Highmark makes change at the top

Insurer alters course with new CEO

For the second time in two years, Highmark's board of directors has made a seemingly abrupt change in its top leadership, voting Tuesday evening to oust president and CEO William Winkenwerder Jr.

There are some key differences this time, though.

While former CEO Kenneth Melani was forced out days after an embarrassing public arrest involving an assault on his girlfriend's husband, Dr. Winkenwerder's departure had been contemplated for months.

Ousting Dr. Winkenwerder and replacing him with Highmark executive David Holmberg "wasn't done with a lot of pleasure," said J. Robert Baum, chairman of Highmark Health's board of directors. "It was very difficult choice that had been going on for some time."

Dr. Winkenwerder was notified of his dismissal by representatives of the Highmark board following the Tuesday board meeting.

Highmark, the state's largest health insurer, covers 5.3 million people in Pennsylvania, Delaware and West Virginia, and has 37,500 total employees, including those in its health network.

In remarks to those employees Wednesday morning, Mr. Baum indicated the board had extended Dr. Winkenwerder's leash as long as possible, hoping he would acclimate to the company's mission and execution strategy.

"We had been giving it a lot of hope," Mr. Baum said, partly because "we've been full of enough change at this company" over the last two years.

In the end, it didn't work out, despite the promise that Dr. Winkenwerder's laid-back leadership style -- and stellar resume -- had fostered two years ago.

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"He is a good person. All of us who know Bill know that [he] helped us a lot, very much in the beginning, with incredibly attractive credentials [and] high integrity," Mr. Baum said. "Some folks had lost trust in our behavior as a company" following Dr. Melani's ouster and the Pittsburgh insurer needed "a down-to-earth, honest man."

Dr. Winkenwerder was that man.

But as time wore on, there were rumblings about his leadership -- or absence of it -- even outside the confines of the Highmark board room, particularly among professionals who work closely with local health care facilities and executives.

"Nobody knew him. To run an organization of any substance, you have to have a vision, and your public -- your customers -- have to understand what your vision is so they can have a degree of confidence in it," said Jim McTiernan, a benefits consultant at Pittsburgh-based Triad USA, a division of Arthur J. Gallagher & Co.

"We don't know if he was the right person or the wrong person. But the public, and most importantly the customers, didn't know who he was. We didn't know because he was virtually invisible."

Two years ago, when Highmark board members were vetting candidates to replace Dr. Melani and conducting a coast-to-coast search led by a national executive headhunting firm, Dr. Winkenwerder's resume stood out.

He had served as assistant secretary of health affairs at the Pentagon, vice president for Blue Cross Blue Shield of Massachusetts, medical director for Kaiser Permanente in Atlanta and chief medical officer at Prudential Health Care.

In hindsight, what was missing was experience in attracting and retaining consumers, Mr. McTiernan noted, a trait Highmark officials played up in choosing Mr. Holmberg to succeed Dr. Winkenwerder.

Mr. Holmberg, a seven-year Highmark executive, most recently headed its diversified businesses division that included 620 Visionworks optical retail stories, vision insurance provider Davis Vision and United Concordia, the sixth-largest dental insurance carrier in the U.S.

"These subsidiaries are very successful, which would point to his knowing something about running an insurance business and, in the end, this is an insurance business," Mr. McTiernan said.

Making this change, he added, "is saying, 'We're not moving in the right direction and time is pressing, especially with the UPMC contract termination date looming.'"

While Dr. Winkenwerder might have been the calming, gentlemanly presence needed two years ago -- polar opposite to Dr. Melani's intense and detail-oriented style -- Highmark now needs less a corporate caretaker and more someone who, in Mr. Baum's words, can execute the board's vision.

Mr. Holmberg will "accelerate things that are very important to the company," said Mr. Baum. His ascension does not represent "any major strategy changes ... he is a very good strategic thinker, [and] embeds the strategy" with simple goals and plans.

Moreover, Mr. Baum said, the rest of Highmark's executive team remains intact. "You don't have to be concerned about the stability of the company," he said.

Whether Mr. Holmberg represents a change in strategic direction or merely leadership direction, many of Highmark's challenges to build a provider network to compete with UPMC remain very much unchanged.

Economic turbulence is perpetual in the post-Affordable Care Act era, and Highmark's most recent financial statements reflect that. Last month, the company reported $14.9 billion in total revenues in 2013, with flat income compared to 2012 and sharply lower profits from its vision and reinsurance subsidiaries.

The company also has sustained round after round of layoffs across the corporate footprint, with hundreds of job cuts in its insurance division since last year and hundreds more at its Allegheny Health Network. Many of those eliminated positions are now being backfilled with new employees; on its own website, the company is advertising more than 110 open jobs.

In coming days, said Pennsylvania Insurance Department spokeswoman Rosanne Placey, Highmark will need to re-file various papers noting the change in leadership, with regard to its bid to merge with Blue Cross of Northeastern Pennsylvania in Wilkes-Barre.

By month's end, the insurer also must disclose its most recent financial data, including its ongoing support of the West Penn Allegheny Health System hospitals that continue to lose money. (Last week, Highmark officials asked state regulators to approve a $700 million loan that would allow WPAHS to repurchase bonds from the insurer -- a loan that would be guaranteed by Highmark.)

In July, Highmark must file its "transition plan" for the threatened Jan. 1 separation from the UPMC network with the state, even as its officials profess hope of an agreement.

"We want access to UPMC. We're not going to give up on that," Mr. Baum said during Wednesday's company meeting. "There is a devotion to that [and we're] working very hard" in the media, and among clients in the community.

Rep. Dan Frankel, D-Squirrel Hill, said Wednesday he will continue to push legislation that would force health providers such as UPMC to accept "any willing insurer" on an in-network basis.

The legislation, he said, would address issues larger than what's going on at Highmark.

"It has to do with access for our constituents and trying to curb the excesses in what our large health care provider charges in the community. Those issues remain regardless of who is in charge at Highmark."

Mr. McTiernan, for one, still believes UPMC and Highmark will come to an agreement. "I still haven't seen a shift in the market that would allow them [UPMC] to walk away from that much commercial payment."

UPMC spokesman Paul Wood on Wednesday quickly dismissed the possibility of a new pact. "The short answer is, 'No.' UPMC has been clear and consistent on that for the past three years."

There will be no contract with Highmark, he said, "regardless of who the CEO is."

Steve Twedt: stwedt@post-gazette.com or 412-263-1963. Bill Toland: btoland@post-gazette.com or 412-263-2625. First Published May 21, 2014 8:42 AM

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