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Health insurer WellPoint Inc. surprised analysts and investors Tuesday when it announced that a veteran hospital executive who has never run a public company will become its next CEO.
The Indianapolis company said after markets closed that Trinity Health Corp. CEO Joseph Swedish will take over March 25, replacing interim CEO John Cannon.
Swedish, 61, will be charged with guiding the nation's second-largest health insurer through sweeping changes, as the industry prepares to cover millions of newly insured people who gain coverage under the health care overhaul. Insurers also are adjusting to fees and coverage restrictions imposed by the overhaul and facing growing pressure to keep ever-rising health care costs in check. Some on Wall Street expected the Blue Cross Blue Shield coverage provider to pick someone with more hands-on experience in the complex business.
"He's just kind of an out-of-the-blue name," Stifel Nicolaus analyst Tom Carroll said. "Certainly his name specifically was not bantered about."
Many investors thought former Amerigroup CEO Jim Carlson was the likely choice for WellPoint, which saw its stock price sink 8 percent last year while broader trading indexes climbed. WellPoint acquired Amerigroup in a recently completed, $4.46 billion deal.
"Going outside the company and getting a fresh perspective might help the company move forward," BMO Capital analyst Jennifer Lynch said.
WellPoint has been searching for a new leader since Angela Braly resigned last August amid investor frustration over disappointing financial results. Cannon, who had no interest in becoming the permanent replacement, will remain with the company as executive vice president of legal and public affairs.
Swedish's resume includes work as an executive with HCA, the nation's largest hospital chain. He also has served as a director for another insurer, Coventry Health Care Inc. He has served since 2004 as CEO of Michigan-based Trinity, a Catholic health system that runs 47 hospitals in 10 states.
Trinity is in the process of combining with Catholic Health East in a deal that will create the fifth-largest U.S.-based hospital system, with $13 billion in revenue.
Swedish said his experience, which also includes a stint as the leader of Centura Health in Colorado, makes him uniquely prepared to lead a company in an industry undergoing huge changes.
The health care overhaul will expand insurance coverage to millions of people starting next year, when online exchanges debut to help people buy coverage and state and federally funded Medicaid programs expand. Insurers will have to adjust to competing for business on those exchanges, where many people will be able to buy health insurance with help from income-based tax credits.
Care providers and payers also are collaborating more to improve quality and cut down on wasteful spending, and Swedish said he can bring insight into how those collaborations work best to his new role.
"I think we're all striving to create engagement with consumers that has not existed in the past, particularly related to the formation of exchanges," he said. "You have to have hypersensitivity regarding pricing strategies, transparency around quality and safety."
He said serving on Coventry's board gave him a "gimlet-eyed view" of the health insurance business, and he's run his companies with the same expectations placed upon publicly traded companies.
"We have metrics that are as good if not better than most," he said. "We've been, at Trinity Health, manically focused on a double a bond rating."
WellPoint's selection makes sense to Sarah James, who covers health insurers for Wedbush Securities. She said a big trend in the industry is vertical integration, in which health insurers buy doctor practices and clinics to streamline care and make it more efficient.
WellPoint did this in 2011, when it completed the acquisition of CareMore Health Group, which runs more than two dozen clinics that coordinate care for patients.
"To bring in someone who comes from the provider side makes perfect sense," she said.
WellPoint finished 2012 with two strong quarterly performances. But it also has been hit by enrollment losses as employers cut jobs and reduced the number of people covered by employer-sponsored insurance, and it has struggled with higher-than-expected claims coming from its Medicare Advantage business in California.
WellPoint shares fell 76 cents to $65.25 in after-hours trading.