Dave Huber, CFO of Horizon Blue Cross Blue Shield of NJ, speaks to 75-100 CFOs and finance executives at the CFO Studio Reception

Huber:  This is a special night for me. Not just because my picture is on the front of a magazine, which is pretty cool in and of itself. And I am happy with the way the picture came out, which is the most important thing.

I thought I’d get that out of the way.

As far as health-care reform, it’s a really broad topic. Let me just kind of go back to the beginning, how we got here. There were really three or four objectives that the government was trying to solve when they came up with the legislation.

The first is access: There’s 15 percent of the population is uninsured, that’s 40 million in the U.S., 1.3 million here in New Jersey. A lot of people don’t have insurance.

Number two is cost: Health-care costs are 17 percent of GDP. It’s a staggering number. We spend two times per capita more than any other country in the world. And the cost is growing at least twice as fast as both CPI and GDP, so that’s kind of unsustainable. So that’s a real problem.

Quality is another problem. Even though we spend twice as much as everybody else, our quality is not necessarily as good as those who have figured out how to do it better. And there’s an incentives problem because of how people are paid. It’s basically a fee-for-service model and you get paid for doing as many procedures as you possibly can and pushing people in and out of the office, as opposed to actually making people well or doing a quality job. If you don’t get it right the first time and they come back, you make more money. So the incentives are kind of misaligned.

So that was the thinking. And you talk to anyone in the industry, they’ll say that there was a real need for what the government tried to undertake. When you look back on it, there was a lot of politics involved. As you remember, this was 2010 when all this was going on. The economy was kind of in the tank. We’d just bailed out GM and everything else. So it had to be deficit neutral. And at the end of the day, all of the Democrats voted for it and all of the Republicans voted against it. And it was very divisive, but they did push this thing through the Senate in March of 2010 and it was signed into law and it survived the Supreme Court challenge.

It survived the presidential election. I personally don’t think it would have been overturned anyway even if Romney had won, but I guess we’ll never know and that’s kind of water under the bridge. Nevertheless it’s here to stay and it’s a very sweeping legislation. I’d be very surprised if the people that voted on it actually read the bill before they voted on it. And I can tell you, most of it is going to be supported by regs later on, and most of the regs have yet to be written, so there’s a lot of uncertainty about what is really going to happen.

So as far as tackling those objectives, I think they did a really good job on the first one, which is access. So they’ve created this exchange concept where people can go onto the web and basically buy insurance in a competitive marketplace, which is going to be good for everybody. Heavily subsidized by the government. Anybody up to four times the Federal poverty level, which is about $88,000, gets some money from the government. Hopefully we’ll have far fewer uninsured people.

As far as quality, they really didn’t do too much.

As far as incentives, didn’t do too much.

As far as cost, they really didn’t do anything, at least from my point of view, and I think in the end the cost will actually increase as a result of what was done. But frankly, nobody knows for sure what’s going to happen because we’ve never been here before and so we’re kind of predicting what’s going to happen in a world that’s never existed before, and you never know what the unintended consequences are going to be of all of that.

So my prediction as far as how it’s going to impact businesses: Generally you’re going to see costs increasing at a quicker pace than before, simply because if you think about how we got into a deficit neutral position — and by the way cost of the subsidies and expanding Medicaid is like $2 trillion over 10 years or some number in that vicinity — a third of that comes out of Medicare cuts, and the other two-thirds basically just taxes of all sorts, taxes on businesses, excise tax on so-called Cadillac health plans, you saw something in the magazine about the medical device tax, tax on pharma, there’s a big tax on the insurance industry that kicks in in 2014. Year one it’s only $8 billion and then it goes up to $12 billion, which is a really big number; it’s like 40 percent of the profits of the industry. So I think what’s going to happen is I think people are going to try to figure out ways to pass on those taxes to consumers, and the rates are going to go up quicker than they would otherwise.

So the rates are going to go up, not down, at least in the short term. It depends whether you’re a small employer or a large employer how you’re going to deal with this. What we see happening in the small employer market: The market’s been shrinking for a while, and that’s because for a guy who runs a drycleaner to have their own insurance and see the prices go up so much and they’ve been dropping out. That’s been a trend that’s been in place for a while. We actually see the trend accelerating. The drop-off will be steeper because at least right now, people feel if you own a business you have kind of a moral imperative to provide insurance for your employees, but in the new world, if there’s this backup, which is the exchange — they can go online and get money from the government — you’re kind of off the hook and your people are still going to be taken care of. So we think that a lot of small employers are going to drop their insurance and people will go into these exchanges.

Large employers are very different. They try to hire the best and the brightest and they’re not going to shy away from providing health benefits for their employees, because it’s something you need to be competitive in the market. But what might very well happen is when people see there’s no relief in sight as far as the cost curve, they’ll try different ways to get to the end result, which is some protection against that trend, the escalating cost. When you think about what many of us did with pension plans awhile back. Many of us used to have defined benefit pension plans and now we have defined contribution plans instead. That’s what’s coming to health insurance plans. It will be good for employers because you can set aside a fixed amount and you basically shifted the rest to the employee, and that’s what we see happening. So there will be different ways of getting at the problem of intractable costs.

What we’ve been doing at Horizon is we were frankly disappointed in the health care legislation, setting aside the access part of it, because we saw it as kind of a missed opportunity. Everybody was focused. They spent thousands of hours debating this, and they didn’t do anything about what in my mind is the biggest problem for most of us. Which is how much it costs. And the cost is straining everybody. It’s straining businesses, it’s straining government budgets, it’s consumers. It impacts all of us, and they didn’t really do anything about that. So what we decided to do was to be leaders and say well, if the government’s not going to do it, we’re going to do something on our own. And we tried various ways to attack the cost problem. We launched Horizon Healthcare Innovations.

The concept behind Horizon Healthcare Innovations is that we would actually work collaboratively with the providers as opposed to just playing this game which is about reimbursement and codes and everything else, which is kind of an adversarial kind of approach. And it’s centered around this thing called a Patient Centered Medical Home.

And the idea behind what we call PCMH is that they would kind of manage the whole experience end-to-end. You’re a patient, you go in and you meet with the doctor and have this patient care coordinator who talks to you about what your issues are. You know, have you taken your meds, have you tried this, and by the way what about your diet, you ought to go see this doctor or that doctor and try to manage the whole experience. Whereas today what happens most of the time is you go to see a primary care physician, you’re in there for about 10 minutes, you get a referral to a specialist on your way out. That’s kind of the model of they’re on this treadmill, just trying to see as many patients as they possibly can.

So we’ve been toying around with this Patient Centered Medical Home model — we started in 2010. We’ve spent around $75 million so far on this Horizon Healthcare Innovations, so we’re putting some money behind it. We’re making investments, we’re helping practices to stand on their own two feet, do business differently. We’re literally sitting side by side with them, coaching them on how to do things differently. We give them a playbook, as we call it: Here’s how to do things right, in our view. We’ve got a lot of bases of comparison, so we see a lot of different practices. We learn from the best and we bring those practices to the others. It’s been very labor-intensive but it’s really starting to pay off. At the beginning, it was kind of an experiment, but now we’re convinced that it’s working and we’re rolling it out on a broad scale.

We’ve got something like 85 arrangements right now. It covers about 500 different locations, about 1,000 different doctors. We’ve got 250,000 members that are in these arrangements right now. We’ve got some traction. The early returns are the quality is better, and that is something we can measure quite easily. We’ve got all these HEDIS measures, which are government quality measures that we can measure before and after and also the pilots versus the control group, and in the end that is what they get paid for. If your quality is better, they get a bonus at the end of the year. And the theory is if the quality is better, the cost will be lower. Kind of like do it right the first time and help people do it right, and that’s what we’re all about. We didn’t focus on cost. We figured that cost would come automatically if we focused on quality. But we have seen a 3 percent reduction in cost for this group as compared to a similar kind of control group, if you will.

So we feel like it’s working and as more practices take this on and they get better at it, we see a lot of upside. On the hospitals we’re doing what we call ACO ratings. Accountable Care Organizations. The theory is if it gets to the point where they manage the whole experience for you — and a lot of times the hospitals are also aligned with doctors — if they can kind of keep you within their network and send you to the right docs within a network, and manage the whole experience, you’ll get better quality, fewer readmissions and ultimately lower cost. So we struck three ACO deals, we’re negotiating many other deals and we’re excited about this because we think it’s an opportunity to do things really differently.

The traditional model has always been: We have these three-year contracts with the hospitals, we get to year two and a half and they come in and say we need a 15 percent or 12 percent rate increase, and we go back and forth and eventually we settle on a 7 percent or 8 percent increase. And the new thinking is instead of doing that, maybe we give them a 3 percent or 4 percent or 5 percent increase fixed, with some upside potential if their quality actually improves. And if they do that, they win and we win. We settle up at the end of the year. And so that’s kind of where we’re going. We hope that that will make a difference. Ultimately we think that’s going to make our members healthier. We think it’s better for society. We’re putting a lot of money behind it. And it’s in our minds kind of the way of the future and the right thing to do. If we do this really well, we think we can at least slow that rate of increase a little bit. I don’t know that we’re going to bridge the gap between where it is and CPI, but if we can cut that difference in half in terms of dollars, that’s huge and others will follow.

Bottom line, we’re adapting. We’ve been around for 80 years. We’re a really strong company. We’ve got a really strong management team. And it’s fitting that this article was called “Steady in a Storm” because we did just get hit by Hurricane Sandy and we’re dealing with that. But we’ve dealt with lots of other things and it’s an awful lot of change right now. So we don’t know exactly what it’s going to look like, but we’re pretty confident that Horizon’s going to win and we’re going to be here and hopefully we’ll still be serving all of you guys.


Charitable Contribution

Inspired by Hurricane Sandy

We have a foundation, the Horizon Foundation for New Jersey. What we do is we give money to charities and that’s really cool. We have a lot of fun doing that. We started this up in 2003. And the reason we did that, at least one of the reasons, is, as you all know, you have budget constraints. And the organizations that count on us don’t necessarily want to hear “We’ve got budget cuts, we can’t afford it this year.”

So we started this foundation, and our results are kind of volatile in our industry, so what we thought we would do is set aside some money in this foundation and in a good year we make contributions, and in a bad year we don’t have to pay anything out of the company but we can still make donations to worthy nonprofits out of this foundation.

So we started this in 2003. The grants have been on a steady upward slope since then, and we have a whole infrastructure to support this at this point. And I can tell you it’s really neat. You really feel like you’re making a difference. Frankly in our business, not everybody loves us all the time. Sometimes there’s negative publicity, and this is something we can do that can counteract that where no one can argue that we’re doing a good thing, and we really feel good about it along the way.

So as I said, we were hit by Hurricane Sandy, the roof blew partly off. It was raining in the boardroom. We were all kind of working from home, trying to get cell phone service, doing conference calls. And it was a little crazy there. And in the midst of all this [CEO] Bob Marino said, “We have to have a special board meeting of the foundation so we can approve disaster relief for the people that need it.”

So we did that one week after the storm. We had this special board meeting and we authorized a million dollars in grants for Hurricane Sandy victims. Of the million dollars, part of it went to the Red Cross, part of it went to the Salvation Army, part of it went to a new organization set up by Governor Christie and his wife specifically for hurricane victims and part of it went to the Community Food Bank. And the CEO of the Community Food Bank, Kathleen DiChiara, is here to talk to you about that.


DiChiara:  We distribute foods in 18 of the 21 counties. We were active from the weekend before making meals in our commercial kitchen. We sent 15,000 meals to Atlantic County on the Saturday and Sunday before [the hurricane] for the shelters. Since that time we’ve distributed 4 million pounds of food and groceries to charities responding to those in need. We handed out 65,000 sandwiches by volunteers sending them right out into the communities that were so badly hit.

Backing up: Last year before the storm we distributed 39 million pounds of food and groceries, we had 25,000 volunteers that came to our facility.

If you’re a corporation looking for an opportunity for team-building, come to us. We can handle up to 700 at a time and we do it well. Another thing, we provide through our commercial kitchen and our job-creating program, we provide in various communities a hot meal to 2,000 children a day in the evening time. We have a backpack program where we send home a backpack of child-friendly food to about 2,500 kids who probably aren’t eating much over the weekend.

There’s a lot to know about us. I’m a suburban housewife. My husband is a small business owner. And the food bank started out of the back of my car in 1975.


Huber: [David Huber presenting an oversized check to the Community Food Bank] It’s a $100,000 check.

We’re also doing a three-for-one match through the Horizon Foundation, so we’re encouraging all of our employees to donate to either the Food Bank or the Red Cross or the Salvation Army or this other charity that Governor Chris Christie set up, and for every dollar that Horizon employees contribute, the company will match three for one up to $300,000.

And then I had a quick talk with Bob Marino before. Since we already gave you the $100,000 and that’s from the foundation, we thought we should give you another $5,000 check from the company to keep it going.



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