Policy Fight | Patrick Hughes takes the helm at Worcester's Fallon Community Health Plan just as the pressure on insurers in the Bay State heats up
Photo/Edd Cote
Patrick Hughes, pictured, replaced Eric Schultz as CEO of Fallon Community Health Plan last month.
Talk about a rough first couple of weeks on the job.
On Feb. 10, Worcester-based Fallon Community Health Plan’s Board of Directors named W. Patrick Hughes, a former National Football League linebacker and then vice president at the organization, as the plan’s interim president and CEO.
And then, on April 1, the Massachusetts insurance world erupted. It was on that date that the state’s Division of Insurance rejected 235 of the 274 — or 86 percent — of small business and individual market rate increases health insurers requested, including all 47 of Fallon’s. The small business market is made up of companies with 50 or fewer employees.
Within a week, a stiff legal fight ensued with a handful of the insurers, including FCHP, suing the state and asking a judge to reverse the decision. That was denied.
Now FCHP and the other insurers are appealing the DOI’s decision and the health insurance industry remains in flux.
But members of the FCHP Board of Directors apparently liked what they saw in Hughes through the turmoil. He was named the permanent president and CEO on April 20.
Big Shoes
Hughes stepped into the chief executive role upon the departure of Eric Schultz, who left FCHP after 10 years to become president and CEO of Wellesley-based Harvard Pilgrim Health Plan. Schultz, in turn, moved into the position previously held by Charles Baker, who is now running for governor.
Schultz was well known in the community, serving on various local boards and acting as a major booster for local business. And Hughes acknowledges his predecessor cast a pretty big shadow.
“It looked easy when Eric was doing it,” Hughes recently joked in his corner office overlooking downtown Worcester. “Now people aren’t sure if they should give me congratulations or condolences.”
No matter how people greet Hughes, he is now steering the nonprofit health insurer, which covers more than 220,000 members across most of the state, through turbulent and uncharted waters.
The nonprofit plan had revenue of $1.1 billion last year, but reported $38 million in operating losses.
When talking to Hughes about the recent decision by the state to reject the requests, his eyebrows furrow.
“If there is a frustration, it’s that we, as an industry, have been unfairly tattooed as villains,” Hughes said.
The health insurance industry, according to Hughes, is becoming a scapegoat for the much larger problem of rising health care costs. But, he said, addressing the issue of costs will require everyone involved to make changes, from hospitals and doctors, to insurers, to the government and even the patients.
The rejected rate increases requested by insurers ranged from 8 percent to 35 percent, including FCHP’s, which were the highest increases requested by any of the 10 insurers.
Hughes said the numbers are based on actuarial statistics. The price of the products are the cost of covering patients, with less than 10 percent of each premium dollar going to administrative costs, according to Hughes.
“There’s no magic to it, it’s pure math,” Hughes said.
The DOI, however, warned earlier this year that it would disapprove any rates that were above the medical Consumer Price Index, or any rates that were deemed excessive and unnecessary.
Hughes, and many in the health insurance industry, see it differently.
“It was a clear signal that business as usual is not going to be the operative term,” Hughes said. “The administration in effect said enough is enough, go figure out how to fix the problem.”
The problem with that message, Hughes said, is that capping rates, which is what he claims the DOI has done, will have intense negative impacts on insurers while not addressing the root cause of rising medical costs.
Hughes said the “hammer approach” of rejecting rates as the state did has unfairly targeted insurers, while not pushing for changes from hospitals and doctors.
“We continue to make our points, but the lack of participation on the part of providers (hospitals and doctors) in the dialogue is clearly apparent,” Hughes said.
Some outside the industry agree.
Amy Lischko has been studying the impacts of health reform in Massachusetts as an assistant professor at Tufts University School of Medicine in Boston and as a fellow at Boston’s Pioneer Institute.
“I think (the state) is trying to put a Band Aid on a really big problem,” she said about the DOI’s recent decision. “Right now in the current environment, the insurance groups are the bad guys, and I don’t know if they should be.”
Lischko agrees that doctor and hospital groups have not been forced to make changes as much as insurers. Instead of rejecting rates, the state could mandate more transparency on behalf of providers and insurers to expose the true cost of health care, Lischko suggested.
Others have defended the DOI, saying that something must be done to limit the rate increases on small businesses.
“The rapid increase in rates is a major concern of the division,” said Nonnie Burnes, who served as DOI commissioner between 2007 and 2009, who now teaches at Northeastern University in Boston. “At the same time the division is also concerned about the health of the (insurers). Nothing they do is just a knee-jerk reaction.”
If insurers can prove that rate increase requests are justified and needed, then Burnes said she’s confident the DOI will approve them.
Hughes, even while calling himself a “perennial optimist,” isn’t convinced that the insurance rates will be set where he says they need to be. Fallon is appealing the state’s decision and could hear this summer which rates the insurer will be allowed to charge.
So, how would FCHP deal with having to charge lower rates?
Recently Hughes was quoted in the Boston Business Journal saying that the company may pursue a “nuclear option” of pulling out of the small group market, which makes up about 35 percent of the plan’s business.
Since then, however, Hughes has backed off the statement, saying the plan is “steadfast in our commitment” to the small group market.
Still, cuts may be unavoidable if the rate increases are not allowed.
FCHP would not be able to continue its expansion into Cape Cod or New Hampshire. Or, he said, it may not expand on its direct care for seniors program, which he said is the seventh largest such program in the state.
Still, Hughes said he’s hopeful some good will come out of the ongoing saga.
Hughes sees some of the initiatives being pushed on Beacon Hill as positive, including reducing the number of mandated benefits and limiting the open enrollment period to only twice a year. Hughes even supports moving toward a global payment system, charging a single annual rate to hospitals to care for patients.
“We’re very much in step with some of what the administration is proposing and we’re truly proponents of it,” Hughes said. “We’re more a part of the solution than the problem.”
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