(Reuters) - WellPoint Inc named Joseph Swedish, the top executive in a large non-profit hospital system, as the health insurer’s new chief executive officer after a half-year search that began when former CEO Angela Braly abruptly stepped down in August.
The No.2 U.S. health insurer faces a challenging year in healthcare reform as the Affordable Care Act brings more changes in 2014, including the introduction of electronic marketplaces where insurers will sell directly to consumers.
WellPoint, which sells health insurance as Blue Cross Blue Shield, holds the No. 2 spot in the United States behind UnitedHealth Group Inc. It had revenue of $61 billion in 2012.
Swedish, 61, has been CEO at Trinity Health, the tenth largest U.S. hospital system and fourth largest Catholic hospital system, since 2004. Trinity has 47 hospitals and had revenue of $9 billion in 2012.
CRT Capital Group analyst Sheryl Skolnick was surprised by the selection of a manager who is relatively unknown in the insurance sector.
“This is really a critical year for the company. It is a year when you want to have the top talent focused on making sure the company transitions well into the new world of health reform, preserves market share and grows with additional markets,” Skolnick said.
Braly, an outsider who took the role in 2007, stepped down in August under pressure from investors who were unhappy with the company’s financial results. She had earlier issues as well, drawing the attention of President Barack Obama’s administration over a proposed premium rate increase in California that she was pressured to scale back. Braly also publicly criticized the President over other issues and Democrats rallied behind him for support for healthcare reform.
Since August, the company has been run by interim CEO John Cannon, and Swedish will take over March 25. Cannon will stay with the company as executive vice president of legal and public affairs.
After missing analysts’ estimates in four consecutive quarters, the health insurer last month reported better-than-expected revenue in the fourth quarter, with Cannon at the helm.
It was unclear how the move would affect the company’s stock. WellPoint shares closed at $66.01, unchanged, and traded lightly after hours.
David Heupel, an analyst with Thrivent Investment Management, which does not own WellPoint shares, said Swedish will have critical decisions to make this year as the insurer sorts out which products it will sell on the new insurance exchanges and in which markets.
“It’s an interesting pick,” Heupel said. “It’s not a seasoned HMO veteran they are bringing in. However, it is a seasoned executive who is obviously extremely familiar with the healthcare industry and all the components of it.”
Insurers like WellPoint and hospitals already have been facing some of the vast changes the law has brought, such as new taxes and payment methods for government insurance like Medicare and Medicaid.
As CEO of Trinity Health, a hospital group that also had an insurance business, Swedish said that he had experience with both hospitals and insurers.
“The tradition of separation of the two sectors is rapidly closing. That gap is at times, I think, going to become very, very minimal,” Swedish said in an interview.
“There’s absolutely no doubt that there’s a convergence happening on many fronts in healthcare,” he said.
Swedish, who served on the board of regional insurer Coventry Health Care Inc, also faces the integration of Amerigroup, a $4.5 billion insurer with a large Medicaid business, which WellPoint bought at the end of 2012.
Analysts have said that Amerigroup’s CEO Jim Carlson was a possible choice for the WellPoint CEO job.
Wedbush Securities analyst Sarah James said other insurers have looked outside for its top jobs. Humana Inc Chief Executive Officer Bruce Broussard, a former executive from pharmaceutical distributor McKesson Corp, also was recruited from outside the health plan industry, she noted.
Additional reporting By Pallavi Ail in Bangalore; Editing by Sriraj Kalluvila, Bernard Orr