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April 19, 2014

Thinking Ahead-Opinions About Trends & Challenges in Today's Health Care Industry

This week brought the announcement that WellPoint Inc. selected Joseph Swedish to become its next Chief Executive Officer. Swedish will leave his position as CEO of nonprofit Catholic health system Trinity Health, which has grown to almost $12 billion in assets under Swedish’s leadership and is moving through a merger to become the fifth largest hospital system in the country. Prior to Trinity, Swedish also had worked for for-profit hospital system HCA. Wellpoint, which operates Blue Cross and Blue Shield plans in 14 states, has received some criticism from Wall Street this week for this surprise selection, noting that Swedish is not a traditional insurance company executive. Other commentators have suggested that this selection may indicate an interest by WellPoint in increasing its provider alignment, such as the strategy that was initiated through WellPoint’s acquisition of Medicare Advantage HMO and senior care clinic provider CareMore in 2011. Does this move indicate a higher likelihood of new value-based arrangements between WellPoint’s health plans, on the one hand, and hospitals and medical groups on the other?

Another interesting thought arises, though, rather than the simple extension of the physician alignment strategy that we now see being played out by health plans such as WellPoint, United, Humana and many others.

What if WellPoint decided that the real way to move toward alignment and cost efficiencies in the healthcare system is to use its very large balance sheet (almost $56 billion in assets according to recent SEC filings) and acquire one or more large hospital systems, providing true vertical integration and decidedly differentiating it from competitor United HealthGroup’s Optum initiative, which has to date eschewed investing in hospitals and instead has spent significant amounts on managed care ready physician entities and technology companies that support and service such entities.

If WellPoint wishes to make a bold leap in cost control and not merely achieve incremental gains as healthcare reforms roll out, the true savings currently are identified in the marketplace as being the dollars going now to hospital expenditures. WellPoint could continue as do other health plans and view hospitals merely as contracted providers and subject to ongoing rate negotiations to control costs, or it could take a page from the Kaiser playbook and revamp a large piece of the healthcare continuum of care by truly aligning the health plan, the hospitals and the physicians, especially in light of the recent launch of the bundled payment initiative.

Daring? Yes, but also an interesting thought as to what the healthcare world would look like if Joseph Swedish stayed at the helm of WellPoint and simultaneously returned to his roots as a large hospital system operator. Maybe the WellPoint CEO choice does open up a whole new range of possibilities…


(The following is an opinion piece and represents solely the personal opinions of the author. It does not represent Sheppard Mullin’s position as a law firm and is not intended to be legal advice to any person).

Copyright © 2014, Sheppard Mullin Richter & Hampton LLP.

About the Author

Partner

Eric Klein leads the national health care practice, and is a partner in the Century City office, of Sheppard Mullin Richter & Hampton LLP, a full service AmLaw 100 law firm with offices throughout California, New York, Washington, D.C. and Shanghai.  With over twenty-three years of practical legal and business experience, his practice focuses on the healthcare and related industries.  Known in the business community for his creative solutions and deal-making ability, Eric uses deep industry knowledge, entrepreneurial solutions, sophisticated negotiation skills and effective...

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