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President Clinton's health care reforms are expected to drive hundreds of thousands of health insurance agents out of business and push Americans into health maintenance organizations (HMOs) at an even quicker pace.
Fortunately, Blue Cross ad Blue Shield of Maryland correctly foresaw the future of managed care. Facing a Blues shrinking market for traditional indemnity coverage, Blue Cross wasted no time in changing its image from caretaker to caregiver.
But not everyone is convinced that the Blues can hang on to their preeminent position in Maryland in the face of cutthroat competition from large national players who can afford price wars and a few quarters of red ink.
Staking out a market and developing a strategy to hold on to it are among the biggest challenges facing Blue Cross and Blue Shield president and CEO William L. Jews as the industry braces itself for health care reform.
To be a major player you've got to not only be big, you've got to be able to offer the best price--even if that means taking a loss for a while, says Bruce Marsden, a health care principal with the consulting firm William M. Mercer Inc.
"The big, more efficient companies can underprice small players and wait it out. They can go three or four years without earning a profit," Marsden says. "Then you look at Blue Cross and say 'How long can you go without a paycheck?' and they say 'Well, until next Tuesday.' "
LAYING THE GROUNDWORK
When Carl J. Sardegna signed on to run Blue Cross and Blue Shield of Maryland in 1985 he saw the future and it was managed care.
Eight years later, Sardegna's out--he was forced to resign in an executive shakeup--but managed care is still very much in favor at the Blues.
An aggressive acquisition strategy paralleled by heavy financial support within the company helped the Blues build up what is now the second largest managed care network in the state.
Blue Cross owns two managed care subsidiaries. One, CFS Health Group Inc., owns CareFirst, FreeState, Potomac Health and its most recent acquisition, Delmarva Health Plan. The other, Columbia Medical Plan, is a staff-model health maintenance organization (HMO).
Jews' first mission when he took over was to remake the company's...