Welcome to the "Lessons from the C-suite" series, featuring Advisory Board President Eric Larsen's conversations with the most influential leaders in health care.

In this edition, Pat Geraghty, president and CEO of GuideWell Mutual Holding Corporation, talks with Eric about GuideWell's inception and "stratospheric" growth; the organization's first-of-its-kind partnership with the Columbia-based comprehensive health company, Sanitas; and his life-defining experience on an Israeli kibbutz.

Pat Geraghty, president and CEO of GuideWell Mutual Holding Corporation

Reinventing the structure of a Blue plan

Question: Pat, we're going to touch on a lot during our conversation today, including of course GuideWell's response to the pandemic and the structural changes you see stemming from that. First, however, I'd like to ask about GuideWell's inception and subsequent growth—after becoming CEO of Florida Blue in 2011, you then established an umbrella holding company in the form of GuideWell in 2014. That governance shift clearly catalyzed a lot of diversification and growth, as the enterprise grew 250% from $8 billion to now $20 billion, 3 million commercial lives, 160,000 Medicare Advantage (MA) lives, and a total of 27+ million people served across 45 states. What was the impetus for the 2014 restructuring, and how was the model conceived and implemented?

Patrick Geraghty: When I arrived here in 2011, we were known simply as Blue Cross Blue Shield of Florida, a health insurance company. And though we had been successful, we knew health care was changing and we didn't accept that what we were doing currently would make us successful going forward. So, the idea behind creating GuideWell was converting a mutual insurer into a mutual insurance holding company. That change did several things for us, but, primarily, it made it easier for us to diversify and grow our business both vertically as a Florida-focused insurer and horizontally as a health solutions company with an increasingly national footprint.

As a Blue company, we operate with the Cross and the Shield in our defined service area, which for us is Florida. We knew we wanted to go all in on the Affordable Care Act (ACA)—all 67 counties, all products—but we also knew we wanted to have some other things in our arsenal, both inside and outside the state. For example, ownership and partnering on direct delivery of medical services, was something we needed to differentiate us in the marketplace and because it gives us greater ability to deliver quality access and affordability of coverage to our members.

Under the GuideWell banner, we offer direct delivery of health care services in a variety of ways. There's Sanitas, GuideWell Emergency Doctors, two-staff model HMOs, and a medical group over in the Tampa marketplace all caring for our Florida Blue members and others in the state, as well as services other GuideWell subsidiaries provide to Blue companies across the country.

Overall, we operate in a total of 45 states, with 27+ million people receiving some kind of service from us—that's five million in the core health care business in Florida, plus another 20 million who are receiving some kind of service from us. Through a company called GuideWell Source, we're the Medicare traditional payer in a dozen states and in three jurisdictions; in fact, we provide payment services to a third of the traditional Medicare business in the country.

Our mutual holding structure allows us to impact access to quality care outside of Florida. But the real game changer is coupling that with our mission-driven, policyholder-owned model. We answer to Main Street, not Wall Street, in contrast to our publicly traded competitors. This model fundamentally aligns incentives with the best interest of our members, giving us the ability to bring them new solutions. By combining our nonprofit status with our broad flexibility to innovate, we're reimagining health care—which is increasingly important as we navigate today's challenges.

Q: When you disaggregate GuideWell's revenue, how much is attributable to the five million customers you serve within Florida versus the services you provide over the broader 45-state geography?

Geraghty: Our revenue is disproportionately generated in Florida in the traditional lines of business, but what we've done with the GuideWell structure is increase our optionality and the diversity of our product portfolio. We've put together a framework that we'll be able to build on for decades to come.

Under our former structure as a mutual insurance company our capital was regulated by our home state's insurance department. But, many of the things we are doing—owning or partnering on medical delivery, providing a service that was outside of our service area, etc.—wouldn't really come under the banner of a home-state insurance regulator, because many of those activities aren't insurance activities. Having the ability to move capital out of the insurance entity and into the holding company so we could deploy it more rapidly has contributed to the well-being of the organization and given us the ability to better serve all our customers and members. Our structure contributed to our ability to grow from an $8 billion business to a $20 billion business—a 250% growth of the company.

Q: Can you speak to how this strategy was received—and whether there's interest in replication—in the broader 36 Blue Cross Blue Shield ecosystem?

Geraghty: I can tell you some other Blue CEOs talked to us after we created GuideWell and said, "That's a structure I wish I had, or "I wish to get as close to that as I can." Since then, a number of others have filed to try to change their structure, and those who had leeway have tried to create something similar, because they saw the benefits of having a GuideWell structure.

Vertical integration and forging a first-of-its-kind partnership with Sanitas

Q: Let's talk about vertical integration—the strategic decisions GuideWell made early on about partnering with and even acquiring clinical delivery assets. While other Blues have pursued variations on this strategy—Highmark acquiring Allegheny Health Network, or Blue Shield of California acquiring multispecialty group Brown & Toland through its Altais subsidiary—GuideWell has certainly been a pioneer in this regard, starting with your Sanitas relationship. Can you give us a history on this for GuideWell?

Geraghty: I should give credit where credit is due first: Our staff model HMO, the Florida Health Care Plan, was here before me, but it had been walled off and not fully integrated with our business—and that wasn't our model for the future. We wanted to find out how integrated delivery could differentiate the organization overall.

We were looking for new opportunities in the marketplace, particularly around the ACA rollout. It was back in 2013, and I was doing a town hall event in a Cuban restaurant in Tampa, talking to people about the ACA. At the end of my talk, a gentleman passed me his card and proceeded to introduce the Sanitas organization to us and, as it turned out, he happened to be a board member for Sanitas.

Sanitas is a comprehensive health company that builds medical clinics—hiring the physicians, running the facilities—that, while geared toward the Hispanic population, serves everybody. Its parent company is out of Spain, but the health care part of that organization, based in Columbia, serves people all over South America.

After that introduction, we met with Sanitas leadership, and we were immediately impressed. We connected with them in a very effective way, and ultimately partnered 50-50. Our partnership with Sanitas has been extraordinarily collaborative. We opened just three clinics in Florida for the ACA's first open enrollment, and since then, we've grown to more than 30 clinics, serving more than 220,000 members. And it's made us the first U.S.-based health plan partnered with an organization from outside the country to deliver health care in the United States.

Florida Blue and Sanitas have both learned a lot of lessons. We've learned about how health care could and should be delivered, with Sanitas' "whole person, whole family" approach toward providing care. This partnership encouraged us to do more in direct care delivery. As for Sanitas itself, it's quite an ambitious organization; and they have learned the nuances of care delivery in the United States.

Q: What is Sanitas' target demographic? Is it in the senior community? The commercial community? And when you step back and evaluate the efficacy of the model, is it really centered around medical loss ratio, Net Promoter Score (NPS), or keeping the folks within the GuideWell community long-term?  

Geraghty: We established our relationship with Sanitas to be very ACA-oriented; we needed a trusted delivery system that we could build on to serve the ACA population, and—because Florida has a reputation for expensive care—we needed an organization that was going to be a game-changer when it came to lowering costs while delivering very high quality care.

The Sanitas partnership is a homerun for Florida. Sanitas is efficient, excels in care delivery, connects well with the community—including the newer markets of Orlando and Tampa. Sanitas has met all the performance standards, in particular driving up our NPS significantly. People had a brand identification with them from South America, and that has translated well in Florida.

Diving in on capitation, site-of-care shift, and new delivery modalities

Q: In addition to the direct ownership and contracting with providers GuideWell has pursued, what are some of the broader innovations you're championing relative to different modalities of care (e.g., virtual) and sites of care (e.g., home)?  Which of these do you think will endure in a structural way post-pandemic?

Geraghty: We've done a few other things in the space, such as PopHealthCare, our at-home medical delivery acquisition. What I like most about PopHealthCare is the focus on at-home delivery of care. There is a tremendous opportunity in combining technology with the convenience of having that care delivered in the home. We think it's critical to have relationships with hospitals. We are not interested in getting into the hospital business directly.

As we go forward, we are interested in investing in things that bring technology, convenience, and disruption to the existing model. In fact, you may have noticed that in the Teladoc-Livongo merger, we were the first big customer they announced. Now, we had an existing relationship with Teladoc; we had a million of our customers on the Teladoc platform when Covid-19 hit, so we were able to quickly scale that up for a lot more people and open it up for more of our system.

Remote care is here to stay. Some people say, "Oh, when we get back to normal," but we see this as our new normal, and a very large chunk of that new normal—not all of it, but a lot of it—is going to happen virtually. So we're a big fan of bringing technology to the home and allowing people to have a mobile app that allows them to get their care from where they want, when they want. That's not going back in the bottle.

Q: Let's unpack this. Given your relationship with Livongo-Teladoc, I'm curious where you see the new equilibrium with telehealth utilization. In terms of telehealth visits, we went from sub 1% in early March to nearly 20% mid-summer, and now we're finding an equilibrium point in the mid-teens. What do you think is the new structural level we'll settle at post-pandemic?

Geraghty: I think those percentages are going to steadily grow; I don't see this as capping out in the teens. Now, some of that's generational; the younger generation is going to grow up expecting it and pushing for it, so that growth will come with time. Some of it will grow because the system of providing telehealth will get better—more effective, more convenient—and that will make it more appealing to consumers. Employers will really embrace this because remote care can be scheduled more conveniently and not take someone out of the office for half a day to go to an appointment, and that impacts productivity.

I'm bullish on telehealth and we will position our organization to play a big role in it. We've talked about the physical health, but telehealth in the mental health space offers a lot of opportunity as well. Many people, once they've established a relationship with a therapist, are really comfortable having their visits via telehealth—it's more convenient and it helps reduce the stigma around walking into a physical office. So we anticipate a lot of upside growth in both those areas.

Q: While I agree Covid-19 will accelerate migration to capitation on the ambulatory side, I wonder how much of a conversion we're ultimately going to see on the facility side. The academic literature suggests health systems need a third of their revenues fully capped to make the economics work, and the average for the top 100 health systems for full capitation, pre-pandemic, was nowhere near that level—it persistently leveled out below 2%. So a big gulf to make the math work.

So while I believe we'll see an acceleration to risk on the ambulatory side, now supported by tailwinds in the public and private markets, I wonder how much risk we'll see embraced by hospitals and health systems post-pandemic. Even if, for a lot of hospitals and systems that are slow to adjust, they may find themselves vulnerable to two trends—commodification, with ever lower FFS payments, or disintermediation, with site-of-care shift directing patients to alternate venues. Your thoughts?

Geraghty: I do think pre-payment is going to happen on the ambulatory side, and, we'll see on the facility side. I do think the pandemic is going to create a burning platform for institutions to change their contracting approach.

Providers have come to realize that fee-for-service really showed its underbelly during Covid-19, and the value of prepayment cash flows from a capitated population become much more attractive.

Hospital systems looking at a medical group that can move services to where they think they're most effectively managed and can limit the number of days patients are in the hospital, those systems are going to be buying services with insight and discretion. Florida really hasn't had a system that operated that way, not fully and not up to scale, but I think hospitals are going to be challenged over time. That new model will force hospitals to think differently about how they run their business, and, ultimately, face a fair amount of pressure from primary care and multispecialty medical groups that are willing to take on and manage risk.

When we bought the Diagnostic Clinic Medical Group, they were being courted by two hospital systems. Diagnostic Clinic reached out to us and said, "If we are bought by either one of the hospitals, we will be judged and scored based on volume of admissions and we don't want to practice that way. So we're interested in Florida Blue being our capital partner so that we have the freedom to practice the way we should."

That discussion is what got us into a serious dialog and opened the door to us being partners. We thought, "That's a mindset that we were interested in."

Q: It's interesting you bring up that group, because it leads to my next question: Do you think that GuideWell will ramp up its physician acquisitions? If so, how will it approach those partnerships?

Geraghty: We're not locked into a singular way of having care delivered and I don't think we have to own all the primary care. That said, we'd love to partner with primary care groups that get it, that have invested in data technology and analytics and want a partner, because we come to the table with a tremendous amount of data and analytics as well.

By finding a provider partner who has the same mindset about collaboration, we know collectively we can do a better job of caring for the patient. It's higher quality care, done more efficiently—and our partners can do quite well economically by doing what's best for their patients.

When we have a meeting of the minds, we have an opportunity to really strike a deal that changes the value that can be created for our members. There aren't a million of these groups, but there are enough—and there are enough young people coming up who are thinking about how the technology interacts with the office and interacts with the way they want to deliver care. We're encouraged that this model is going to become more prevalent.

Creating success with the ACA—and beyond Covid-19

Q: Let's talk about the Blues ecosystem more generally. A few weeks ago, after years of courtroom battles that spanned nearly a decade, the Blue Cross Blue Shield Association tentatively agreed to a $2.67 billion settlement in a lawsuit that will open up competition among the 36 Blues, and may reshape the Blues M&A landscape as well. As we've discussed, GuideWell has long been an innovator in diversifying its product offerings and geographies served. Thoughts on how this seminal legal development might reshape the playing field for the Blues, and how GuideWell's strategy may shift as a result?

Geraghty: A basic operating principle we have is that any situation has a potential downside and upside opportunity—you just have to figure out what the opportunity is and how to find the path to the upside opportunity.

For example, a lot of people said the ACA was going to be the death of the insurance industry. Aetna, Cigna, and United were in our market for the ACA year one and they all exited, and we became the player in Florida by finding out how to best use that market opportunity.

There's a lawsuit, yes, and we could either look at it and say, "There's downside to that," or we can say, "What are the opportunities here?" And we expect, with the 45 states that we operate in today, that we will continue to grow our national footprint and be more influential in more markets outside of Florida.

Q: The ACA is a good example of an opportunity GuideWell uniquely capitalized on—you were one of the only insurers—not just among the Blues but also the publicly-traded MCOs—that was profitable right out of the gate on the ACA—and profitable every year since. And while many early entrants exited the exchanges after a year or two of steep losses, GuideWell ramped up consistently and now serves 1.1 million enrollees. When I think about what made this work for you, Pat, I imagine it was better-disciplined pricing from day one, the early vertical integration and the delivery structure you built, your thoughtfulness around Sanitas and other partnerships, and, of course, being left in largely uncontested possession of a market after everyone else exited. Does that feel right as an appraisal? How did you shape your strategy here?

Geraghty: In the first year, we used our whole portfolio of individual products in the ACA marketplace, but we quickly realized that we needed to simplify our offerings, or we'd risk making it too complex for the consumer. We tailored our network. We grew our Sanitas medical group presence and we utilized our retail facilities and insights from our agents to better understand our members' needs.

We had to price effectively and understand that, unlike the normal insurance marketplace, this was a marketplace where there was going to be risk adjustment, and there was going to be protection around taking on the full market.

If you look at what's happening in the Florida marketplace this year, we have in many counties between three and eight competitors fighting it out—in fact, there are only three counties in our state that have just one health plan option. In comparison, the second year out, there were 40 some odd counties in which we were the only player. Competition has heightened significantly and that is good for the health of the market.

One could argue that Florida is the case study that demonstrates the ACA today is operating much as it was originally designed, with healthy competition across multiple markets that is driving affordability and access.

The biggest gap in the ACA is for people who are not subsidized, and for whom the prices are too high. We've been working to advance policy changes to fix some of the price issue. For instance, with federal reinsurance and age adjusted subsidies to draw younger people into the ACA market, we think there could be a significant reduction in pricing—that would be game-changing. Better pricing should appeal to both sides of the political aisle; at this stage of the game, we shouldn't be thinking about repealing and replacing the ACA—we ought to be thinking about how to cover as many people as possible in the most effective manner.

Q: It's impossible to discuss the ACA without talking about the Supreme Court case that began on November 10th, and any potential ruling the court may issue. No doubt it's prominent on your mind given your exposure to the market.

Geraghty: Our coverage for more than a million people is a critical issue at a human level, and that's the most important thing. We think that the confusion that ending the ACA would create would be poor health policy.

People have gotten themselves sideways trying to anticipate a court ruling. It's my hope that the court finds its way to allowing the severability of the individual mandate.

Q: Related to this conversation is the unprecedented and likely sustained unemployment we're going to see, well into 2021, from Covid-19. The consequent numbers on likely commercial disenrollment in the coming period are concerning. How do you see this market shift affecting the Blues generally, and GuideWell specifically?  Because while GuideWell is one of the most progressive Blues in the MA front, most Blues are predominantly indexed on the commercial side, and less indexed on the government side.

Geraghty:  With unprecedented and sustained unemployment as a result of the pandemic, it has never been more important for people to understand and take advantage of the ACA. Florida is the case study that proves its importance. We are the largest single-state ACA insurer in the country with 1.1 million enrollees via the ACA exchanges. The balance of our commercial book is small group, midsize, large account business—and a lot of that midsize and up in now Administrative Services Only (ASO)—meaning they're self-funded and require an organization like ours to administer their plan. We see ASO as an opportunity in the marketplace.

For that reason, in November we acquired WebTPA, an innovative and market leading third-party administrator of self-funded employer health plans. By teaming up, we'll be able to further innovate our ASO offering to meet the dynamic and complex needs of the marketplace. This is a big win for us as ASO arrangements continue to become a bigger piece of the overall employer market. Buying WebTPA was essential to our ability to pivot our ASO offering in this increasingly competitive space.

On the government side, while we do not play in Medicaid, we have about 160,000 members in our MA business, and that is the area we're focused on growing. The Villages as an example; after five or six years working exclusively with UnitedHealthcare, The Villages had a bidding process and now partner with both United and Florida Blue. [Editor's Note: This post is published by Advisory Board, a division of Optum, which is a wholly owned subsidiary of UnitedHealth Group. UnitedHealth Group separately owns UnitedHealthcare.] There's also Sanitas; we originally focused our partnership with Sanitas on the ACA, but Sanitas has quite a developed senior market in South America, and we have a shared interest in bringing its Medicare and senior services to its practices here in America.

Q: I'd be curious to hear your predictions on how resilient patient volumes will be next year and beyond. I recently spoke with your friend Gianrico Farrugia, CEO of the Mayo Clinic, and he said—somewhat counterintuitively—that he doesn't necessarily want those volumes to come back, because of the high number of unjustified clinical care interventions and overtreatment. It was a remarkable conversation because so many of my health system leader conversations center around how quickly and how robustly the volumes will return. How are you thinking about this?

Geraghty: I love Gianrico, and I love the fact that he's looking at it that way. We believe that much of that kind of volume, the discretionary work, will return but the system does not have the capacity to make up for lost volume from 2020.

My concern is the under-care that's going on right now—the people who didn't go for their cancer screening because they were afraid they were going to get Covid-19, only to get screened later, when they're a year or eight months further along that continuum. and that acuity is hard to put your finger on right now. The human cost of delayed screening and the economic impact of more acute cases are definitely a concern.

Q: Pat, before we turn to some reflections on your career, I'd like to ask about something I know is a deep and abiding passion of yours, and a key industry priority—diversity, equity, and inclusion. You've been an advocate of this long before we had the series of crises that we've had this year, and I'd love your thoughts on this and how you're fostering forward motion at your own organization.

Geraghty: The anchor for all this is having absolutely great parents; they were people who believed everyone is equal—that no one is above you or below you—and that everyone should be treated with dignity. My wife, Inger, and I continue that ethic in our home today.

A few years ago, we started those critical conversations at GuideWell about race, about caring for your parents while you're caring for your kids—all those uncomfortable, necessary conversations. And because we put those issues out there, we were able, after George Floyd's death, to pivot conversations into "Living While Black" conversations, with speakers from inside and outside the company sharing their stories. We're clear that, while we think we do a good job in this space, we have more to learn and more to do. Our job right now is to listen; to absorb the lessons, and to not feel as if we have all the answers.

We are working to improve not only our organization, but also to affect our community and really address health disparities. We've doubled our traditional spend on health disparities, committing $25 million over five years. An important part of that commitment is that we aren't going out into the community with the answers; rather, we're treating our community as a partner, collaborating with them on the things we collectively believe will move the dial. We're proceeding this way to ensure we're committing ourselves to the right things, with the right measures.

We've also pledged $2 for every $1 donated by an employee to our United Way campaign to help inject funding into the charitable organizations that dried up when donations shifted to Covid-19. We're also helping our members by providing more than $50 million in health care cost relief for our commercial fully insured employer group consumers, and by making coverage more affordable in our individual market midyear via increased incentive dollars. All in all, it's north of $200 million that we unilaterally delivered back to the community.

A career retrospective

Q: As we start to wrap up our conversation, I'd love to hear about what I call the "moments of wow" in your career. Now, I know the basics: You graduated from Colgate University in 1981, continuing your education with certificates from Harvard T.H. Chan School of Public Health and Wharton. Just focusing on your education and sort of early background for a moment, what are the key points along this path?

Geraghty: My first really big inflection point was my junior year in college, when I went to Israel on a study group and lived on a kibbutz. Now, as a volunteer on the kibbutz, you had an obligation of six hours a day of work, five days a week.

I was assigned to plant the fields—which I had no background in whatsoever—and we had had a particularly rainy season, so we were planting these fields with very short period of time to get the crops in the ground. We would meet at the little cafeteria on the kibbutz at 2:30 a.m., drive by Jeep down to the fields, and work from 3:00 a.m. until 8:00 a.m. Then we'd have breakfast, then get back on that tractor and work until noon, have lunch, do another hour, and then go to class. That was a 3-week period, seven days a week, 21 straight days of just busting it.

Now, we weren't required to work like this—aside from my friend and me, all the rest of the volunteers did their normal six-hour, five-day-a-week thing. But at the end of three weeks, the work manager calls everybody together, and he looks at me and my friend and says, "You get a week off." So we took Easter week, traveled to Jerusalem, walked the Stations of the Cross, went to the Garden of Gethsemane, the whole thing, while everybody else had to work on the normal schedule.

So it was one of those lessons that affirmed hard work, working for the team, not expecting anything on the backend of the process, and just the accomplishment of getting through the process.

Q: Fascinating. You know, after I did about 50 of these conversations with CEOs, my team realized that more industry leaders had spent time on a farm—either growing up there or working on one—than had attended Ivy League institutions. Pat, you check an interesting box because you did both, but you're adding a new rich statistic with your kibbutz chapter.

Geraghty: Well, it was just a fabulous experience. Additionally, the Camp David Peace Accord opened the border to Egypt while I was in Israel. So we went right to Tel Aviv, got our papers, and, literally one month after the border opened between Israel and Egypt, we crossed it in the Sinai. It was just an amazing time to be in the Middle East.

Q: Professionally, you've navigated a career working at Prudential, Horizon Blue Cross Blue Shield of New Jersey, Blue Cross Blue Shield of Minnesota, and—since 2011—at Florida Blue. What were the inflection points, so to speak, along that path?

Geraghty: Well, I originally took the job at Prudential to work for a couple years before going to law school, but I found that I enjoyed the work. I worked in sales, which meant I had to stuy Prudential's products inside and out, which actually made a big difference in my career later on—a few years into my sales role, Prudential needed people to populate its HMO business, and I was one of the lucky internal hires. I got to move over to the health care management side of the business, negotiating capitation deals and talking to doctors and learning at a grassroots level.

That was a lesson not only in terms of product knowledge, but because it proved I wasn't crazy for giving up commission. I got paid less the year I made the move out of sales, but it was an investment that broadened my exposure and experience with the business—and that was probably the most important career step.

Now confident that I could be put into new assignments, Prudential assigned me to run their pharmacy organization. And when that business was eventually broken up and sold to Aetna, I ended up taking a job with Horizon. Horizon took a chance on me—I'd done sales, health care management, and pharmacy, but Horizon gave me a chance to run operations.

When I left Horizon, I had the opportunity to be the CEO in BCBS Minnesota, because of the wide range of assignments I had in my portfolio.

Q: Pat, I'd like to close by asking you one final question: As you reflect on your career, what are you most grateful for?

Geraghty: I'm most grateful for the team I've had around me. I love team sports; I love the notion that together you can accomplish great things, a team where everyone's got each other's back, and everybody's got a role to play. At GuideWell, one of our best attributes is a terrific culture that reflects our wonderful team from our board to our leadership team through our total organization, and the commitment we made to being a world-class employer focused on our mission to help people and communities achieve better health.

Those are the things people reflect in our employee engagement scores: that they love working in this environment and that it allows them to be their best selves. To me, that's as gratifying as any number that we generate in the marketplace. If we made a difference in covering more people and we've done it with good people who are committed to serving their community, that's a reward in itself.

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