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Health Plans & The Market

Bounceback: Blues Thrive As Markets Cool Toward HMOs

Abstract

 
Enrollment in Blue Cross and Blue Shield (BCBS) plans has grown by almost seventeen million since 1994, and recent financial performance indicators are positive for most plans in the Blues system. These gains have been achieved by for-profit, nonprofit, and mutually owned plans. A journalistic analysis of distinctive features contributing to recent successes is offered, combining observations of financial analysts, health services researchers, and BCBS officials. Long-term stability, broad provider networks, and conservative financial management have given the Blues advantages vis-à-vis many managed care organizations that have lost market share in the same period.

Enrollment in the system plunged from 87.8 million in 1980 to 65.2 million in 1994.² Congressional investigators and the media dug up a humiliating array of managerial failures and misconduct after one plan went bankrupt in 1990 and others ran up huge losses. "The next few years...will likely see the breakup of the Blue Cross and Blue Shield system," a 1996 trend analysis predicted.³

It hasn’t turned out that way. While managed care has gone from revolution to retreat, the Blues have quietly rebuilt their position as the nation’s dominant health insurers. Overall enrollment—including Medicare and Medicaid risk, Medicare supplemental, and cost-plus contracts with self-funded employee groups—rebounded to 80.1 million at the end of 2000. After a 1.9 million increase in the first nine months of 2001, enrollment gains were almost seventeen million over eight years, remarkable by any standard.⁴

What explains this resurgence? The Blues have been assailed by the same market pressures that convulsed other health insurers in the 1990s and have changed in many of the same ways. Some have converted to for-profit ownership; many have consolidated; all have delved into managed care strategies to varying degrees. At the same time, their long history and considerable mass seem to have acted as ballast, often moderating the pace and extent of change in ways that proved opportune when the managed care market softened.

Marshaling comprehensive performance data on all of the Blues and their competitors is beyond the scope of this paper. We have used a "core sample" of recent data compiled by Sherlock Company to illustrate the basic finding that gains have been spread among different types of plans in diverse markets. To further explore the relative importance of management, public ownership, consolidation, stability, network characteristics, and other factors on the Blues’ recent successes, we have tapped a variety of sources including financial analysts, health services researchers, published reports, industry observers, and BCBS officials. We offer the suggestive gleanings from these sources as a step toward further discussion.

Wake-Up Call

Top Wake-Up Call Ownership Matters Economies Of Scale Full Circle Multiversity The Provider Connection Implications And Prospects NOTES

 
Despite their long-standing resistance to external controls, the plan executives who collectively govern the Blue Cross Blue Shield Association (BCBSA) were shaken enough by the 1990 bankruptcy of the West Virginia plan to impose new financial performance standards on themselves. As a condition of keeping their license to use the Blues brand, all plans were required to have a positive net worth by the end of 1992 (eight were in the red when the first standards were approved in 1990). Minimal capital adequacy standards ratcheted upward from there in phases. The net-worth requirements may have helped restrain some plans from engaging in price wars or pursuing cash-funded acquisitions, and increased reserves brought investment income that helped to keep margins positive even during the lean years from 1995 to 1998, when premium income dipped below costs.⁵

Even skeptical outside analysts have noted the results. "Blue Cross Blue Shield plans hold nearly 50 percent more capital relative to their authorized control levels (ACLs) than the industry average," said an April 2001 report by the Connecticut-based insurance research firm Conning and Company, referring to benchmarks established in the National Association of Insurance Commissioners’ (NAIC’s) risk-based capital formulas. The Conning analysis suggests that the increase in reserve levels has acted as a buffer against the sharp swings in price and profitability that characterize the normal insurance underwriting cycle (Exhibit 1). "Maintaining these higher levels of surplus," Conning analysts wrote, "seems to have disrupted the pricing cycle, moderating pricing and, consequentially, producing smaller swings in net margins."⁶

View larger version (17K): [in this window] [in a new window]   EXHIBIT 1 Blue Cross And Blue Shield Pricing Cycle And Surplus Levels, 1966-2000

"Consumers and corporations are coming back to the Blues with a sense that they represent stability," said Ed O’Neil, professor and director of the Center for the Health Professions at the University of California, San Francisco, who has had an inside look at many of the plans in recent years as a consultant. "People assume at a generic level that having a Blues plan or policy is somehow the antithesis of managed care—even if the product they happen to be in is intensively managed," O’Neil continued.⁷

By the same token, the market’s emerging preference for preferred provider organizations (PPOs) in the latter half of the 1990s played directly to the plans’ strength. A longitudinal twelve-market study by the Center for Studying Health System Change (HSC) found that the Blues’ "strong market position in all sites can be attributed to their dominance in the PPO and indemnity product markets," according to HSC staff members Joy Grossman and Bradley Strunk. "In almost every site, respondents indicated that the Blues have the broadest networks among all competing health plans."⁸

Ownership Matters

Top Wake-Up Call Ownership Matters Economies Of Scale Full Circle Multiversity The Provider Connection Implications And Prospects NOTES

 
Under pressure from some plan executives to permit freer access to capital markets, the BCBSA voted in 1994 to begin allowing for-profit ownership of Blues plans. Consumer groups have opposed for-profit conversions because they shift management’s allegiance from plan members to stockholders. Financial analysts and others respond that public ownership improves managerial accountability and performance. In explaining recent enrollment gains and positive balance sheets, ownership differences have some influence but do not appear to be decisive (Exhibit 2).

At the end of 2000 the four publicly traded plans accounted for 11.9 percent of all Blues members, 9.9 percent of revenues, 18.8 percent of net profits, and 15.5 percent of the year’s systemwide membership growth of 5.2 million lives. In the fourth quarter of 2000 they posted average operating margins of 4.2 percent and overall margins of 3.3 percent, compared with operating margins averaging 0.4 percent and overall margins of 2.0 percent for nonpublic Blue plans, according to BCBSA and research by the Sherlock Company.¹⁰ Operating margins reflect the net of premium income and costs, while overall margins are calculated on the basis of additional sources of income including investments. Conning reported that the public Blues had much lower risk-based capital levels than nonprofits or mutuals had, which helps to explain why the latter group had better overall than operating margins. Overall margins lagged behind operating margins among the for-profits.¹¹

In any case, the Blues’ margins were up across the board at the end of 2000. In the fourth quarter, revenues for all licensees were up 23.9 percent from the fourth quarter of 1999, to $33.4 billion. Annual revenue across the system in 2000 was $124 billion, an amount exceeded by only the top three companies on the Fortune 500 (GM, Wal-Mart, and Exxon). Net income for the fourth quarter was up 115 percent from 1999, to $716 million, and investment income rose by 110 percent, to $455 million. Compared with non-Blue, publicly traded health maintenance organizations (HMOs), average operating margins have been weaker among the average of all Blues plans, at 0.8 percent in the fourth quarter of 2000, compared with 2.0 percent for non-Blues.

But the Blues’ margins were improving—by 0.3 percent for operating margins and 0.9 percent for net margins over the fourth quarter of 1999—while non-Blues’ operating margins were down 0.1 percent, and nets were flat. The Blues’ top-line growth rate of almost 24 percent compared with 5.8 percent for non-Blue public HMOs, and the system’s 6.9 percent membership increase in 2000 com-pared with a 0.3 percent drop for non-Blue HMOs. ¹²

Economies Of Scale

Top Wake-Up Call Ownership Matters Economies Of Scale Full Circle Multiversity The Provider Connection Implications And Prospects NOTES

 
The trend toward consolidation and strategic partnerships among the plans has been more pervasive than the conversion trend has been. The larger plans tend to be superior performers, although size per se will not explain performance as well as strong management will explain both size and results. The number of primary licensees in the Blues system fell from 114 in 1980 to 77 in 1990 and 45 in 2000, but this trend parallels consolidation throughout the health sector and cannot by itself go far toward explaining what distinguishes the Blues from their competition.¹³

Consolidations in the 1980s were driven primarily by a one-plan-per-state business strategy and the need to bail out weak plans, but more-complex factors emerged in the following wave. Positioning for regional business was part of the reason Anthem in Indiana went after the Kentucky and Cincinnati plans, although the fact that all three companies were mutuals helped to seal these deals. The Regence Group in the Pacific Northwest comprises the Washington and Idaho Blue Shield plans and Oregon and Utah Blue Cross and Blue Shield. CareFirst now includes Maryland, Delaware, and Washington, D.C. But noncontiguous groupings have formed as well, with the Illinois-Texas (Health Care Service Corporation, or HCSC) consolidation, WellPoint’s acquisition of Cerulean in Georgia, and Anthem’s further growth in New England and the West. Regence and HCSC have dropped plans to affiliate. Pursuit of critical mass and access to capital have driven these reorganizations, typically for needs such as information technology and product development, according to Susan Barrish, the BCBSA’s senior vice-president for plan relations. Interest in national markets and convergence of business strategies may be among the other factors involved.¹⁴

Many of the most important economies of scale in the health insurance business are realized in local markets, especially in provider-related functions such as contract negotiations and utilization management. But Sherlock Company’s analysis found that certain administrative expense savings such as information systems, while minor relative to total premium revenues, can be important relative to profits in a business with such small margins.¹⁵ Nonprofit Blues that merged had an advantage over competitors that ran up huge debts acquiring market share, because these deals did not require cash. They also escaped the risk of losing brand loyalty and generally approached mergers with compatible broad-network products that reduced postmerger confusion and conflict with providers, consumers, and employers.¹⁶

Full Circle

Top Wake-Up Call Ownership Matters Economies Of Scale Full Circle Multiversity The Provider Connection Implications And Prospects NOTES

 
Notwithstanding the advantages of scale and investor ownership, many of the most successful Blues plans in recent years have been nonprofits or mutuals operating in just one state. Plans that enjoyed double-digit annual growth in either revenues or membership in 1999 or 2000 include Florida, Massachusetts, Michigan, Georgia (before acquisition by WellPoint), South Carolina, and New Jersey, as well as the multistate or for-profit companies of WellPoint, Care-First, RightChoice, and Trigon.¹⁷ Understanding the aggregate growth and prosperity in the Blues system, then, requires looking further into how these plans have adapted to their unique environments as well as what they may still have in common.

In a sense, these superficially contradictory characteristics—individual uniqueness in conjunction with a distinctive collective identity—arise from a common source: the plans’ history of strong local roots and relatively stable relations with providers, consumers, and employers. At the same time, it is clear that the Blues’ business practices were badly in need of shaking up and that they probably would not have survived, much less prospered, if they had relied on tradition alone.

The shift toward a new managerial culture and the gradual growth and development of BCBS managed care products during the 1990s have been described elsewhere.¹⁸ Close observers of Blues history noted the irony when this effort lagged behind that of the competition. Discount contracting with hospitals had always been a cornerstone of Blues business. But the plans rebuffed BCBSA leader Walter McNerney’s efforts to push them toward HMOs in the 1970s.¹⁹ The lag worked to the Blues’ advantage when the market turned away from tightly managed products, Grossman and Strunk found. Their enrollment surge corresponds with recent losses at competitors including Aetna, Humana, Oxford, HealthNet, and United HealthCare.²⁰

But disillusionment with HMOs does not fully explain the plans’ recent growth any more than mergers or for-profit conversions do. Some observers cite improved management as an equally important factor. Todd Richter, an influential analyst for Banc of America Securities, believes that "companies that were once viewed as ‘dinosaurs,’ like CIGNA and a number of extremely well-positioned Blue Cross Blue Shield plans—some public, some still private—are exactly the types of firms we believe have the tools to excel in the future." Among the skills Richter lists are actuarial expertise, sales and marketing, claims administration, and network management. "The skills that we believe will be needed to separate the true ‘winners’ from ‘losers’ in the sector are all of those traditional insurance disciplines that were scoffed at as ineffective and/or worthless as recently as 15 years ago. It is amazing how the key criteria for success have come full circle," he concludes.²¹

Responsiveness to customers—another important dimension of managerial strength—has been historically a weakness of the Blues plans, as it is for many large, long-established businesses. They are still perceived as complacent in some markets, Grossman and Strunk found. But the ability that their large provider networks give them to offer purchasers and consumers provider and product choice is an important market advantage. In four of the twelve communities tracked by HSC, for example, Blue plans had been first to market with new, lightly managed products.²²

O’Neil has seen improvements in customer service as well among the plans with which he has consulted. "They’ve changed product design and pricing policies, but the back office in general—customer responsiveness, all of those things—they’ve gotten better," he said. "Unevenly across different markets but still in most of the major markets the Blues are once again something to be reckoned with. Initially, four years ago, I would have said most of the really good action is out in the for-profit part of the Blue community. I don’t think that’s the case any more. Folks have gotten their house in order...[They are] more nimble, more adaptive and responsive to the market."²³

Another managerial breakthrough achieved collectively, according to Barrish, has been the harnessing of card technology to create coordinated interplan benefit administration under the "Blue Card" program. Uniform coverage and service quality for large, multistate employers has been a stumbling block for the Blues for five decades, but the Blue Card helped to push enrollment in these jumbo groups from fewer than 9 million in 1996 to 11.7 million in 2000—accounting for more than 15 percent of the gains since 1994.²⁴

Multiversity

Top Wake-Up Call Ownership Matters Economies Of Scale Full Circle Multiversity The Provider Connection Implications And Prospects NOTES

 
In view of the diversity of the Blues and the looseness of their confederation, the notion of systemwide trends such as enrollment growth or improved financial performance may seem contradictory. The common legacy of brand identity, local roots, stability, and broad provider networks is impressive but inadequate to explain these results, given the importance of managerial vision and competence to achieve them.

Is competence contagious? Former BCBSA vice-president Harry Cain, now retired, suggests that the aggressive management approaches of the more entrepreneurial plans has had a far-reaching influence. "WellPoint and Anthem made an impression on other plans," Cain said, not least because they inspired the fear that if a company grew too weak it might become an acquisition target of one of the growth-minded plans. Additionally, a long-standing tradition of emulation, if not rivalry, within the Blues family was accentuated by reporting requirements adopted with the new performance standards of the 1990s, Cain said. "They all know that all of their peers are going to see their performance. If they’re screwing up someplace, everybody else in the system is going to know it." More constructively, plan leaders recognize that their peers are an important resource. "They want to know what’s going on out there. That’s the way the word spreads. CEOs sit on boards and committees together. They like to brag to each other when they’re doing well," he said.²⁵

The different pathways to success that the better-performing plans have taken, however, indicate that any wisdom shared in the high councils of the BCBSA needs thorough reinvention to work from one market to another. BlueCross BlueShield of Massachusetts, for example, turned its fortunes around dramatically in the late 1990s by disentangling itself from a series of unsuccessful diversification efforts, trimming its sails, and refocusing on its core business. The company sold off ten health centers and a Medicare claims-processing subsidiary, eliminated 3,000 jobs, and shed $32 million in real estate holdings. After losses of $89 million in 1996, the company’s recovery put it in position to benefit also from the struggles of Tufts and Harvard Pilgrim in Boston and increase its membership by 23 percent in 2000.²⁶

In contrast, the Georgia plan, now known as Cerulean and recently acquired by WellPoint, sees its statewide market as extremely diverse and has responded with increasing diversification of its product line. It sells life and disability insurance as well as specialty vision, dental, mental health, and pharmacy coverage. Medical coverage products include the full spectrum of indemnity, PPO, point-of-service (POS), and HMO plans. With managed care now well established in the Atlanta market, the company now plans to solidify its presence in rural areas and small cities where there is little managed care by expanding PPO networks, improving provider reimbursement, and tailoring benefit design to employers’ specifications. Enrollment grew morethan 16 percent in 1999. ²⁷

The Blue Cross and Blue Shield of South Carolina membership grew by only 4 percent in 2000, but revenues grew more than 14 percent. It is an example of a growing trend among plans "to do what they call back-room stuff together," as Barrish put it. "South Carolina has for generations been one of the most technically efficient, cutting-edge companies that we have," she said. It processes claims for Medicare and the Defense Department as well as subcontracting as a claims processor with other Blues plans and other insurers.

The unusual synergies that fueled the Illinois-Texas consolidation are another story, reflecting chemistry between two seasoned chief executives and the chance they saw for the Texas plan to learn from Illinois how to migrate providers and customers to managed care in a resistant environment. Florida’s forays into national accounts have been facilitated by the Blue Card and by South Carolina’s back-room capabilities. After a struggle for regulatory relief, New Jersey bounced back from a $182 million deficit in the early 1990s to double-digit revenue gains in 1999 and 2000. The Alabama plan’s 60 percent market share and thriving investment portfolio allow it to prosper on paper-thin operating margins. Michigan, with a market share above 50 percent, has achieved profitability while being regulated virtually as a public utility. Blue Shield of California improved its fortunes by becoming a pioneer in open-network products—but only when challenged by competition from WellPoint.²⁸

Their history, roots, and relationships created a significant competitive advantage for the Blues plans, but until the market shocks of a decade ago, many of them had forgotten how to use it. "The Blues had an edge, but nobody ever pushed them," said Cain.

The Provider Connection

Top Wake-Up Call Ownership Matters Economies Of Scale Full Circle Multiversity The Provider Connection Implications And Prospects NOTES

 
A recurrent theme in many discussions of the HMO backlash is that the managed care products of the 1990s were largely the concoction of employers and insurers, and that providers—not to mention consumers—were generally left out of the big decisions.²⁹ It is in this dimension of the health insurance equation—provider relations—that the characteristics that most crucially differentiate the Blues plans from their competitors may be found.

Historically, indemnity insurers paid cash for hospital and doctor bills, with deductibles at the bottom and caps on top. Provider contracting was not part of their business. The Blues, though, usually negotiated reimbursement rates with hospitals—and sometimes doctors—that involved discounts, contracts, and rudimentary utilization controls.³⁰ These contractual relationships, as well as early provider sponsorship of the plans, tended to discourage the plans from pursuing narrow networks and aggressive utilization management as the typical for-profit HMOs such as Maxicare or U.S. Healthcare did in the early 1990s. Close provider connections were the principal reason the plans appeared at first to be obsolescent but subsequently less odious than the alternatives.

The Blues "have benefited because they didn’t push those [provider] relationships to extremes," said O’Neil. "They’re still health plans to providers; but they’re at least looked upon somewhat more favorably—particularly by physicians—than some other health plans. They were more likely to bring along the providers—as painful as that process might have been—than they were to, in effect, just thumb their nose and say, ‘This is the reimbursement rate. This is the kind of risk contract you have to take,’" he said. "The downside of that is they were probably unwilling to push the providers in ways that they probably did and still need to be pushed in terms of the organization of practice, the incorporation of new technologies, the utilization of care management strategies. They’ve been a little bit behind that curve."³¹

Typical Blues primary care capitation contracts cover only those professional services that the contracting physician controls, according to BCBSA chief medical officer Allan Korn. Providers may share the savings if inpatient service use falls below target levels, but plans generally cover the risk when target per capita inpatient use is exceeded.³² HMO Illinois, a subsidiary of the state’s BCBS licensee HCSC, defuses provider tension by fostering loose independent practice associations (IPAs), which accept capitation payments but pay their physicians on a fee-for-service basis, according to independent HMO analyst Allan Baumgarten. "HMO Illinois has largely escaped being tarred with the same brush as the other HMOs. Their public image is significantly better" than that of their competitors, Baumgarten said.³³

It would invite ridicule to suggest that any health insurer’s relations with providers have been anything but very badly strained in the past decade. In the more distant past, conflicts and tensions are as old as the Blues themselves, precisely because the plans have negotiated reimbursement rates, discounts, and risk-sharing arrangements with hospitals and doctors from their earliest days. Their very size in the markets where they are dominant makes them a target for the system’s many angry constituents. WellPoint was, not surprisingly, in the middle of a bitter and very public confrontation with Sutter Health over reimbursement in 2000. Massachusetts, Texas, Florida, and Washington State are among the scenes of other conflicts in the ensuing period of provider pushback.

The Blues plans appear to be generally better payers than most of their competitors in the markets tracked by HSC, according to Grossman and Strunk. This works in their favor. "Periodic adjustments in the physician fee schedule...are regularly met with well-publicized outcry," they found; but "because of the importance of the Blues products, physicians generally do not leave the network" and "on some occasions, the Blues are responsive to provider concerns."³⁴ Other recent findings from HSC’s Community Tracking Study suggest that the problem of network instability—an inevitable by-product of pushback—was growing and becoming increasingly worrisome to employers and consumers during 2001 and that plans that could reduce provider churning would reap competitive advantages.³⁵

In April 2001, after a series of meetings with the American Medical Association (AMA), the BCBSA endorsed a list of guidelines for physician-plan relations based primarily on principles adopted by the AMA in 1998. William Mahood, a former AMA trustee who participated in the meetings, said that the theory was that physicians ought to have input into the operation of health plans analogous to the input the medical staff has on the operation of a hospital. The BCBSA guidelines urged plans that hadn’t already done so to recruit network physicians to participate in "clinically-oriented committees" to advise plans on matters such as quality improvement, utilization management, credentialing, formulary development, medical necessity, practice guidelines, and disease management.³⁶

In Texas, for example, a series of conflicts with physicians erupted after the Texas plan merged with HCSC of Illinois early in 1999 and began cutting reimbursement and tightening medical management. "Blue Cross and Blue Shield of Texas was traditionally a physician-led company that emphasized local control," said the head of a Waco medical group. "It has abandoned the historical trusting relationship it had with Texas physicians."³⁷ But the plan has since begun seeking to mend fences with the appointment of a new physician relations executive, efforts to revive lapsed advisory groups, and a new willingness to negotiate on contentious issues such as prompt payment. Officials of the Texas Medical Association (TMA) remain skeptical, but "there are some hopeful signs," said Rich Johnson, director of the TMA’s Division of Medical Economics. "They are making some changes."³⁸

Mahood, a gastroenterologist, said that he doesn’t know how widespread the plans’ efforts to listen to doctors have been. "But here in Philadelphia, Independence Blue Cross has recently indicated that they’re going to give up their capitation plan for specialists, and that has made everybody very happy," he said. Independence was paying a capitation rate for some managed care enrollees on whom Mahood’s practice was losing money. The plan required doctors participating in any of its products to participate in all, and since Blues enrollees represented 35–40 percent of their patients, Mahood and his colleagues could not afford to pull out. "My interest is not in giving kudos to the Blues," he said. "But they have definitely made strides in provider relations in this community."³⁹

Implications And Prospects

Top Wake-Up Call Ownership Matters Economies Of Scale Full Circle Multiversity The Provider Connection Implications And Prospects NOTES

 
The rebound of the BCBS plans corresponded with a change in the market brought about by reduced choice of health plans for employees. Narrow panels worked well when HMOs were alternative delivery systems that employees opted into but became unattractive when employers substituted them unilaterally for free-choice products. In response, many investor-owned plans had to open their panels, paradoxically eliminating their differentiated quality. Moreover, since the investor-owned pioneers had schooled physicians to a more conservative practice style, cost differences between the Blues and the investor-owned pioneers were modest. In this environment, BCBS plans have enjoyed opportunities for success.

But at a time when health insurance markets have turned away from many of the products by which spending growth was controlled in the mid-1990s, all signs point to a period of sharply increasing pressure on costs. Ultimately, the Blues will be judged not by how many new members they picked up after their remarkable turnaround, but by how well they manage the next set of challenges.

With broad networks as platforms supporting multiple products, many of the Blues plans appear to be well positioned for the kind of "tiered network" approach that some observers see emerging to offer buyers a range of trade-offs between choice and cost as premiums rise. The plans’ premium growth in recent years has been above industry averages, and capital reserves are relatively high, which may confer competitive advantages in information technology spending and provider reimbursement. The BCBSA is investing heavily in technology and new-drug assessment to strengthen the plans’ ability to make informed coverage decisions on the frontiers of innovation.

If it is true, though, that the biggest mistake that the managed care industry made in the 1990s was its failure to involve providers more centrally in the redesign of the health system, then it probably follows that the next wave of cost-management efforts hinge on correcting this mistake. "The need for a reemphasis on the clinical legitimacy of health care businesses is manifest. The primacy of physician involvement in efforts to make health care enterprises accountable for quality will be key to any believable efforts," said the position paper on which the AMA based its principles for plan-physician relations, although the paper also takes organized medicine to task for its resistance to change.⁴⁰ The Blues’ local roots and long history give them a potential edge. But the soured relations left behind by the experiments of the past decade will require strenuous efforts to overcome.

Editor's Notes

 
Rob Cunningham, a Health Affairs deputy editor, coauthored The Blues: A History of the Blue Cross and Blue Shield System (Northern Illinois University Press, 1997) with his father, the late Robert M. Cunningham Jr. Doug Sherlock is president of Sherlock Company, a financial advisory business in Gwynedd, Pennsylvania.

NOTES

Top Wake-Up Call Ownership Matters Economies Of Scale Full Circle Multiversity The Provider Connection Implications And Prospects NOTES

 

1. J.K. Iglehart, "Inside California’s HMO Market: A Conversation with Leonard D. Schaeffer," Health Affairs (Winter 1995): 136.
2. "Overview of the Blue Cross and Blue Shield System: March 2001" (Slide presentation, BlueCross BlueShield Association, 2001), 17.
3. L. Etheredge, S.B. Jones, and L. Lewin, "What Is Driving Health System Change?" Health Affairs (Winter 1996): 97.
4. BCBSA, "Overview," 17; and "First Quarter 2001: Performance Update" (Slide presentation, BCBSA, 2001).
5. Conning and Company, The Blue Cross and Blue Shield Plans: Past, Present, and Future 2000 (Hartford, Conn.: Conning and Company, 2001), 40–42; and Susan Barrish, BCBSA, interview, 29 March 2001 (all Barrish statements are from this interview).
6. Conning and Company, The Blue Cross and Blue Shield Plans, 41. Conning was acquired by Swiss Re (Swiss Reinsurance Company), of Zurich and New York, in June 2001.
7. Edward O’Neil, Center for the Health Professions, University of California, San Francisco, interview, 6 June 2001 (all O’Neil statements are from this interview).
8. J.M. Grossman and B.C. Strunk, "Blue Plans: Playing the Blues No More," in Understanding Health System Change: Local Markets, National Trends, ed. P.B Ginsburg and C.S. Lesser (Chicago: Health Administration Press, 2001), 46.
9. Sherlock Company, Pulse (newsletter) (June 2001): iii.
10. Pulse (June 2001): iv–ix; Pulse (December 2000): 1–3; and personal communication with Steve Putziger of BCBSA, 29 October 2001.
11. Conning and Company, The Blue Cross and Blue Shield Plans, 43.
12. Pulse (June 2001): iv–vi.
13. BCBSA, "Overview," 6.
14. Barrish interview.
15. Pulse (June 2001): i–ii.
16. Barrish made these observations, but they are noncontroversial.
17. Pulse (June 2001): vi–vii; and Pulse (December 2000): 4–5.
18. See, for example, E. Friedman, "What Price Survival? The Future of Blue Cross and Blue Shield," Journal of the American Medical Association (17 June 1998): 1863–1869.
19. See R. Cunningham and R.M. Cunningham, The Blues: A History of the Blue Cross and Blue Shield System (DeKalb, Ill.: Northern Illinois University Press, 1997), 180–186; and I. Miller, American Health Care Blues (New Brunswick, N.J.: Transaction Publishers, 1996), 63–100.
20. Grossman and Strunk, "Blue Plans," 48. Competitors’ losses are documented in Goldman SachsGlobal Equity Research, "Healthcare Services: Managed Care United States" (New York: Goldman Sachs, 13 July 2001).
21. T. Richter, Managed Care Industry Overview (newsletter) (25 May 2001): 2.
22. Grossman and Strunk, "Blue Plans," 48–50.
23. O’Neil interview.
24. BCBSA, "Overview," 18.
25. Harry P. Cain II, interview, 18 April 2001 (all Cain statements are from this interview).
26. T. Griffith, "Blue Cross Makes Financial Comeback," Boston Business Journal, 11 September 1998.
27. Cerulean Companies Inc., Form 10-K405, U.S. Securities and Exchange Commission, 29 March 2000, 5–8.
28. These details were culled from Conning and Company, The Blue Cross and Blue Shield Plans; and Barrish interview.
29. See, for example, articles by K. Thorpe, K. Titlow and E. Emanuel, and B. Vladeck in Journal of Health Politics, Policy and Law (October 1999); R. Galvin in Health Affairs (Nov/Dec 1999); and R. Cunningham, "Will United Help Defuse Backlash by Scrapping Authorization Rules?" Medicine and Health Perspectives (15 November 1999).
30. Arrangements between the Blues and providers have never been as simple and one-sided as conventional wisdom suggests, a recurrent theme in Cunningham and Cunningham, The Blues; Cain made the same observation in his interview.
31. O’Neil interview.
32. Allan Korn, chief medical officer, BCBSA, interview, 25 June 2001.
33. Allan Baumgarten, interview, 18 September 2001.
34. Grossman and Strunk, "Blue Plans," 47–48.
35. A.C. Short, G.P. Mays, and T.K. Lake, Provider Network Instability: Implications for Choice, Costs, and Continuity of Care, Issue Brief (Washington: Center for Studying Health System Change, June 2001).
36. William Mahood, interview, 11 July 2001.
37. W. Borges, "Blue Cross Blues: Physicians Worried about Blue Cross Blue Shield’s New Attitude," Texas Medicine (March 2001).
38. Rich Johnson, director, Texas Medical Association Division of Medical Economics, interview, 8 October 2001.
39. Mahood interview.
40. A. Gosfield, "Quality and Clinical Culture: The Critical Role of Physicians in Accountable Health Care Organizations" (Chicago: American Medical Association, Organized Medical Staff Section, internal document, 1998), 23.

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