Name: Peter Meade
Position: Executive vice president, Blue Cross Blue Shield of Massachusetts
Backround: Hired by Massachusetts Blue Cross as executive vice president in 1996 after four years as president and chief executive officer of the New England Council, a regional business organization. Before that he spent eight and a half years as a talk show host on WBZ radio.
Education: Bachelor’s in business communications, Emerson College, where he serves as vice chairman of the board of trustees.
Age: 53
Family: Married; two children
Residence: Boston
PBN: What are the most important elements of the proposal you recently submitted to Blue Cross Blue Shield of Rhode Island?
MEADE: It contains three options. One for an affiliation of Blue Cross Blue Shield Rhode Island and Blue Cross Blue Shield Massachusetts as two companies with an upstream holding company.
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Is it similar to the Lifespan structure?
Somewhat similar to that. It’s the kind of thing that’s used in health care often throughout the country. That is one of the options. There are two others. A surplus note or loan. Let me first talk about those two options. It is our sense that some of the people in Rhode Island and some of the people in the Blue Cross plan would prefer to remain independent and not-for-profit. Last December Ron Battista (Rhode Island Blue Cross president) said that was one of the things they would like to do. There is a financial dilemma presently that is causing the plan to examine every option, including purchase by companies. If either a loan or a surplus loan would help to deal with the financial dilemma, rather than taking a more radical step, then we would be prepared to negotiate either one of those.
Can you explain what a surplus note actually is?
A surplus note is important for reserves. To be an insurer, both for the Blue Cross Blue Shield Association and states have requirements for the size of the reserve the companies need. We don’t know if there is a problem of not getting to some of the benchmarks required either by the state of Rhode Island or the Blue Cross Association. If that were the case, the surplus note would apply to the Blue Cross of Rhode Island surplus. On the other hand, a loan would be the same kind of loan we would get for a personal matter.
Why couldn’t Blue Cross of Rhode Island go to its handy bank and get the same type of situation?
To some degree Blue Cross plans could do that and there have been some on occasion that have done that. There have been times in New England when plans have gone to other plans in New England and gotten surplus notes. Or you could do a loan. None of the Blue Cross plans can go out and give a significant part of the company to Fleet Bank or Citizens Bank or Bank Boston, or Harvard or Tufts. If you were doing a merger it would have to be with a Blue Cross plan. That’s a requirement of the Blue Cross Association. There are over 50 Blue Cross Blue Shield Associations in the country and all of us are licensees by the association. They own literally the name and trademarks and there are certain requirements of all of us in terms of our performance and what we need to do.
What kind of interest rate goes on those?
It would depend on how much you wanted. That would be something we would negotiate.
Comparable to a bank or a more favorable situation?
I wouldn’t want to negotiate with you right now. The rates on these matters when I’ve seen them done they have not been an issue or a stumbling block. What might – to be candid with you, and we mention in the proposals we sent to Blue Cross if you were to do a loan or a surplus note, normally that would give you, depending on the size of both of those, some seats on the board of the company that you provided the loan or surplus note to. That’s a normal course of doing business and we would expect that would be something that would be negotiated as well.
So this doesn’t in any way address any of the operations of the Blue Cross Blue Shield here and doesn’t deal with any of those situations that have produced the financial crisis?
You used the word crisis. I’m not sure they have. And I certainly don’t want to use it unless it is a word they’re using. Obviously, I think the plan has said they want to look at everything. They are looking at all of their options. And one of the options expressed by the plan has been to remain independent and not-for-profit. If that can happen we’re saying we’re here prepared to help in that process.
What is the advantage to you strictly from a Massachusetts Blue Cross Blue Shield position – to do a note or a loan?
For the same reason we did it in Vermont. Because we’re not for profit neighbors and it helps in this region if all of the plans remain not for profit locally based Blue Cross Blue Shield plans. That’s the first thing. The second thing is in many ways our markets are interrelated, if not just one market. Look at the companies. Whether it’s Fleet, Citizens Bank, Raytheon or Fidelity. They’re in all of the states. If it provides us all with an opportunity to market ourselves more effectively, vis á vis our competitors. There are many of our competitors who can knock on the door of your company and say I can provide a plan for all of the states that you’re in. That’s the kind of thing that will make a difference to the bottom line of Rhode Island and to Massachusetts. There is clearly a bottom line interest and there’s also an interest in the kind of company that Blue Cross has been in New England that we would like to see retained here.
If you had a choice, loan, note or affiliation, which would Massachusetts Blue Cross prefer?
We have been talking about this with all of the plans in New England since 1993, about looking at the way we might affiliate. It is something that we have thought would make sense. Very honestly, we would prefer to do that. But this isn’t about our preference. This is about Rhode Island and the Rhode Island community. We’re here saying we’ll do any one of these three things. The decision is a Rhode Island decision, not a Massachusetts decision.
I presume under a note or a loan that the form of Blue Cross Blue Shield Rhode Island doesn’t change in terms of employees and product unless they themselves make that decision.
On product, we’ve got a regional product presently. I would think the strongest argument for even thinking of doing something together would be about product. It would make a lot more sense if we could go to market with the same product and advertise the same product. It would make the most sense to have the same product decision, no matter what we do – loan, affiliation, or stay where we are. If we could get to that both plans would have an advantage we don’t have now.
Under an affiliation are we talking an acquisition or some other type of form?
It wouldn’t be an acquisition. Rhode Island would retain the name, the company, the license and the heritage of the not-for-profit Blue Cross Blue Shield of Rhode Island.
Massachusetts Blue Cross Blue Shield had some difficult financial times not that many years ago?
Yes.
That was before you got there or after you appeared?
It was in 1996, the year I came to the company. What Bill Van Faasen, our CEO did in 1996, was build a management team to deal with the turnaround of the company. Bill has been in Blue Cross Blue Shield for 28 years in Michigan and in Massachusetts. And when we went through what was clearly a difficult year for us in 1996, we didn’t just turn the balance sheet around. We didn’t just turn the numbers around. We turned the company aroundEveryone had to become an advocate of the company, and I’ll tell you why I say that. We had a turnaround of over $120 million in one year. In 1996 we lost $96 million. In 1997, we made $22 million. In 1998 we made $32 million. We also, in addition to that $32 million sold our interest in 100 Summer Street (headquarters) and made an additional $30 million. This year we’re a little bit ahead of plan to make $45 million. The numbers the company is most proud of, are those reflecting in the process we increased customer and provider satisfaction to the highest numbers they have ev
er been. It wasn’t just a matter of getting in and cut and slash. It was a matter of focusing on putting our subscribers first and making that work.
What got Blue Cross of Massachusetts into financial difficulty in 1996?
A combination. We made some mistakes. We were ahead of ourselves in some of our pricing. We were in the process of negotiating new contracts with hospitals and got a bit ahead of ourselves in that. We spent, we think, too much time worrying about the size of the plan, rather than the margin. We were worried too much about the membership rather than margin and began to focus more clearly on that. We also were doing some things that we decided that we really didn’t need to be doing. We needed to be focusing on our customers as a health insurer and there were a lot of businesses that people were saying you need to get into to be successful. There have been a lot of analyses done of health care companies and health insurers of what they need to be. And frankly, we bought into some of that In 1996 as Bill Van Faasen looked at the business and sat with our board, we said we want to be a not-for-profit locally based Blue Cross Blue Shield company, we want to provide health insurance and we want to be the benchmark. So we’re going to pay attention to our knitting and do that and just that. And that’s really how we turned the place around, in a concerted effort that touched every employee and we think touches every subscriber, member and every provider.
Clearly, one of the things that’s essential for you – maybe it’s not shareholders you’re responsible to – but the plan has to be financially viable.
Absolutely. Absolutely it has to be. And if you don’t have that margin you’re not able to do the mission. You cannot pay attention just to the bottom line. That’s not the heritage of Blue Cross Blue Shieldif you only deal with the mission and you don’t deal with the margin you’re not going to be able to form the mission. There’s a combination of both that has to be examined and you have to deal with them regularly. And you have to make sure you’re doing both very well if you’re a Blue Cross Blue Shield company. But the fact is you can do both and that’s really what we see as our job.
What’s your understanding of your position for the time frame in Rhode Island to get this done?
We don’t know. We received a letter back from Battista the CEO that said when we submitted a plan it would get consideration.
We’ve heard among the prime proponents of Mass. Blue Cross effort has been the Kennedy family. Are they involved at all?
I know Congressman Kennedy had a news conference the other day and he was a major force in stopping a for-profit .
I’m talking specifically about Massachusetts Blue Cross Blue Shield and whether there is any involvement. Are there any Kennedys on your board?
No. There are no Kennedys on our board. And I know Congressman Kennedy is very interested and I know he was very interested before any of this came up on the issue of for-profit or not-for-profit health care. We’ve spoken to Congressman Kennedy as we’ve spoken to many of the elected officials in Rhode Island about what we’re doing. Some of the elected officials we’ve had more than one meeting. With Congressman Kennedy we’ve had one.
Has Senator Kennedy been involved at all?
No.
Has he expressed an interest at all?
Certainly not to me.
The question is just simply what was raised to me by somebody unaffiliated with Blue Cross or anyone else that the Kennedy family somehow was involved in Massachusetts Blue Cross or was involved in trying to push this proposal forward. What I’m trying to do is either dispel the belief or confirm it.
Let me say this about Senator Kennedy. Because of the kind of company we are, and plan we are, because we deal with health care, we deal with Senator Kennedy. On the senior pharmacy matter he …, for the Massachusetts Congressional delegation, along with Congressman Moakley, took the lead with Gov. Cellucci. We, as a company, have regular contact with him. I’ve known him literally all my life and consider him a very dear friend.
I don’t think the Kennedy family sits around and says okay who ought to be running this and who ought to be running that. I think Congressman Kennedy discharges his duties as he wants to discharge his duties. I think his position on for-profit and not-for-profit health care is clearly marked for everybody in the country to see long before there was any discussion about Blue Cross Blue Shield of Rhode Island. I think I would know if anybody in our company had any discussion with the Senator about this. I don’t believe anybody in our company has had a discussion with this.
What is your take on the confidentiality issue?
I’ve mentioned several times that we think Blue Cross companies in New England, given their not-for-profit heritage are community trusts and they’re different than most businesses. We’re not a group of waifs who don’t understand business – and a number of people who suggested this isn’t something you have a public bid and you open envelopes and people negotiate in public. We’re not suggesting that for a minute. As a company we have been involved in a number of confidentiality agreements. It’s the nature of doing some parts of business. But if you’re talking about completely altering the fundamental underpinnings of a Blue Cross plan in New England and certainly given the history and heritage of Rhode Island to think that you’re going to do it without significant community involvement, we think is folly. If we signed a confidentiality agreement we couldn’t talk to you. We couldn’t talk to the elected officials. We couldn’t talk to docs, we couldn’t talk to hospitals, we couldn’t talk to other providers. And we think that this is largely about the community trust.
I mentioned there are two parts of the business. You have to pay attention to the margin. You have to pay attention to the mission. And you have to be able to do both things. And it would be a mistake to think that significantly – if it’s possible to radically alter what Blue Cross Blue Shield is in any of these states you’re not going to do it without the community participating in the discussion. That’s our belief If you think you’re going to sell a Blue Cross Blue Shield in New England without discussions with the community, we think you’re wrong. We think that’s an important part of this.
Under the structure of your affiliation proposal, does the structure in Rhode Island remain intact in terms of officers and employees?
I think the answer is I don’t know. We haven’t done a due diligence. Because you can’t say absolutely. If a company comes in and says by the way every single person is staying in every single job they have now – and it’s my understanding that 25 percent of the employees have been reduced over the last several years in the plan, from stories that I read. I couldn’t tell you if that is the correct size for the company or not. Unless we had done a due diligence, I couldn’t tell you that. I think if somebody came in here and said to you we’re keeping every employee, you’d better grab your wallet.
How about top management in Rhode Island?
There’s got to be a management team in Rhode Island as there would be in Massachusetts, and they would report to a board. The business plan has to come from the management team in Rhode Island.
Is it your perception that the individuals in those positions now, their choice, would remain in those positions?
I think you come at it with a prejudice that they are the people who ought to be doing the job. And that’s how you approach this.
