Blue Cross CEO got $8.6m in exit deal

In frugal times, critics see excess

FORMER CEO OF BLUE CROSS “The payment I got was consistent with my contract — no more, no less,” said Cleve L. Killingsworth of his severance package. FORMER CEO OF BLUE CROSS
“The payment I got was consistent with my contract — no more, no less,” said Cleve L. Killingsworth of his severance package.
By Robert Weisman
Globe Staff / March 2, 2011

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Cleve L. Killingsworth, who abruptly resigned last March as chief executive of the nonprofit Blue Cross Blue Shield of Massachusetts, collected $8.6 million in compensation from the state’s largest health insurer in 2010.

The rich package — which included $1.4 million in severance pay, with more money to follow — was detailed in a Blue Cross filing with the state Division of Insurance yesterday. It touched off a volley of criticism at a time when government and business officials, including Blue Cross’s leaders, have been struggling to restrain health care costs.

In a statement yesterday, the insurer’s former chairman said for the first time that the board negotiated terms of Killingsworth’s departure — suggesting both sides thought it was time for him to leave.

The $8.6 million that Killingsworth, 58, took with him is a combination of the $273,040 salary he received for his 2 1/2 months at the insurer last year; a $922,480 bonus for his work in 2009; and $7.4 million in additional compensation, according to the regulatory filing. That additional money represents the severance and retirement payments that accrued over his six years at Blue Cross, including almost five years as chief executive. Much of the retirement pay had been reported previously.

But the $1.4 million severance paid out last year was less than half of what Killingsworth will eventually receive. The board of Blue Cross also agreed to pay him $1.8 million this year and $925,000 in 2012, bringing his total severance to more than $4 million, according to the insurer.

Killingsworth’s tenure at Blue Cross, which has nearly 3 million members, was marked by efforts to address skyrocketing medical costs by launching a “global payment’’ pilot program, under which health care providers are given an annual budget and incentives to keep patients healthy and out of the hospital.

“Without Cleve’s leadership, we wouldn’t be where we are today in shifting from fee-for-service to global payments,’’ said senior vice president Jay McQuaide.

But the insurer stumbled financially in recent years, recording back-to-back operating losses totaling nearly $215 million in 2009 and 2010 as the economy weakened and state regulators acted to limit premium increases for policies covering small businesses and individuals.

Public interest advocates, pay specialists, and insurance customers were quick to call Killingsworth’s payout excessive.

“It sends the wrong message at the wrong time to consumers and employers,’’ said Jon B. Hurst, president of the Retailers Association of Massachusetts. “We’ve gone through years and years of double-digit premium increases. We need the health care industry in this state to start reflecting the rest of the economy.’’

Some critics said it was reminiscent of the package awarded Killingsworth’s predecessor, William Van Faasen, who received $16.4 million in retirement benefits in 2006. That pay was accrued during Van Faasen’s 37 years at Blue Cross Blue Shield organizations in Massachusetts and Michigan. Van Faasen, who took over again as acting chief executive after Killingsworth departed, is currently the company’s chairman. Van Faasen was credited with helping to turn around Blue Cross after it posted enormous losses in the 1990s.

Attorney General Martha Coakley, who investigated Van Faasen’s pay and pressured Blue Cross to separate the jobs of chairman and chief executive, said in a statement yesterday that her office is monitoring compensation practices at health care companies. Yesterday’s filing on Killingsworth’s pay “is yet further evidence of the importance of that work,’’ she said.

Starting under Killingsworth and continuing with Andrew Dreyfus, the current chief executive, Blue Cross has been pressing doctors and hospitals to limit what they charge for medical care, while working to trim its own costs. It has eliminated 450 jobs through attrition and layoffs since 2008 while reducing expenses in areas ranging from real estate to information technology.

But the millions of dollars given to Killingsworth threaten to overshadow efforts by Blue Cross and others to rein in medical costs, which have crippled businesses, municipalities, and workers, critics said.

“This compensation package undermines the credibility of insurers when they say they’re serious about bringing down the cost of health care,’’ said Deirdre Cummings, legislative director for the Massachusetts Public Interest Research Group. “When a CEO makes that kind of money, the public loses faith that we can solve the problem of health costs.’’

Frank B. Glassner, chief executive of Veritas Executive Compensation Consultants, said the compensation and severance for Killingsworth were highly unusual for a chief executive who resigned from a nonprofit.

“The payout seems egregious in light of the organization’s performance,’’ Glassner said. “It seems excessive for a nonprofit.’’

In his statement, Paul H. Guzzi, former chairman and current board member at Blue Cross Blue Shield of Massachusetts, said Killingsworth’s unexpected departure came after discussions with the board about the direction of the Boston-based company.

“He agreed to resign on the condition that he would receive the same severance benefits that were called for if he were terminated under his employment contract,’’ said Guzzi. “The board agreed to proceed on that basis.’’

Killingsworth, reached at his home in Hemlock, N.Y., said, “The payment I got was consistent with my contract — no more, no less.’’

He said he is currently serving on the boards of a half-dozen companies and universities while writing about health care issues.

“The things that we accomplished at Blue Cross could have a positive impact nationally, and I’ve been working to promote that idea,’’ Killingsworth said, referring to the insurer’s global payment product. “Costs are going to get worse before they get better. I think this is a large part of the solution.’’

McQuaide said Killingsworth’s compensation should be understood in the context of 2005, when his chief executive contract was negotiated.

“That was a different time,’’ before the economic downturn, McQuaide said. “Clearly, the community’s expectations around compensation have changed. The board recognized this. That’s reflected in the different compensation agreement for our new CEO.’’

Dreyfus, who took over as CEO in September, has stressed health care affordability. His contract calls for a salary of $800,000 this year, with the possibility of $1.8 million in total compensation, half of the $3.6 million Killingsworth got in his previous peak earning year of 2008.

Robert Weisman can be reached at