James E. Purcell has led Blue Cross & Blue Shield of Rhode Island through some tough times, including the controversy over his predecessor, Ronald Battista, and the passage of reforms in 2004 designed to more narrowly focus the company on serving the public, improving health care in the state and addressing the affordability crisis that has left so many uninsured.
Under Purcell’s leadership, BCBSRI has strengthened its relationships with doctors and bolstered its role in promoting electronic health records and quality improvement. Yet it has also faced new criticism, for its dealings with Landmark Medical Center, which claimed it was grossly underpaid, and now for its plans to build a $114.2 million new headquarters in downtown Providence.
[Editor’s note: A far shorter version of this interview appears this week in the PBN’s print edition.]
PBN: Why do you need Class A office space in such a prime location?
PURCELL: We went through a process of about three years of looking at over 40 sites. Most of those sites were in Providence; some were outside. We decided that even though we could probably build a less expensive building outside of Providence, we’d stay in Providence because it’s not just about our bottom line, but also about the impact on the community. We knew that moving our 1,100 employees outside of Providence would hurt the city. We have an economic impact, as a business and our employees, of approximately a half a billion dollars a year on the state and the city. All that wouldn’t be lost, but it’s a significant economic injection on the city. … We brought it down to five or six lots, and remarkably, not only was the Capital Center site the best location, but it was also the cheapest … [because of a tax stabilization plan] and also, it’s a pad that’s ready to go. … We can start immediately on this. We don’t have environmental permitting … so we can contain our costs more.
PBN: You have also been criticized for wanting to revisit the issue of board compensation.
PURCELL: Perception is an important thing, and there’s a mixture of opinion on this issue in the community. I understand that. Every single study of which we are aware that addresses board compensation for a nonprofit running a major business says best practice and the right thing to do is compensate. That doesn’t mean we can’t recruit board members without compensating. But if what you’re trying to do is get people to become significantly engaged … some reasonable amount of compensation makes sense. … The bill before the General Assembly on this issue is not to allow compensation of board members; it’s merely to give the health insurance commissioner some fair standards to guide his decision. The current statute has no standards [and] basically gives the commissioner unfettered discretion in making the decision. Respectfully, I believe his decision [to bar all compensation] was wrong.
PBN: The commissioner’s recent report on small-group health coverage showed that not only have you lost business to United, but the share of your groups in the healthiest category has dropped dramatically as theirs rose to 75 percent. What’s going on?
PURCELL: I don’t know what United is doing. I have read the report, and I understand what troubled the health insurance commissioner. … [But] I don’t just assign that to United. I also assign it to the so-called 2000 Small Group Reform Act, which I think was bad policy and a bad idea. I know that’s going to make me unpopular, but it is what it is.
PBN: Why was it bad? Was it the requirement that rates vary by no more than a 4:1 ratio?
PURCELL: That is a big part of it. There are those, and they are very well-intended, who suggest that we should go back to the old days, where we had a single community rate for everybody in small groups. Many years ago, before competition, there was an individual and a family rate that applied every quarter to all the small groups. But when you have competition … and when the cost of health insurance has gotten so high, community rating is no longer a good idea. … If you are a 25-year-old male, unmarried … are you going to pay the same rate as a 62-year-old male, or are you going to opt out of the system? Chances are, you’re going to opt out. The 4:1 rate compression did result in high-risk groups getting lower rates than they otherwise would and low-risk groups getting higher rates. So if you’ve got a bunch of young men or women and you’re compressed into that rate, you may make the decision, “I’m not going to offer employer-based health insurance. I’m going to increase these people’s pay a little bit and send them into the market, and they can make individual decisions.” And that is exactly what is happening.
PBN: The other thing I noticed in that report was that the groups are getting smaller. Are healthy group members dropping out and leaving just the older, sicker people?
PURCELL: I don’t know the answer to that. … There are a whole lot of dynamics going on. One of the things that happened is they’ve done away with minimum participation requirements. You want groups to require all their employees to participate [or otherwise] of course, certain people can opt out of the system, and self-selection starts to take place. … That is one of the issues that we’re struggling through with the new “wellness benefit plan.”
PBN: Why? I was curious as to how viable you thought those plans were to begin with.
PURCELL: A decision was made that rather than require a small employer who opts for that plan to require all of their employees to take that plan, they had a dual option [along with, for example, HealthMate Coast to Coast]. Now they’ll certainly have to pay more out of their own pocket for HealthMate Coast to Coast. But if you know there is a basic and a high option under the health insurance commissioner’s design, and the high option requires people to do certain wellness things, and if they don’t after the first year, they get booted down into basic. The basic [with a $5,000 deductible] is not very good coverage. If you’re a sick person who needs a lot of care and you do not wish to comply with the high-end product requirement, are you going to choose the basic or go over to HealthMate Coast to Coast?
PBN: How would that affect you as an insurer if you had all the healthy people in a company in the wellness plan and the unhealthy, overweight smokers in HealthMate?
PURCELL: It would make the wellness plans look terrific, because the claims expense would be so low, but … you’re siphoning off the best risks into this wellness plan … and the other group is going to get worse and worse. So have we done good policy here? I don’t think so. …Even before this dual option, based on our calculations, we’d lose money [on these plans]. With this new dual option, we’re going to lose more money on them. … Our initial projection was that 75 percent would choose the higher plan and 25 percent would choose the basic plan. … Now we think it’s 90-10. … We are truly committed to working with the health insurance commissioner with regard to an affordable product. But believe me, we are the experts; we have been working on this for years, as has virtually every other health insurance company in the country. If there were something [snaps fingers] that could be done, it would be done. It is hard, slogging work, and to rely upon health and wellness … to get an immediate reduction in costs without changing the benefits too much is tough.
PBN: So how do you do it?
PURCELL: It’s going to take a long time, and it’s going to take a lot of work. The first thing you have to do is improve the quality of care. That’s the whole mantra of the Rhode Island Quality Institute [in which Blue Cross has invested about $1 million]. … We have a system that has been described by a lot of people as broken. It has to be fixed. I truly believe there is more than enough money in the system to take good care of everybody … but it is misaligned. There is tremendous waste; there are mistakes. The Institute of Medicine estimated a few years ago that we kill 100,000 people a year in our system due to avoidable medical error. That is the equivalent of a 747 going down fully loaded every other day, all year, and everybody dying. And yet there’s no outrage. I think the first thing that we do is we try to get a system that rewards and favors quality. We have a fee-for-service system right now that rewards quantity, the number of visits and procedures rather than the outcome. It rewards acute care rather than preventive care. … We have to change that first. You do that by putting technology in the doctors’ offices – electronic medical records and a health information exchange. That is the single most important thing we have to do as a system in the next five years. Everything else pales by comparison.
PBN: Could electronic medical records change how you measure quality and how you pay providers?
PURCELL: Absolutely. We can’t reward something we can’t measure. I think with electronic health records we can do that, and we can move from a fee-for-service system … to figuring out something else. … Then you can get to transparency on quality, issue it on your Web site or something, and people can start shopping around for quality based upon these community measurements. It makes all the sense in the world.
PBN: Some of this you’re starting to do already, aren’t you?
PURCELL: Some of it we are. We have some basic information on hospitals already on our Web site.
PBN: And you’re also working on quality incentives for physicians?
PURCELL: Yes, we are, but they’re baby steps at this point. We have the Quality Counts program, which will reward physicians, mostly primary care physicians, based upon certain measurements such as what kind of diabetes testing they do, mammograms, Pap smears, things like that. … But think how much more effective we could be if we had electronic medical records that could automatically measure what they’re doing. You could have a system that could identify your diabetics who haven’t gotten their insulin or have not been in the office to get whatever measured. All sorts of things – the sky’s the limit.
PBN: You’re part of the Community Hospital Task Force. Do you have a sense of what is causing these hospitals’ financial problems?
PURCELL: The hospitals have some very real problems. Medicare and Medicaid are squeezing them. The federal government is paying so much less than private payers such as United and Blue Cross, and it gets worse and worse. … Of the hospitals’ revenue, Blue Cross accounts for just 30 percent. Let’s assume United accounts for 15 percent. Upwards of 50 percent is the federal government. … Their bad debt and free services are skyrocketing. One of the things they blame for that are the new high-deductible plans, and that contributes somewhat, but … I have asked the hospitals, tell us how much of your bad debt comes from Blue Cross subscribers. I have not seen that yet. We did a little internal look at that. My bet, but I have no hard data to prove it, is that we may be responsible for about 5 percent. … A lot of this comes from people who have no coverage at all or have sky-high deductibles. There are only about 6,000 subscribers of Blue Cross who have high-deductible HSA plans right now.
PBN: [Health Insurance Commissioner] Chris Koller told me recently that only about 10 percent of Rhode Islanders have deductibles over $1,000.
PURCELL: That sounds about right to me. There’s this myth that premiums in Rhode Island are so much higher than everywhere else. And if you just look at it without checking underneath to see, it’s true. But the average coverage in Rhode Island is so much greater than in other states. And if you take into account the greater coverage and the lower deductibles and copays, the demographics of the population, etc., we have very reasonable premiums. They’re high, don’t get me wrong, but as compared with other states for similar coverage for similar demographics, our costs are relatively low.
PBN: Is it a problem that our benefits are so rich? Should we have more stripped-down coverage?
PURCELL: Again, that’s using a Band-Aid to cover a wound. I think the system is flawed. I think it’s very dangerous to put these high-deductible consumer-directed health plans out there to a population that may not have the necessary tools to use them. … I think without preparing the population for this, you’ve got a very dangerous issue here. I recognize that particularly small employers have sometimes very little other choice if they want to give their employees some insurance – and heaven knows, some insurance is better than none. But I’m somewhat troubled by how quickly we’re moving toward this without making sure that people have the right tools to ensure they get the right care. We have to be in that market. People demand it. I would prefer to fix the system instead.
PBN: Another thing that has struck me is that even plans that fully cover preventive care define it very narrowly. I mean, isn’t it preventive care if we keep a minor infection from becoming a major issue?
PURCELL: There are a lot of things. Is a colonoscopy preventive care or is it a surgical procedure? You could argue both sides of that. There are all sorts of definitional issues. And anything that gets the consumer’s head in the game in being more careful about how they access the system, great. But let’s be careful that this doesn’t come at the risk of harming the consumer.
PBN: How much headway have you made in getting consumers to manage their spending?
PURCELL: It’s a slow process. We have a population that with regard to managing how you use the system isn’t used to doing that. Once they’ve paid their premium, if it’s there, go for it. … I think we’re starting to see some results, but most people just rely upon their doctor. … And we’ve got a lot of things working against us. We’ve got direct-to-consumer advertising, so people are going in and demanding brand drugs when generic equivalents work every bit as well. People demanding MRIs and CT scans if they have a pain in their back and refusing to leave the office until the doctor orders one for them. … You could blame the tort system and medical malpractice system for a part of this, but there are a lot of dynamics going on here.
PBN: How about getting people to take better care of their actual health?
PURCELL: We’re starting to make some progress. I’m very excited about the Health & Wellness Institute and some of the programs it’s put together. It’s making some headway in providing better programs to our subscribers in Rhode Island and also helping Blue Cross subscribers in other states.
PBN: How receptive have Rhode Island employers been, given that they have to spend money for much of this work?
PURCELL: For our subscribers in Rhode Island, there are some things that are free and some that they have to pay for. There’s a menu. The Institute has found employers surprisingly receptive once they listen to what some of the benefits can be. It’s not only about taking care of their employees and their families, but the improved productivity, the reduced absenteeism, the reduced presenteeism, the reduced workers’ comp claims. We can put together a pretty impressive package showing that even for the most self-interested employer, this is a good thing. So we’ve found this to be a very good market, because employers are at their wits’ end as to how they can control their health care costs. And the larger ones that are experience-rated can see the benefits right away.
PBN: Blue Cross has made a real effort in the last couple of years to work more closely with doctors and promote primary care. How important is that for you?
PURCELL: You ask what we can do to change the system … the lion’s share of that is done by the primary care doctor. The primary care doctor has more impact on the wellness objectives of our members than any other single member of the health care system. They generally do the referrals, the good ones follow up, they make sure the handoffs take place, they take a little time to sit and talk with [patients] about their lifestyle and maybe some behavioral changes. And up to recently, I think, primary care has been devalued in this state; certainly as compared with specialists their reimbursement is low. … I think of all physician classes in this state, primary care has to be nurtured. It has to be encouraged. … I’m bound and determined to do our part to make sure that happens. We unilaterally agreed to make significant increases in primary care reimbursement over the next three years, much more than any class of physicians. … They’ll get the total amount that we promised them if they have electronic medical records. If they don’t they’ll get half.
PBN: What kind of money are we talking about?
PURCELL: Right now we reimburse primary care at about 109 percent of Medicare [rates]; we would hope to get them somewhere upwards of 127 percent of Medicare in three years.
PBN: Three years ago, Blue Cross’ mission was somewhat redefined by state law. Has the vision for the company changed?
PURCELL: The vision hasn’t changed. … I think what’s changed is how we’re going about it. I’ve made no bones about it. I’ve said I want to dramatically change the nature of our relationship with the provider community. … We want to collaborate with others, not necessarily tell the system what to do, but facilitate the right decisions, as we hope to do on community hospitals. I think we’ve reached out to the community in a very different way to demonstrate that we really can be considered an asset to the state. The big gamble over the coming decade is, is there going to be a place for a nonprofit local, relatively smaller Blue plan? I think our service and our coverage are better than our competitors’ – I know it. Is it just the price, or does that count for something? I hope it counts for something. But consolidation amongst health insurers is happening across the country. There are only 39 Blues plans left, and each year one or two gets consolidated, usually with WellPoint. So we’ll see what happens.
Interview: James E. Purcell
Position: President and CEO, Blue Cross & Blue Shield of Rhode Island
Background: Purcell officially took the helm of BSBSRI on Jan. 1, 2005, after serving as its acting president and CEO since May 2004. Previously, he had been chief operating officer since May 2000, and before that, he was a founding partner and managing partner at Partridge Snow & Hahn LLP, where he chaired the litigation department. He serves on the boards of the Rhode Island Quality Institute, the Greater Providence Chamber of Commerce, the national Blue Cross & Blue Shield Association, and Crossroads Rhode Island, among others. He is a U.S. Army veteran.
Education: B.A. in history, 1967, Cornell University; J.D., 1974, Boston University School of Law
Residence: Barrington
Age: 61
