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Ronald Compton says he believes in bold moves. His actions back up his words.
Within four months between late 1995 and early 1996, Mr. Compton, the chairman and CEO of Aetna Inc., transformed what had been Aetna Life &*Casualty Co. from a multiline insurer into a managed health care giant. First, he sold Aetna's property/casualty business for $4 billion to his Hartford, Conn., neighbor, Travelers Corp., in December 1995.
Four months later, Mr. Compton snapped up U.S. Healthcare, the second half of his one-two punch for restructuring the company and making Aetna the nation's second-largest managed health care company.
The dual moves mark the culmination of Mr. Compton's tenure as head of the venerable Hartford-based insurer, where he has been chairman and CEO since 1991, stepping up after three years as president.
Mr. Compton, 64, has announced his retirement from Aetna, effective March 1, 1998, ending a career at Aetna that started in 1954.
He discussed the present and future of managed care and Aetna's place in it with Associate Editor Michael Prince.
What was the main impetus for restructuring Aetna away from the property/casualty business and towards managed health care?
I guess several things. First, Wall Street wasn't giving us any credit for being a multiline company.
Second, having solved a lot of management problems in the past that I had to confront when I came into this job, we were now in a position to move the company forward and I'm a believer in bold moves. We had a ninth-place property/casualty company and a second or third-place health company. While we had enough money to do anything we wanted to do, the fact is to invest heavily in both of those businesses would have not been, in my judgment, the best use of the shareholder's money. So, we had to make a decision on what business we wanted to be in and the health care business and its allied businesses came out a clear winner.
I came out of the P/C business myself. I knew what it would take to reposition Aetna back to where it had been in its glory days in the P/C industry of the 1950s and '60s. And that would have caused us to have a lack of focus, I think, in the other businesses.
So I came to the conclusion that it was better to divest the P/C business in some way that would benefit it and then focus our energies and capital and human resources on health and financial services.
Did you see anything in managed care that swayed your thinking towards the move?
Yes. "Demographics is destiny," a friend of mine once said. And we demonstrated that managed care can improve quality and constrain costs. And that's something that society needs badly and we know we can do it because we've done it and the demographics are there.
So we believed that we could provide a large number of people with very high quality medical care at an affordable cost.
Was there any one incident or fact that tipped your thinking in favor of managed care?
No. I don't believe in making decisions on sort of one anecdotal thing. The evidence has piled up over a couple of decades. Managed care has snowballed. It's still picking up speed. Ultimately 80% to 90%of people in this country will be in some form of managed care. It's just the business to be in if you can do it well.
So is that how you see managed care evolving in the future, growing more and more?
Oh sure. I mean over the near- or mid-term people will continue to move from fee-for-service plans to managed care because the quality is better, the cost is better. In addition, you have this whole Medicare population out there.
So the future -- particularly the near- and mid-term future -- for managed care is terrific.
There have been many stories about patients' dissatisfaction with managed care. In addition, many measures have been passed regulating the managed care industry, such as those that mandate minimum coverage for hospital stays for certain procedures or those that regulate the HMO-provider relationship.
Are these laws necessary?
Absolutely not. There is a large group of people out there that would like to see managed care done away with. And they keep trying all the time. There are thousands of bills in the state legislatures every year, such as any-willing-provider bills and others, meant simply to do away with managed care. It's nuts.
The government should not be interfering between us and a provider. Notwithstanding what anybody attempts to do, the public wants managed care. A lot of people out there are kicking up a lot of stuff about dissatisfied people.
The reason you and everybody else hear about it is because of the fax machine. They fax this stuff to the media and to Capitol Hill and all over the place. But for every one of those, I've got five or 10 or 100 people who are very, very happy. Our patient surveys show very high satisfaction with managed care, higher in some cases than with fee-for-service.
I'll put it this way. I've moved six times in business. Every time I move I have to find a new doctor. Who do you think is better at vetting doctors, your next-door neighbor or us? You move and you're in our plan, we give you a list as big as a phone book full of doctors. All have been vetted, all experienced with us. So naturally, satisfaction is going to be higher.
Are there things that are going to go wrong? Sure. There are things that go wrong with everything. But we fix them. We try to keep incidents of that down to an irreducible minimum.
I get letters from people that would tear your heart out. A lady from New Jersey sent me a picture of two little girls and a little boy. And she wrote me this letter about how without us these two little girls would not have this brother who had to have open heart surgery at some god-awful early age, like 18 months, and how his whole family was certain they would lose their home because of the enormous expense of the surgery. And they couldn't believe it when they found out it was costing them zip. Nothing. I've got a pile full of that stuff.
Why aren't those stories talked about by politicians and reported by the press?
Come on, when was the last time a politician ever told you something positive? It doesn't happen. There are a lot of people in political life that I admire and I like. But the fact is they get along by finding things wrong and fixing them. Whether they're wrong or not or whether they need fixing or not, that's what they do.
I'll give you an illustration of what we do that you can't do outside of managed care. We know every diabetic in our HMOs. We also know everybody who has had an eye exam. And as you may know, you can go blind from being diabetic, except if it's caught in the early stages of incipiency. Then, there's a laser surgery that can prevent you from going blind.
So we simply match up all the diabetics, and there are tens of thousands of them, and match them up with all the people who've had eye exams in the last year. And if someone is diabetic and has not had an eye exam, we contact them and their physician to make sure that one happens. And the last statistics I saw, we had something like 300 people who had not done that and 47 of them had this laser surgery and did not go blind. I tell these stories all over Washington and state legislatures and they never get to the press because it's not news. Being against something is a much better vote getter than being for something.
What role, if any, do you see government playing in health care?
Several roles. I'm not one of those people that says the government has no role anywhere. That's silly. First, it is the government's job to punish abusers, whether they are serial killers or ripping off Medicare, and I know there is a big difference morally, but it's the government's job to outlaw things that are wrong.
In addition, it's the government's job to take care of people who can't take care of themselves. Government should also be educating people about how to stay well.
I think where there are abuses in the system, drive-through deliveries, drive-through mastectomies, then someone has to level the playing field and say, "Wait. Industry shouldn't be doing it." But if that occurs, then sometimes we'd need government assistance to level that playing field and make sure everyone is playing by the same rules.
What influence will purchasing coalitions have on health care. In Minnesota, for example, the Buyers Health Care Action Group has been an influential player and now purchases health care directly for its members. Do you see other employer coalitions developing and then directly purchasing health care from providers and squeezing out the HMOs or other intermediaries?
First, purchasing cooperatives. I think there will be lots of experiments, lots of different ways to go about buying health care and I think purchasing cooperatives for certain kinds of businesses are very good.
Second, is how about buying directly from the providers. My view is they can't do it as well as we can. And I think over time I'll be either proven right or wrong. But right now the evidence is they're not going to squeeze out HMOs.
They're not going to be able to keep up with us. Quality in medicine is a direct function of turning data into information.
Take my eye exam and diabetes thing. We have identified 30 of those, including congestive heart failure and asthma. Well, it takes big to be able to do that. So while they might have a really fine group of physicians offering their services, I doubt if they can in any conceivable way make the capital investment in those kind of data systems. We have one very expensive system that goes all the way across the country and is therefore optimized in terms of its usage and costs.
So we'll compete with them. I love to compete. I'm a competitive guy and let's see who does the better job.
You mentioned the advantage of size. By purchasing U.S. Healthcare, Aetna became one of the largest managed health care companies in the country. Is size important to success in managed care, or can smaller, regional companies continue to play major roles?
I think the regionals are going to provide a tremendous level of quality service. There are some exceptionally well-run, very caring, very high-quality regional HMOs. And they are top competition. They can't do some of the things we can do easily, such as countrywide service. If you work for one of our big Fortune 500 clients and you moved from here to there, you're still with us, whereas if you're with a regional you have to make a shift. But, they're tough competition, which is good, because it keeps us on our toes and makes us think all the time about the customer.
Do you see other large insurers making the move Aetna did away from the property/casualty business and towards managed care?
I think it's not so much a getting away from property/casualty as it is focusing. Now, my friend Sandy Weill at Travelers went towards property/casualty and focused that way. I don't think there's anyone running away from the P/C business.
I think it's a matter of focus and the reason it worked so well between Travelers and us was because for each of us it was a win-win thing. Each of us got the opportunity to focus on what we wanted to focus on. I mean he was number 11 and we were number nine and you put them together and they are number three in the commercial business. Hey, wait a minute, that's good for everybody.
The past few years have seen impressive reductions in health care inflation and in some cases a lowering of costs to businesses. But many people are saying those days are over and costs are starting to head up as it's not possible to squeeze further savings out of medical pro-viders. How can managed health care companies continue to control costs without cutting quality of care?
Well that's simple. Let me answer your first question first, though. Yes, prices are going to rise again. But bear in mind where they've been. They've been at zero increase, zero increase and 3% That's a three-year average of 1%. Now we're looking at 3%or 4% which is a touch above the consumer price index. But I can remember the late '80s when we were having back-to-back 20% years in the fee-for-service business.
Second, cost has nothing to do with quality, nothing. Let's take my eye exam/diabetes example. That's quality. That's somebody not going blind. But it's cheaper than someone who goes blind. They used to say in ancient China you paid your doctor when you were well and when you got sick you shut him off. That's a big incentive for the doctor to keep you healthy.