Highmark ex-CEO was not the perfect fit

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When William Winkenwerder came to Pittsburgh two years ago to run Highmark with a resume that included medical and business degrees, a stint at the Pentagon and executive experience with other major insurers, it was — on paper — a perfect fit.

In practice, it was an uncomfortable fit, at best.

The partnership ended last week when Pittsburgh’s Highmark Health ousted Dr. Winkenwerder from the CEO job and its $4 million-a-year compensation package. His replacement, named Wednesday, is company insider David Holmberg, a Highmark veteran of seven years who had been running the company’s diversified business wing and who was considered a strong candidate for the CEO position when it last opened in 2012.

When Highmark board chairman Robert Baum told company employees last week that the new CEO would “accelerate” the execution of the health firm’s strategy, implicit in those remarks was that the outgoing CEO, Dr. Winkenwerder, was unable, or unwilling, to do so.

Highmark’s strategy, which was put in motion while former CEO Ken Melani was still on board, was twofold: to grow the insurance side of the business, and — more controversially and more difficult to achieve — to maintain and improve regional hospital competition and prevent a monopoly by the region’s largest health care provider, UPMC.

The latter of the goals would require getting into the large-scale provision of medical care, and that was accomplished — to a degree — when Highmark offered to rescue West Penn Allegheny Health System from bankruptcy. Later, Highmark created the larger Allegheny Health Network by buying two more hospitals and acquiring several medical and specialty practices.

Dr. Winkenwerder inherited that strategy from Dr. Melani and the board of directors, but at times he seemed hesitant to carry it forward. Just weeks after taking the helm in July 2012, he declared the November 2011 affiliation agreement between Highmark and WPAHS “dead” and “history,” according to West Penn Allegheny attorneys.

The two organizations soon ended up in court.

From “the opening days, he didn’t seem real comfortable with inheriting that strategy,” said Richard F. Galardini, head of JRG Advisors, a regional benefits firm.

Eventually, Highmark and WPAHS repaired that breach.

But Dr. Winkenwerder was hesitant in other ways, too. In January 2012, while Dr. Melani was still CEO, Highmark had announced plans to build up to 10 suburban outpatient “medical malls,” in an effort to capture ambulatory patient load and give WPAHS a larger presence in the suburbs.

Eleven months later at the groundbreaking ceremony for the first of these centers — the Wexford Medical Mall in Pine — Dr. Winkenwerder told reporters that Highmark would “scale back significantly” its medical mall plans. New plans called for just one or two more new outpatient outposts.

The Wexford mall, meanwhile, is still under construction.

The absence of conviction with the mission, in turn, led to tardy execution, particularly when it came to hiring the doctors who would ultimately work in those hospitals.

“They were indecisive with some of the physician acquisitions,” said Michael A. Cassidy, a Tucker Arensberg attorney who represents doctors and medical practices. "They were slow to make offers and slow to respond to counteroffers.” As a result, they lost bidding wars to UPMC, which now has 3,500 physicians, or 500 more than it did just two years ago. (AHN has 1,000 employed physicians.)

While John Paul, Allegheny Health Network CEO, is the one nominally charged with assembling Highmark’s health care division, “John was always more decisive” when he worked for UPMC and built its health and hospital network, Mr. Cassidy said.

In other words, if there were hesitancy in soliciting practices and sealing deals, it came from above Mr. Paul.

Highmark might have saved a few million dollars here or there by not responding to counteroffers, yet “the money that was saved in being indecisive [with] the physician transactions was a small portion” of Highmark’s total bill for assembling Allegheny Health Network, Mr. Cassidy said.

And that pocketed money had a disproportionate impact on future revenues, because practices drive business and patient referrals to the larger system, Mr. Cassidy said. “Hospitals need doctors.”

Execution is about more than just signing checks and making quick decisions. It’s also personality-based.

Pittsburgh “people want to know, straight up, who they’re dealing with. Substitutes don’t work,” Mr. Galardini said. Dr. Winkenwerder didn’t seem comfortable “in his own public skin … he’s not one of those guys who [loves] to be out and about.”

Problem is, being visible is part of the CEO job description. Dr. Melani, who hired Mr. Holmberg seven years ago, believes the newly appointed CEO who now lives in Texas will take to the meet-and-greet part of the job more naturally.

"He’s the best choice they can make right now,” said Dr. Melani, who was jettisoned from the CEO position two years ago, and is now a health care consultant and investor. “He’s good for that team. He’s worked with that team.”

The team of lieutenants — health plan president Deborah Rice-Johnson; company treasurer Nanette DeTurk; Pete Dzimiera, senior vice president of strategic operations; Mr. Paul; and others — need to stand behind their CEO and vice versa, Dr. Melani said last week.

Getting a group of vice presidents, who often work in separate business silos, on the same page is all part of the execution, Dr. Melani said. A CEO must be able to get the troops excited. “You have to start with your people and board, and get them behind you.”

At the end, Dr. Winkenwerder’s board was no longer behind him.

Bill Toland: btoland@post-gazette.com or 412-263-2625.

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