WellPoint CEO Angela Braly Makes Her Exit

Angela Braly, the president and CEO of giant WellPoint since 2007, has joined the ranks of the unemployed.

She resigned Tuesday after at least a month of intense media and shareholder scrutiny of her management of the huge health benefits company.

In a three-paragraph press statement released after the stock market closed Tuesday, the WellPoint board expressed confidence in the "wisdom of potentially transformative actions taken under Angela's leadership" while stating that "now is the right time for a leadership change."

For now John Cannon, WellPoint's executive vice president and general counsel, will run the company. He is not a candidate for the permanent position.

I've been thinking about Angela Braly's potential exit since WellPoint's second quarter earnings call on July 25. That's when Braly announced a reduction in the company's 2012 outlook based on lower enrollment and higher medical cost trends. WellPoint's second quarter 2012 profits dropped about 8% from the comparable period in 2011.

Analysts on the call hammered away at the insurer's pricing strategy and claims payouts. Braly's efforts to attribute the decline to market challenges seemed particularly lame. Yes, the job market is weak, which affects membership, and there's increased competition for a piece of the shrinking commercial market, but under similar market conditions, its chief competitor, UnitedHealth, beat analyst projections in the second quarter 2012 and reported a 5.5% profit increase.

Industry profits were less than sterling overall. Four of the five major health insurers posted a drop in second quarter profits. While Aetna and Cigna did better than expected, Humana and WellPoint did worse, but only WellPoint garnered a negative forecast from analyst.

Within days the investment community was suggesting that WellPoint didn't have a market problem as much as it had a management problem. Actually, there has been a drumbeat of opposition to Braly for several years. The second quarter results just seemed to energize that effort.

The WellPoint board issued statements of support for Braly, but investment fund and hedge fund managers, including New York-based Royal Capital Management began making public their opposition to Braly's management.

When investors that own millions of shares of a company begin to disparage leadership, it usually leads to action. It's been barely a month since the disappointing second quarter earnings were released, and now Braly is gone.

She joined WellPoint in 2005 as part of its acquisition of the Missouri Blues plan where she served as CEO. Within two years she was tapped to succeed Larry Glasscock when he retired as WellPoint's CEO.

Braly's tenure was been marked by acquisitions that reflect the changing landscape of the healthcare industry following passage of the Patient Protection and Affordable Care Act.

Last year WellPoint acquired CareMore, which operates healthcare clinics that specialize in delivering care coordination and intensive treatment to the chronically ill. WellPoint is rolling out that model to additional markets. Analysts generally view the long-term prospects of this acquisition as positive.

The insurer's $4.9 billion acquisition of Amerigroup, announced in July, will add 19 states and 4.5 million members to WellPoint's Medicaid footprint. It will also enhance WellPoint's ability to serve the dual eligibles market and capitalize on the emerging long-term services market. The Department of Justice has extended its anti-trust review of the deal, but is not expected to delay the closing. Although this is generally viewed as a good, strategic buy, there is some thought that WellPoint overpaid for this asset and that created problems for Braly.

The June acquisition of 1-800 CONTACTS provides WellPoint with direct-to-consumer expertise as well as the opportunity to expand into a growing business segment. The contact lenses provider has more than three million active customers. Analysts have a mixed opinion of this acquisition with some saying the reported $800 million price tag was too high.

Braly certainly had her share of missteps. In 2010 an ill-timed effort by Anthem, a WellPoint subsidiary, to hike premiums by as much as 39% is credited with uniting congressional Democrats to support Pres. Obama's healthcare reform efforts.

Meanwhile, WellPoint has only a 27% favorability rating among hospital and health system contracting executives, according to a recent survey from Revive Health.

Braly herself was also something of a poster child for an industry often portrayed as out of touch with the realities of the needs of its members. Consumer WatchDog, a consumer advocacy group, called her "the health insurance world's Marie Antoinette" for what it considers insensitive remarks about members who struggle to pay their health insurance premiums.

According to the SEC Form 8-K filed bright and early Wednesday morning on WellPoint's investor page, Braly will remain on the WellPoint payroll through the end of 2012. No other details regarding her exit package have been released.

Press reports have placed her annual salary at just over $1 million; her annual compensation package, which includes various stock options and performance bonuses, has been estimated at more than $13 million.

The big question now is who will replace Braly at the helm of WellPoint? According to the press release that announced Braly's departure, the company will hire a search firm to review internal and external candidates.

Various analysts and investor groups have tossed out the names of a number of potential candidates. James Carlson, the CEO of Amerigroup, seems to be on many lists. Carlson was already expected to move into WellPoint's inner sanctum of leadership once the acquisition of Amerigroup is complete.

This is the first significant management change among the major health plans since healthcare reform became law. Expect all eyes to remain on this hiring process.