ALL ABOUT THE CUSTOMER: Blue Cross & Blue Shield of Rhode Island CFO Mike Hudson talks with Mary Beth Flynn, a broker administrator for the health insurer. Despite only being on the job for a year, Hudson has made a big impact on expenses and rates.
Michael Hudson’s motto is his mantra: The customer pays for everything.
Hudson became the chief financial officer at Blue Cross & Blue Shield of Rhode Island in March 2012, after a period when BCBSRI saw its gross revenue dip from $1.6 billion in 2010 to $1.5 billion a year later.
In his first year, he guided the organization toward improved performance in key areas of staffing, operations and supplier contracting, reducing the company’s annual expenses in 2012 by $30 million. By 2014, the company plans to chop its overall operating expense base by 25 percent from 2009 numbers, sending $60 million a year back to employers in lower premiums.
For his work, Hudson earned a PBN 2013 Chief Financial Officer Award in the category of nonprofit (health care, higher education, other).
His take on it all being about the customer, said company President and CEO Peter Andruszkiewicz, who nominated Hudson for the award, “has reinforced the importance of the customer throughout our operations. He has instilled this train of thought in all of us, and it is reflected in absolutely everything we do.”
As an example, Andruszkiewicz says, many customers thought getting myriad explanations of benefits in the mail from BCBSRI was wasteful and expensive. Listening to their comments, the insurer reduced them, saving money and customer annoyance.
“We had to reduce expenses, it’s a never-ending task,” Hudson said. “It’s never easy, sometimes you’re dealing with how people have done things the same way for a long time.”
He said one big area of change was making a number of technology investments, including a claim-management system that’s less manual and also allows for a simpler way of determining rates. He says decisions like those are companywide, as well as pressing suppliers to become more efficient.
Part of the slim-down came at the expense of jobs, which he says was the hardest part of the task. From 2010 to 2012, employee numbers dipped from 1,061 to 938.
“I’ve been on both ends of this, giving and receiving,” Hudson said. “It’s never easy, but I think we treat people with respect and dignity, and try doing it in a way that’s least disruptive and treats them equitably,” such as providing outplacement services, he said.
Hudson has focused his efforts at BCBSRI in three key areas: Improving the company’s financial strength, working to slow the escalation in customer premium increases and reducing administrative expenses.
“Mike has been instrumental in helping us stabilize the cost of health insurance in Rhode Island,” Andruszkiewicz said. “He has done this by working to reduce the primary drivers of costs, which include professional services, hospital reimbursements and pharmacy costs, among others.”
That means making hard decisions, Andruszkiewicz says. After experiencing historically low medical trends in 2011, the company saw much higher costs in 2012, which prompted it to refile its rates for small and large group health insurance premiums in December 2012. The company found that the rates initially approved by the R.I. Office of the Health Insurance Commissioner in September 2012 were inadequate to cover member medical claims and operational costs in 2013 and beyond.
“Though this tough decision was initially unpopular,” Andruszkiewicz said, “Mike took it upon himself to educate both the regulators and the business community on the decision. Making tough decisions like this underscores Mike’s commitment to the financial viability of our organization and the long-term moderation of health care costs for Rhode Island.”
He’s done it in a variety of ways, including negotiating contracts with hospitals and doctors in which a greater percentage of reimbursement is linked to quality outcomes rather than volume of services.
Hudson is big on transparency, too, making cost and quality data accessible to customers through the company website. That came at the behest of the Rhode Island Business Group on Health after BCBSRI filed for higher rates, Andruszkiewicz said, calling it “a request we took very seriously.”
The company also recently signed a three-year contract with a nationally recognized pharmacy benefits manager to negotiate better pricing with pharmaceutical manufacturers. That decision was made before Hudson’s arrival, but Andruszkiewicz says he has played an important role in leveraging the positive financial implications of the transition. “The effort is expected to save $65 million over the next three years and reduce the average annual premium increase for fully insured employers and consumers by roughly 2 percent in 2013,” he said.
The work of making a major company more efficient takes up much of Hudson’s time, he says, but he still manages to help in the outside world. He volunteers at groups like Crossroads Rhode Island and Amos House, and volunteered at BCBSRI’s first companywide service day last fall at the East Providence Boys & Girls Club.
That sort of work isn’t exactly up his professional alley, but he also volunteers for one that is: Through CityYear, he mentors two young people with aspirations to be actuaries.
“After I got over the surprise that young people wanted to be actuaries,” laughed Hudson, a fellow in the Society of Actuaries and member of the American Academy of Actuaries, “I said I’d be happy to do it. Over my career, someone has always helped me, not out of duty or obligation, but because they wanted to give back to someone. I feel the same way.”
And he wants to do more now that BCBSRI is “on a better trajectory to improved finances,” perhaps even coaching youth baseball, which he had done when his children were younger.
“Kids maybe don’t realize it at the time, but sports teach such life lessons,” he said. “You may not get a hit every time you get up, but it doesn’t matter. It’s how you pick yourself up and learn from it. It’s a lot of fun helping kids gain that confidence.” •