competitive in your rates? Yes. But you
need to have a self-supporting rate, or the short-term glory of winning that
account is going to be lost on the financial picture.
Blue Cross has built its reserves to a record-high $250 million, or about
14 percent of premiums. The stated goal is 22 percent, or $390 million. Why
22 percent?
When I took over, one of the things that I was wed to was fact-based decision making, for Blue Cross, for the providers, for the members. I wanted to get out of the anecdotal world, or what you hear happened to Aunt Nellie last week. Those aren’t facts. So when it came time to look at reserves, we didn’t decide for ourselves what our target should be. We went out to two independent consulting firms, (Tillinghast-Towers Perrin and Milliman USA). They both came back in the 20- to 30-percent range as what would be needed for a plan this size. So what I say to some of our detractors out there is ‘I have facts. Where are your facts? You have a perception as to what you think we need. But you’re not an expert. When you do have facts, I’ll be more than happy to listen. But we’re sticking, if you don’t mind, with what the experts say is needed.’ The 87-10-3 (advertising) campaign talks about 3 percent reserve contribution, but our actual reserve contribution in 2002 was more in the neighborhood of 2.3 percent. That’s a very small margin, and we have to have that margin in order to build towards our financial stability.
But can you see the logic of some employers who have seen premiums go up
20 percent annually who say ‘why can’t some of that money go to curb costs?’
It’s logical, but uninformed. This is a small-business state. When you talk in millions and millions of dollars, those are overwhelming numbers. But to give you another way of expressing $250 million, if we were to shut down today, $250 million is roughly enough to pay for eight to nine weeks of operating expenses. That’s not a lot. If you started losing money, either because you miscalculated the rates, or because trends went up, or because there were some mandated benefits – there’s a million things that could happen. Or a couple of other disasters, like the Station fire and so forth. Is nine weeks too much to have on hand? I don’t think so.
Talk about the recent “87% 10% 3%” ad campaign.
87-10-3 was an educational campaign to help people understand where their health dollars are going. It was not an advertising ploy or gimmick. The bulk of your health-care dollars are going to the 87 percent, right through this organization, and at a discounted rate, to providers. About 10 cents of every dollar goes to administration. We have to make people understand where the dollars are going, and we have to help the providers make their income targets. How do you do this? In a nutshell, you do it through fact-based decisions and accountability in reimbursement. What we have in the state are anecdotes being accepted as fact. Blue Cross is spending a lot of money and time undoing those supposed facts. Some of these anecdotes are being put out by well-intentioned people who are simply uninformed. But some are being put out by people who are looking to churn up the waters and create a sky-is-falling kind of environment.
Any examples?
Well, I certainly think that part of the Rhode Island Medical Society’s campaign is a sky-is-falling mentality. Are there some physicians who are leaving the state because of reimbursement? Yes. Is reimbursement the sole reason? Absolutely not. Blue Cross has been very open about the fact that payments in this state are lower than many other states. But quite frankly it is a half-truth to stop there, because what isn’t talked about is the rate of utilization of services in the state and the mix of those services. Utilization and mix are up annually double-digits. To our members, those increases translate into the same kinds of premium increases as do price. On the physician side, to not talk about those utilization increases is not giving the public the whole picture.
What about hospitals? Why do you think they’re losing so much money here?
Some providers want to offer the same services in the same way they did 10 years ago in a much different environment. If that’s the way you’re going to operate, could you lose money? Absolutely. Again, and I say this respectfully, many of the hospitals have not changed over time. For example, the SHAPE study identified 23 of 24 procedures that, by everybody’s agreement, need to be done at a minimum volume in order to have quality outcomes. In this state, almost all of those procedures are done below those minimum volumes. Have I had one hospital talk to me about discontinuing a service or combining a service with another hospital so that they can get a critical mass? No.
Many people say that Blue Cross’s 70 percent market share is a monopoly
and that more competition here would help keep rates down. Would more competition
here have any effect on price?
Again, we need fact-based information. Over the years, virtually every major insurer in this country has been in this state: Aetna, Cigna, Met, United. If you look through one end of the telescope, you say ‘Blue Cross has a monopoly. We need more competition.’ If you look through the other end of the telescope – which some people are reticent to do – and ask the question ‘Why isn’t the competition moving in here?’ I would submit to you that Blue Cross has done a great job in controlling costs. Do you think the average for-profit insurance company wants to come into this state, with its very difficult regulatory climate, for a 2.3 percent margin? I don’t think so. Competition has been here and for the most part has exited because Blue Cross quite frankly has done a good job in medical management and reimbursement and servicing our subscribers. If it hadn’t, someone would have eaten our lunch years ago.
In 1990, every Blue Cross company in the United States was a nonprofit.
Today, 18 Blue Cross plans are for-profit. Has Blue Cross of Rhode Island ever
considered becoming a for-profit?
The last time we had the conversation was when I took over in 1999, because we were losing money. Most Blues go to a for-profit status for one reason: they need the capital. When they go public you have the ability to raise tremendous capital for investments in technology or education or infrastructure. They also have goals to operate in multi-state environments, and to do that they need significant capital. So we looked at that, we entertained it and we dismissed it. The goal of this board is to stay local and nonprofit. Now could that change? Sure, if we fell on hard financial times or if the environment went negative. Say new competition came in and was subsidized and we couldn’t compete because the competition was getting propped up. Then we would have to revisit that vision. But at the moment, our goal is to … stay independent, nonprofit and local.
Blue Cross is helping Roger Williams Medical Center and Landmark Medical
Center fund a study of a potential merger. Some have criticized Blue Cross’s
role in that process.
I would say this is exactly the kind of thing Blue Cross should be involved in. We have two hospitals that very publicly have acknowledged that they have financial problems and infrastructure problems – they’re two very old hospitals. I think we’re talking something in the neighborhood of $200 to $300 million in needed capital improvements. And we have some services that we need to look at as to whether or not they’re needed. So, if Blue Cross can facilitate a discussion that may result in a newer, less expensive, more efficient hospital – if that’s not our vision and mission, I don’t know what is. Facilitating fact-based discussions so that those in charge of those facilities can intelligently discuss their futures, that’s what we bring to the table, because ultimately that newer, more efficient facility will benefit our members.
You’ve laid out a vision of a new, more active role for Blue Cross.
We’ve revamped our vision and mission to be the entity that facilitates improvement in quality of life through improved health. That’s a whole new role for Blue Cross. You don’t do that by simply getting you your membership card out quick or processing a claim well. You do that by getting immersed in the issues that drive quality and cost, by leveraging your position, by using your market share to do good things. If you think about it, we have a huge disconnect in this state that Blue Cross is trying to bridge. We have subscribers that say the rates are too high, and we have providers who say their payments are too low. But this disconnect I believe has a silver lining. And that is that entities and individuals are coming to the table to talk about things that heretofore they would have never talked about. So I think that out of this cloud will come a better health-care system, with better infrastructure and more-educated members, if we allow the process to work.
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