Insurers and Insurance and WellPoint and Health Care & Life Sciences and Health Care & Insurance and Angela Braly

WellPoint board member says Braly still backed as CEO

August 13, 2012

A WellPoint Inc. director said there’s no move by the board to fire CEO Angela Braly and he dismissed Wall Street critics for “worrying every little month what’s going on.”

Lenox Baker, a retired cardiac surgeon who has been on the board of the Indianapolis-based insurer for about a decade, said any pressure to oust Braly was coming from investors and the board is a “pretty solid team” in supporting Braly.

“Angela, I think, has done a great job,” Baker said in a telephone interview from his ranch in Wyoming. “Quite frankly, I think some of this stuff with the company is coming from Wall Street. I’m much more looking to the future.”

WellPoint, the second-biggest U.S. health insurer, reported earnings last month that missed analyst estimates, said it would lose 900,000 members and reduced its 2012 forecast. Two investors, citing a litany of complaints, identified Braly as the reason for the company’s troubles.

“There’s a universal view that the CEO is the wrong CEO to lead the business,” said Leon Cooperman, one of two investors to speak publicly about Braly’s tenure. Omega Advisors Inc., Cooperman’s New York-based hedge fund, held 2.1 million WellPoint shares, or about 1 percent, as of March.

Similarly, Orbimed Advisors, which held 1.25 million shares in March, attributes “management missteps,” to WellPoint’s poor performance, said Kuhn Tsai, an analyst at the New York-based investment fund.

Baker became a director of health insurer Anthem Inc. in 2002 and remained on the board when Anthem merged with WellPoint Health Networks Inc. in 2004. He disputed the idea there is any pressure on Braly from the board to improve the company’s results or else step down.

“We’re not hearing it inside the board room,” he said.

Braly, 51, a lawyer by training, became CEO in 2007 and added the title of chairman in 2010. Since she took over both jobs in 2010, the company has lost $9 billion in market value as its stock fell 8.5 percent.

In comparison to WellPoint’s results, the shares of UnitedHealth Group Inc., the only U.S. health plan that is larger than WellPoint, have soared 53 percent in the same time.

The results “put an exclamation point on the differences between United and WellPoint,” Carl McDonald, a Citigroup analyst in New York, wrote in a note to clients. “Time may be running out for WellPoint’s management team.”

Baker blamed medical claims fluctuations for some of the company’s financial results.

“A little of this is out of our control, when claims start going up,” he said. “Whenever you’re not doing as well as you’d like to do, you’d like to do better.”

Baker’s comment “shows that he is out of touch with the shareholders,” said Gordon, the University of Michigan professor. “Their discontent is not as he says about ‘worrying every little month.’ It is about years of underperformance. It’s not the shareholders who are asleep at the wheel.”

Gordon predicted Braly will have at least until early 2013 to right the ship as her board awaits the close of the $4.9 billion Amerigroup Corp. acquisition announced last month.

The deal is the largest since Braly became CEO. It adds 3 million members to WellPoint’s rolls, and is scheduled to be completed by March 2013. In the meantime, the board probably considers it important for leadership to remain stable, said Erik Gordon, a University of Michigan business professor.

“This is the pattern you often see before a CEO exit is negotiated,” Gordon, who follows the health-care industry, wrote in an e-mail. “But she bought herself some time because it would be unusual to remove a CEO in the middle of a major acquisition.”

Critics have cited a list of complaints with WellPoint’s management, including well-publicized difficulties forecasting medical costs and setting premium prices, as well as executive ousters under Braly that some contend gutted the company of valuable expertise.

Investors “are questioning her leadership,” said Ana Gupte, a Sanford C. Bernstein & Co. analyst in New York. “But they don’t know who the replacement would be. You need to have somebody waiting in the wings.”

The pending acquisition also makes it “tricky” to change leaders at this time, according to Gupte. “To get a half- billion dollar deal past a board requires jumping through a lot of hoops,” she said.

Braly declined a request for an interview through Kristin Binns, a WellPoint spokeswoman. “These are challenging times, but we believe we have the right long-term strategy in place to win in the market,” the company said in an e-mail.

The decision to buy Virginia Beach, Va.-based Amerigroup, announced July 9, will make WellPoint the largest private provider of Medicaid plans for low-income patients. The program is expected to add more than 15 million people over the next decade, under President Barack Obama’s health-care overhaul, just as states also look to save money by contracting more of their Medicaid business to managed-care companies.

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