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Head of the house of the Blues

In a company newsletter circulated to Excellus Blue Cross Blue Shield employees last year, Excellus president and CEO David Klein admonished the firm’s staff to think first of patients’ needs.

"When you’re a caregiver," Klein wrote, "the last thing you want to think about is: I wonder if this claim will be paid correctly or not. You don’t want a processor; you want an advocate."

In 2008, Klein, 60, and his family learned his wife, Linde, who is five years his junior, had cancer. Her particular malignancy, squamous cell carcinoma of the oral cavity, is extremely rare, Klein says, striking fewer than 800 non-smoking, non-drinking U.S. women a year. The cancer’s rarity and its relatively advanced stage meant treatment options would be more limited than for a more common form of the disease, a cancer of the breast or colon.

Still, because of his position as the head of the area’s most powerful health insurance payer, Klein has longstanding personal associations and considerable clout with the area’s top physicians and health system chiefs. Those relationships, Klein says, helped ensure his wife got prompt attention and top-shelf treatment. 

The couple also has excellent insurance, the best policy Excellus offers, Klein says. He estimates Linde’s treatment, which included surgery at Roswell Park Cancer Institute in Buffalo and an aggressive course of chemotherapy at the University of Rochester’s James P. Wilmot Cancer Center last year, has cost a half-million dollars and their out-of-pocket expenses have totaled $5,000.

The Kleins learned recently Linde’s cancer had revived and spread, moving into both lungs. She is active and appears hale, Klein says. But the deadly cancer’s stage is now rated at 4A, one step lower than 4B, the most advanced stage.

"It’s changed the way I look at health care," Klein says. "Before, it was almost an intellectual exercise. When you live it, it’s different."

Klein, who once harbored ambitions of becoming a physician, has spent his entire professional life as a health insurance functionary working for Blue Cross Blue Shield organizations. Before coming here as the Rochester Blues’ second in command in 1986, he worked for the Blue Cross Blue Shield Association in Chicago and was an executive for Blue Cross Blue Shield of Illinois. For most of that career, he served under Howard Berman, his mentor since Klein was a University of Chicago graduate student.

Klein took over as Excellus CEO on Berman’s retirement in 2003, assuming control of an organization that has long been one of the most powerful forces in local health care. Under Berman and Klein, it also became a major force in health care across a 31-county sweep of Upstate New York.

Dominant player
Excellus is the second largest health insurance carrier in New York and the state’s biggest non-profit health insurer. Once a strictly local operation known as Blue Cross Blue Shield of the Rochester Area, it now runs non-profit Blues plans in Syracuse, Watertown, Utica-Rome and Finger Lakes regions, and the non-profit Univera HMO in the Buffalo area. 

Klein also heads Lifetime Healthcare Cos. Inc., a holding company that serves as the parent company of Excellus and several non-profit and for-profit sister companies. On the non-profit side are the Lifetime Care home care agency and the Lifetime Health Medical Group. Lifetime Care ranks on the most recent Rochester Business Journal lists as the area’s second-largest non-profit and third-largest home-health agency.

Lifetime Health Medical runs four Rochester health centers and five in Buffalo that operate primary care and specialist practices and provide after-hours urgent care. In the Rochester area, it is the fourth largest physician group practice. On the for-profit side are the MedAmerica Inc. long-term care insurance company, the EBS-RSMCO Inc. employee-benefits firm, and Support Services Alliance Inc., which does group purchasing of insurance products and business services for small businesses.

The Excellus/Lifetime Health Care organization’s annual revenues top $4 billion. Across its territories, Excellus insures some 1 million, including 600,000 to 700,000 in the Rochester region. It is the region’s seventh-largest private employer with some 3,600 staff here. Companywide, Excellus employs approximately 6,600.

Excellus has been a dominant force in health care in the region since the 1960s, controlling at its peak 80 percent of the local private health insurance market. Its local market share has declined in recent years but still tops 50 percent. The company no longer publishes region-by-region covered lives. But while the metro area population has stayed in the 1 million range, Excellus’ chief competitor here, MVP Healthcare, has gained share, growing from some 250,000 Rochester-region covered lives a decade ago to more than 320,000 in 2007.

Berman is seen as the driving force behind Excellus’ expansion, which started with the 1998 takeover of Blue Cross Blue Shield of Central New York and continued in 2001 with Excellus’ acquisition of Univera. The acquisitions, along with organic growth, have made Excellus a dominant payer in the Rochester and Central New York markets and a significant force in Western New York.

Hired to head the Rochester Blues in 1985, Berman tapped Klein as his chief lieutenant. Klein had been working as an Illinois Blues vice president in charge of national accounts. He had worked in several capacities under Berman at the national Blues association in Chicago. 

"I wanted a kindred soul," Berman says. "David was that kindred soul."

Klein, an Eagle Scout, shared Berman’s idealistic view of community-rated, non-profit health insurance as a beneficial force, but was far from a yes man, Berman says. Klein would never hesitate to state disagreements. It is a trait he valued highly, Berman says.

Members of the local health care community who have dealt with both men over the decades they have run Excellus describe both Klein’s and Berman’s grasp of health care issues as encyclopedic. But they point to stylistic differences. Where Berman relentlessly pushed his vision, they say, Klein has been more open to collaboration and conciliation.

Klein and Berman felt their shared aim of keeping the Upstate New York region as a bastion of non-profit health care would be best served by creating an organization powerful enough to resist takeover attempts by publicly held for-profit giants or merger pressures from larger Blues organizations.

Over the last decade, independent Blues organizations have consolidated and converted from non-profit to publicly held status. Fourteen of the country’s 39 Blues organizations, including Empire Blue Cross Blue Shield in New York, are part of the Indiana-based WellPoint Inc., a publicly traded 35-million-member Blues company with $61 billion in revenues. 

Klein and Berman, who in retirement started an organization to promote non-profit health care, have been adamant in vowing to keep Excellus from going that route.

The organization’s expansion arguably has helped Excellus defend its non-profit status, which in turn can be seen as a factor in helping it contain costs.

Tense times
At the same time, its relations with area doctors, many of whom see Excellus as both overly controlling and paying sub par physician fees, have at times been badly strained. 

A bitter multiyear court battle with the Rochester Community Individual Practice Association Inc., a doctors’ group that accused Excellus of shortchanging its members on fees, ended in 2006 with an out-of-court settlement whose terms included an agreement by both sides to avoid disparaging the other for the next 12 months.

By the time the dispute was settled, Excellus, which has not admitted wrongdoing, had paid the physicians $54 million. The insurer had earlier settled a court claim by the Medical Society of the State of New York charging it used software to systematically short physician payments with an agreement to pay local doctors $5.5 million. It recently agreed to settle without admitting guilt a charge leveled by state Attorney General Andrew Cuomo, who alleged Excellus used information from a faulty database to overcharge enrollees on out-of-network claims. 

Area physicians last year also complained bitterly about Excellus’ decision to demand pre-authorization for radiology scans and to turn the pre-approval process over to a third-party provider. Excellus at different times portrayed the move as a money-saving step and a measure to prevent overexposure to harmful radiation. Doctors complained the policy was unnecessarily holding up needed scans and delaying critically needed care. 

In the late 1990s and early 2000s, hostilities between the University of Rochester Medical Center, the region’s largest health care provider, and Excellus were at a fever pitch. Charges hurled by both sides included accusations by Excellus that URMC had pirated doctors from Rochester General Health System’s Genesee Hospital, helping to speed the hospital’s precipitous shutdown in 2001. Later, former URMC CEO Jay Stein accused Excellus of blocking URMC’s attempts to revive Genesee and of interfering with other programs URMC was trying to set up. In letters between the organizations obtained by the Rochester Business Journal, Berman point-by-point rejected the URMC accusations. 

"We made some mistakes," Klein concedes.

"Jay Stein," he adds, "was brought in to transform (URMC), which he did in a masterful way, but he did not understand the role of the Blues." 

Klein says he sees one of Excellus’ primary jobs as acting as "the front office for the delivery system," a role that casts the insurer as a force to make sure providers get their due and as a system controller, working to keep a lid on costs.

While annual high-single digit and double-digit rate hikes have hit employers and workers hard, Klein notes health care costs here are some 15 percent lower than the U.S. average. He credits local providers’ ability to deliver quality care efficiently as well his own organization’s efforts to work with providers as a collaborator.

Klein’s behind-the-scenes and often unsung efforts to improve local health care have achieved much, says Fran Weisberg, executive director of the Finger Lakes Health System Agency.

A former head of the elder’s advocacy agency, Lifespan, and a onetime Excellus community board trustee, Weisberg is working here and with the state Department of Health to craft community planning protocols to help localities optimize health care resources.

Klein, who is rich in community planning, is an invaluable resource for the community, she says.

"David cares very deeply about the community and about health care," Weisberg says.

A few years ago, when, as Lifespan president, she was trying to put together a multi-payer regional cooperative health plan for frail elderly residents, Klein was unstinting in donating time and invaluable in giving the group help with the insurance end of it, Weisberg says.

"There was really nothing in it for David and there was no gain for Excellus," she says. Klein’s help was pure and unrewarded community service.

Healing wounds 
Some area providers, particularly private practice physicians, remain wary of Excellus.

Grumblings among physicians over Excellus’ reimbursement rates, which lag those in many areas of the country, are common. Still, members of the local health care community credit Klein with having made substantial progress toward healing past wounds.

Some observers saw the deep hostility between URMC and Excellus that characterized much of the late 1990s and early 2000s as largely a clash between the outsized personalities of Berman and Stein. During their coinciding tenures, both men aggressively were trying to expand their own organizations-respectively the area’s most powerful insurance and medical providers.

While their agendas might not have needed to compete, one theory goes, their egos made clashes virtually inevitable.

"They were essentially alike, which made it very hard for them to get along," observes James Redmond, Excellus vice president of communications. 

Not long after Klein took over from Berman, he began a series of meetings with URMC CEO McCollister Evarts M.D., who recently had replaced Stein. The meetings, which came to include teams of top managers from both organizations and were not secret, were not publicized. 

At the outset, "I was somewhat skeptical," says Evarts, who has retired from the CEO position. "My own style is more collaborative, not to attack. I found that if I presented a logical position, David would analyze it. He has a very analytical mind. In the first meeting it was just me and (former UR provost Charles) Phelps. Later, we decided to bring in the leadership teams of both organizations."

In his opening remarks to Evarts, Klein recalls, "I said: ‘I am not Howard.’ "

Working quietly in continuing sessions, URMC and Excellus largely healed what had been a chasm-size rift. In 2002, UR had decided to self-fund its health plan and angered Excellus by deciding to hire the publicly traded Aetna Inc. as sole administrator, cutting Excellus out of the contract.

UR’s move to self-fund its insurance plan followed similar moves by Eastman Kodak Co. and Xerox Corp., both then larger employers locally than UR. Excellus did not protest Kodak’s or Xerox’s self-funding decisions. But when UR’s plan to self-fund became public, Excellus organized a save-community-rating campaign that painted UR as acting against community interests and tried unsuccessfully to pressure the university to drop the idea.

Klein says raising a fuss over UR’s self-funding, but ignoring similar moves by Kodak and Xerox, was justified because UR is a large health care organization.

While true, besides being in a state of virtual war with URMC, Excellus also had secured contracts to administer Kodak’s and Xerox’s self-funded plans.

The Klein and Evarts talks by 2006 had helped smooth the way for a deal to let Excellus back into UR as an alternate administrator of the school’s self-funded plan. Excellus since has taken roughly half of the university’s plan-administration business back from Aetna, Klein says.

Relations between the organizations continued to improve. In 2007, Excellus agreed to up URMC doctors’ reimbursements, partially funding the upgrade by agreeing to cut its own margins to less than 1 percent for a year. The move, Klein says, contributed to Excellus’ posting its first red ink in years in 2008, a $54 million loss.

Klein’s dealings with URMC officials since Evarts’ retirement have stayed on track, with former hostilities virtually forgotten.

"I measure relationships by the ease you can do an after-hours call," says Klein, noting that Evarts’ successors and other URMC managers have been open to such contacts. 

URMC chief operating officer Peter Robinson praises Klein’s health care expertise and collaborative spirit. Rate negotiations have never been easy, Robinson concedes. He does not agree with Klein’s conception of a health insurer serving as the delivery system’s front office but sees the relationship of the payer and provider as unavoidably adversarial.

URMC wants the highest reimbursement rates it can get for its hospitals and doctors, Robinson says. Excellus’ imperative is to pay as little as possible. Though Klein never sacrifices Excellus’ interests in the give and take, he plainly can see, understand and even sympathize with his opponent’s viewpoint, Robinson says. 

But asked whether he meant that, given the process’ inherent pitfalls, Klein was the best possible negotiating partner, Robinson demurred, stating he did not want to leave the impression he considers Klein a merely adequate partner.   

"I want it to be clear: I am not trying to damn David Klein with faint praise. I truly admire him," Robinson says.

The rift between Excellus and community-based physicians is far from healed, but relations have improved substantially under Klein, says Nancy Adams, Monroe County Medical Society executive director. 

The RCIPA case took far too long to resolve, a delay doctors blame largely on Excellus’ intransigence, Adams says. A decision, made by Excellus despite community physicians’ vigorous protests, to stop negotiating reimbursement rates through the Rochester Individual Practice Association Inc. and to instead make each doctor or private practice group sign an individual contract, also raised hackles, she adds.

Klein sees the direct-contract fuss as a tempest in a teapot.

"There were a lot of protests at the time; now nobody remembers it," he says.

That is not exactly the case, however, Adams says. Some area physicians feel Excellus steamrolled them on the contract.

Still, Adams concedes, relations between community-based physicians and Excellus are vastly superior to what they were a few years ago, an improvement for which she largely credits Klein. 

Negotiations used to be largely a matter of Excellus telling doctors how it would be and brooking no objection, she says. "(Now) they actually seem to be listening to you."

In the pre-authorization radiology flap, Klein made the first move, sending out feelers to MCMS and initiating discussions to learn physicians’ concerns.

Unity Health System CEO Timothy McCormick-who, citing high turnover among top-level Excellus executives, rates Klein as "not the greatest manager"-is unstinting in his praise for Klein’s grasp of health care issues and his deep concern for the Rochester community. 

McCormick says Unity and Excellus have had their share of tough rate negotiations, but in the end Klein always has been a reasonable partner.

In January, two highly placed Excellus executives-Rochester region president Scott Ellsworth and chief operating officer Paul von Ebers-left Excellus abruptly. Von Ebers’ predecessor, Kevin Hill, who had been with Excellus for some 10 years and also was its companywide president, left under similar circumstances in mid-2007. None of the departures were publicly announced and became known outside the company only after internal memos from Klein to staff leaked. In the memos, Klein spoke glowingly of the departed managers’ service but made no explanation of their reasons for leaving. 

Ellsworth left to take a job with another health insurance company. Neither Hill nor von Ebers had other work when they left. Hill joined Paychex Inc. as a vice president in April 2008. Von Ebers was hired last month as president and CEO of Blue Cross Blue Shield of North Dakota. Excellus, which had been under a hiring freeze during the money-losing 2008 year, did not replace Ellsworth or von Ebers but distributed their duties among remaining personnel.

Financial tumult
Excellus’ 2008 losses had followed surpluses of $197.8 million in 2005, $150 million in 2006 and $84 million in 2007. Klein points to drops in the value of the company’s investment portfolio as the chief cause for the stunning financial reversal of 2008. In previous interviews, Excellus chief financial officer Emil Duda also named a decline in membership and higher claims expenses as significant factors. 

Much of Excellus’ membership erosion has come in its home territories, where it had long faced only one serious competitor, the Preferred Care HMO, acquired by the Schenectady-based MVP in 2006. In 2000, Excellus and Preferred Care accounted for some 99 percent of the Rochester-area private health insurance market, with Excellus controlling some 80 percent. In succeeding years, the ratio tilted to Preferred Care, while Excellus saw declines. 

MVP is continuing to expand in the Rochester and Western New York regions. It recently opened a Buffalo office to capitalize on what it sees as market opportunities in the state’s western reaches, CEO David Oliker told the Rochester Business Journal in a recent interview. This week, it signed a deal with the city of Rochester, cutting out Excellus and putting some 2,900 city workers in the MVP column. 

Like local health care officials, Oliker’s view of Klein is positive.

"David is a strong advocate for his organization, and he’s led it well," Oliker says. "He is uniquely regarded in our industry as one of its thought leaders." 

Klein says Excellus’ Rochester-area market share losses have been stemmed, and he expects to regain at least some of the lost market share. 

Excellus is running ads noting that unlike some of its competitors it has not raised rates. The ads are a clear swipe at MVP, which hiked rates midyear after the state imposed a multimillion-dollar package of new charges on health insurers as part of a deficit reduction program. Excellus decided to forgo a rate hike and is absorbing some $46 million in costs, Klein says.

Growing up in Albany
Klein grew up on Oliker’s home turf in the Capital District. His father, an independent pharmacist, owned a drugstore on New Scotland Avenue, a neighborhood shopping strip in a middle class Albany neighborhood.

"There were three drugstores on a two-block strip," Klein says. "From all I could glean, my father’s was the most successful."

Lessons that Klein, who "sort of lived in the drugstore," took from his father’s conduct of the business were that the customer is always right and to give customers more than a dollar’s worth of value for a one-dollar purchase.

"I got into health care partly because my dad was in health care," Klein says. "I thought I wanted to be a doctor." 

A product of Albany public schools, Klein debated national health care as a high school debater. He stayed in the area for college, attending Rensselaer Polytechnic Institute.

At RPI, he says, "I found I didn’t have the discipline to make it into med school. My grades weren’t good enough."

After graduating with a bachelor of science in management in 1970, Klein went to the University of Chicago, earning an MBA two years later. One teacher in particular impressed him, a national Blue Cross Blue Shield Association official who was teaching a health care management course as an adjunct-Howard Berman.

Berman, similarly impressed with the student, hired Klein to work at the Blues association. Klein continued to work there after he graduated, following Berman through a succession of moves at the organization. Klein left the national association to work for the Illinois Blues in 1985. A year later, Berman recruited him to the Rochester Blues.

Klein met his wife, a fellow employee, at the Rochester Blues. They have two adult sons, 32 and 28; the elder works for an HMO in the state of Washington. 

Klein used to put in innumerable hours at the Blues while carrying a full load of outside commitments. He is a past United Way of Greater Rochester Inc. board chairman and previous president of the University of Chicago Hospital Administration Alumni Association and the Otetiana Council of the Boy Scouts of America.

He still serves as chairman of the health care advisory committee at UR’s Simon Graduate School of Business and is on the boards of Rochester Business Alliance Inc. and Greater Rochester Enterprise Inc. 

He also finds time to hike, exercise religiously with a personal trainer and get in an occasional round of golf. 

Besides changing his outlook on health care, Klein says, Linde’s illness has altered his schedule and changed his view on life in general.

Over the last year, he notes, "people around here have probably noticed that I haven’t been around as much." 

Klein has cut back his hours-now putting in some 40 hours a week-to spend more time at home with Linde. He recently sent a memo instructing Excellus staff not to wait for his return should he be unavailable, but to take issues needing immediate attention to CFO Duda, who is authorized to act in his absence.

"It makes you appreciate what you have," Klein says. "You live for the moment."

rbj@rbj.net / 585-546-8303

David Klein
Title: President and CEO, Excellus Blue Cross Blue Shield, Lifetime Healthcare Cos.
Age: 60
Education: B.S. in management, Rensselaer Polytechnic Institute, 1970; MBA, University of Chicago, 1972
Family: Wife, Linde; sons, Randy, 32, Alexander, 28
Residence: Pittsford
Community activities: Chairman, the University of Rochester Simon Graduate School of Business health care advisory committee; on the boards of: Rochester Business Alliance Inc.,  Greater Rochester Enterprise Inc., Business Council of New York State Inc., Otetiana Council and the Northeast Region boards of the Boy Scouts of America
Leisure activies: Hiking, personal training sessions, golf
Quote: "It makes you appreciate what you have. You live for the moment."
-On coping with his wife’s advanced-stage cancer

08/21/09 (C) Rochester Business Journal. To obtain permisssion to reprint this article, call 585-546-8303.

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