By Jon Kamp
WellPoint Inc. (WLP) shares slid Wednesday as investors digested
the health insurers' unexpected decision to name nonprofit hospital
leader Joseph R. Swedish, rather than an insurance veteran, as
chief executive.
Mr. Swedish, 61 years old, will bring several decades of
experience in the health sector--most recently as chief at Catholic
hospital operator Trinity Health--when he takes WellPoint's helm
next month. His deep hospital background points sharply at the
blurring lines between health providers and payers, and WellPoint
tied these credentials to ongoing efforts to work with providers on
improving care and cutting costs.
But analysts were expecting WellPoint to name a seasoned
health-insurance operator, such as James G. Carlson, the former CEO
of recently acquired Amerigroup, to help a company that stumbled at
times under former CEO, Angela Braly.
WellPoint shares recently fell 4.6% to $62.94 following the
late-Tuesday announcement about Mr. Swedish.
"The market doesn't like uncertainty, and they don't know much
about him," said Robert Medway, managing partner at WellPoint
shareholder Royal Capital Management LLC, in an interview.
His firm sent a letter to WellPoint's board in August
criticizing Ms. Braly's management, and she stepped down soon
thereafter amid broader pressure from shareholders upset with the
company's performance. John Cannon, who is sticking with WellPoint
as executive vice president of legal and public affairs, has been
running the company on an interim basis.
Mr. Medway expressed optimism because WellPoint board member
George A. Schaefer Jr., a former banking CEO, led the search, and
because Mr. Medway said the company seems "supremely confident in
hitting their numbers and guidance." But Mr. Medway also said he'll
reserve judgment on Mr. Swedish for now, as they haven't met.
Some observers said the unexpected CEO choice could prove
helpful in the long run, given growing collaborations between
health plans and health providers, but the announcement was still a
curveball.
WellPoint "has been an inconsistent operator in recent years,
with mistakes in pricing, steep rate hikes at inopportune times,
and guidance cuts," Jefferies analyst David Windley said.
With this record, plus challenges looming as major parts of the
health-care-overhaul law are implemented next year, "investors may
have expected a new CEO with strong payor experience to lead the
product strategy through 2014," Mr. Windley said.
Mr. Swedish does have some recent insurance experience at
Coventry Health Care Inc. (CVH), where he's served on the board for
three years. Aetna Inc. (AET) is in the process of buying Coventry.
But his background is otherwise heavily tilted toward health
providers, including Trinity, a 47-hospital system with revenue of
about $9 billion last year. Mr. Swedish previously ran a major
hospital system in Colorado.
The incoming CEO's experience "will be invaluable to WellPoint
as we continue to find innovative ways to collaborate with
providers in an effort to improve quality outcomes and reduce the
cost of care," said Jackie M. Ward, WellPoint's board chairman, in
a release.
Analysts questioned what the decision means for Mr. Carlson's
role at the company, which WellPoint hasn't clarified. The company
recently wrapped up its $4.46 billion Amerigroup purchase while
bringing in Mr. Carlson and other top executives under two-year
employment agreements. Former Amerigroup Chief Operating Officer
Richard C. Zoretic is heading WellPoint's Medicaid operations.
"While in any combination of companies some turnover is
inevitable, we are pleased that Amerigroup's top talent has
remained to lead the combined Medicaid business," WellPoint
spokeswoman Kristin Binns said. She also said the Amerigroup
integration remains on track, and that any additional
organizational details will be determined later.
Mr. Swedish officially takes over on March 25.
Citigroup analyst Carl McDonald suggested WellPoint's board was
embarrassed when proxy details revealed the company paid $9 more
per share for Amerigroup than first offered, even though WellPoint
was alone in seriously pursuing the Medicaid insurer.
"Still, after being beaten soundly in a negotiation, our first
instinct would be to figure out how to get that person on our team,
not to push them away," Mr. McDonald said.
Write to Jon Kamp at jon.kamp@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires