N.D. Blues gives its top exec the boot

North Dakota physicians are watching and waiting for an attitude shift after a change at the helm at BlueCross BlueShield of North Dakota, the state's dominant health insurer.

After several months of controversies that included a battle over physician contract terms and premium rates, and public outrage over an employee trip to the Cayman Islands, President and CEO Mike Unhjem lost his job March 9.

Now North Dakota physicians are waiting to see if the Blues will do business differently with a new boss.

"This is a small state, and we have to get along," said North Dakota Medical Assn. President Robert A. Thompson, MD, an allergist who is executive medical director for Altru Health System in Grand Forks.

A statement from the North Dakota Blues said Unhjem would receive a $2.2 million severance package as outlined in his employment contract.

Unhjem has been a past source of controversy. In 2006, he was arrested and convicted for drunken driving.

"Unhjem displayed errors in judgment over the past couple of years that damaged the image of BCBSND," the statement said. "The board dismissed him because he violated terms of his employment agreement."

The company's board of directors named Tim Huckle, executive vice president for health operations, as interim president and CEO. In a statement, Unhjem said he wishes "the company and my former co-workers nothing but the best as the future unfolds."

Dr. Thompson declined to talk about the reasons for Unhjem's firing but said he and other doctors across the state are hoping to see improved relations between the Blues and its network physicians after years of the company dictating the terms of their relationship.

"The atmosphere in North Dakota for physician contracting is driven by very minimal competition in the health insurance market, which has led to contracts that are one size fits all, and very little room for negotiation," Dr. Thompson said.

The most extreme example of the Blues' market control came when the company announced May 31, 2008, that it intended to take a 2.5% "withhold," its name for a physician pay cut. The action came after financial results showed the potential for the company to lose money in 2008, said spokeswoman Denise Kolpack. The pay cut was to go into effect Aug. 1, 2008, and the company said it would possibly reassess payments to physicians and hospitals if the financial situation improved, she said.

After fierce physician protest, the Blues backed off the plan. "The reaction from our providers drove us to the decision it was not a good idea," Kolpack said.

But state insurance commissioner Adam Hamm already had heard about the move. On his desk was an application from the Blues for a 15% rate increase on individual policies -- a request that called not for a pay cut, but a 5.6% reimbursement increase for physicians. In October 2007, Hamm had approved a 9.9% increase for group policies based in part on the 5.6% pay increase built into the Blues' costs, according to insurance department documents.

When the company moved to instead cut physician and hospital pay, Hamm rejected the pending individual rate increase application.

Blue Cross appealed the commissioner's decision and is still negotiating what increases could be approved. Meanwhile, the commissioner demanded that the company change language in its physician contracts that allowed for unilateral pay cuts, which the Blues plan did in January.

Hamm was ill and unavailable to comment for this story.

Since the commissioner's rejection of the rate increase, the plan's reserves have dropped $40 million from 2007 levels to about $195 million currently, Kolpack said.

Troubles continue

In addition to the physician-related problems, Unhjem also took a lot of heat from the public after news leaked that the Blues sent 35 employees -- including the CEO -- on a trip to the Cayman Islands in March as a reward for reaching sales goals. The trip cost the company about $250,000, Kolpack said.

She said the company had been sponsoring such rewards for its sales force for 18 years, but its board of directors decided that the Caymans trip would be the last. The board also is reviewing executive compensation.

Meanwhile, the North Dakota Legislature at press time was considering legislation that would force nonprofit executives to pay a 70% tax on income of more than $1 million, legislation directly inspired by Unhjem's severance.

And the state insurance department is in the midst of a "targeted financial investigation" of the company's expenses, said department spokeswoman Andrea Fonkert.