The expanding role of managed care organization COO

In the managed care and health insurance arena, it has become more common for a chief operating officer (COO) to slide into a vacant chief executive officer (CEO) role. J.D. Hickey recently made that move for BlueCross BlueShield of Tennessee, as he capitalized on previous experience as a CEO and as a McKinsey consultant. Kenneth Burdick also made this transition for WellCare Health Plans-he, too, is a former CEO, most recently at Blue Cross and Blue Shield of Minnesota.

PadillaPart of what is happening is that the insurance or managed care COO role has expanded greatly in recent years, with responsibilities becoming more strategic and aligned with those of the CEO. As with Hickey and Burdick, executives often transition back and forth between the two roles within different organizations. The traditional perception of the COO role, across industries, is that it is there to free up the CEO to do more visionary, creative work. The COO takes care of internal business so that the CEO can look externally.

Yet what we see among health insurers is that COOs are being used in varied and creative ways. There isn’t quite the clear separation of the two positions as in the past, and COOs are now being valued for their ability to take on responsibilities well outside traditional operations. Some organizations are just hiring their first COOs, building in responsibilities that fit their present needs rather than borrowing any template for what this executive is supposed to do.

Profiling today’s COO

KratzIn preparation for this article, we reviewed leadership profiles written for recent recruitments of COOs within health plan and managed care organizations. It is interesting to note the shift in language and word selection for these position descriptions in the past few years. In addition to statements oriented towards traditional COO responsibilities-e.g., operational oversight (enrollment, claims, IT, HR, etc.), staff supervision, process and performance improvement, provider contracting, budget management, and basic business development-COO descriptions require this next-generation executive to do plenty of CEO-like tasks:

• Partner with the CEO to drive strategy and results;

• Embrace the strategic issues of the organization;

• Challenge the status quo and bring in fresh ideas;

• Seek out strategic partners for quick entry into new business products;

• Align marketing and sales goals;

• Implement creative customer service strategies;

• Be a highly visible spokesperson in the community;

• Integrate organizational mission and values into management practices; and

• Show an ability to lead in a diverse environment.

The elements above suggest that the COO role, as constructed now, is becoming much more visible, vocal, and proactive in health insurance organizations. It is definitely a role with more sales, marketing, product development, and partner/client interaction woven in.
 

Next: The DNA of the COO

Chameleons

This evolution is happening across many industries, not just in healthcare. A recent Ernst & Young report, “The DNA of the COO,” notes that one-third of all COOs have seen their responsibilities significantly increase in the past five years. One reason is that, unlike with other C-suite roles, the COO does not have clearly defined professional standards and common expectations. The position is malleable. “COOs have to adapt, chameleon-like, to the environment in which they find themselves,” the report noted.

The COO is often considered the heir apparent to the CEO, which can have drawbacks. Hiring a COO can be a clear signal to other top executives in the organization that they are not next in line for the top spot, perhaps prompting them to leave for other professional opportunities. In some industries, companies have gotten rid of the COO position altogether, as the CEO has, by necessity, become more hands-on and operational. (See “The Case of the Disappearing COO” and “Why are COOs on the Decline?”).

We don’t see this happening broadly in the health insurance marketplace. COOs (or executives with various other titles with operational priorities) are growing in number and prominence. A number of factors are contributing to this trend:

• CEOs have too much on their plates. With the entire healthcare marketplace reforming, CEOs cannot run organizations on their own. They need a strong team and COOs can be critical for consensus-based decision-making and general support.
• Health insurance has become a retail industry. More than ever, patients and purchasers are consumers, and payers are taking on a retail orientation that incorporates elements of sales, marketing, advertising, and customer service, and understand the fundamental link between operations and strategy in this regard. They are populating their executive teams with leaders who can help to change their organizational mindset and approach. Health Care Service Corporation, for example, recently tapped Paula Steiner, its chief strategy officer, to take over for retiring CEO Patricia Hemingway Hall. Steiner’s experience in the firm had run the gamut from retail to regulatory, public affairs and advertising. Generalists are gaining in demand, and COOs often fit this description.
• There is a greater need for succession planning. Having a strong COO can be, well, insurance against the CEO leaving. Given today’s high turnover rates (and retiring baby boomers), health insurers are understandably wary of having to fill a huge void at the CEO position. The COO can at least serve as a stabilizing interim until another CEO is hired.

COOs are usually known commodities. In situations where a COO is promoted internally, it is often because this executive is, for lack of a better phrase, a bird in the hand. Hiring an outsider brings with it clear risks, and internal hires can lend predictability and stability in times of turmoil. When W. Patrick Hughes retired as CEO of Fallon Health, the organization turned to a “proven leader” with an operational orientation as its interim, Richard Burke, then president of senior care services and government programs. Burke’s background is varied and also includes M&A, compliance, government and regulatory affairs, and more.

Provider experience welcome

With the proliferation of strategic alliances between payers and providers (and many providers entering the insurance business), health plans and managed care organizations are looking for COOs and other executives with experience in both worlds. Quite simply, “operations” have become a lot more sophisticated than at any other time in healthcare’s history. The COO role is necessary for organizations to survive and thrive in tumultuous times, and payers have taken note.

Stephen J. Kratz is a senior partner and head of the Health Insurance and Managed Care practice at the executive search firm Witt/Kieffer. Donna M. Padilla is a senior partner and vice chair of the firm’s Healthcare practice.