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ON THE HOT SEAT

Fallon chief tackles tough market

W. Patrick Hughes, chief executive, Fallon Community Health Plan. W. Patrick Hughes, chief executive, Fallon Community Health Plan. (Yoon S. Byun/ Globe Staff)
By Robert Weisman
Globe Staff / July 17, 2011

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Pat Hughes, 64, joined Fallon Community Health Plan as senior vice president in 2007 and was named to the top job at the Worcester-based health insurer in February 2010. Since then, he has worked to expand nonprofit Fallon’s business at a time of increased state regulatory oversight and sweeping changes in health care. In an earlier career, Hughes played 10 years as a linebacker in the National Football League. He spoke with Globe reporter Robert Weisman on a sweltering day last week.

How tough is it to run a health insurer in the current environment?

How tough would it be to be a snowball on pavement outside today? It’s difficult. But I think there are opportunities if you push an agenda of change. Change is inevitable, and we need to be a part of it as opposed to a victim of it.

What’s the hardest challenge - gauging risk, negotiating with providers, dealing with state regulators, or bracing for federal health care changes?

Is it fair to say all of the above? For us, in the past, we have had difficulty with our underwriting risk and the ability to effectively price the product. I think we have put those issues behind us. We have been profitable now for four consecutive quarters.

Fallon is the smallest of the state’s commercial health plans. What are you doing in the market that’s unique or creating growth opportunities?

Fallon is a jewel, in my mind. It has been innovative and creative in its marketplace for the last 30 years. When the health plan began back in the 1970s, it was operating under a global capitation payment for its business, long before any of that became popular.

In 2002, the health plan began to offer a limited network product, the first anywhere. And most recently we crafted a solution for the city of Worcester that narrowed a $7 million budget shortfall and saved in excess of 100 jobs.

Looking forward, will the health insurance business in Massachusetts be dominated by limited networks, where patients can only see certain doctors, and global payments, where providers are given annual budgets for patient care?

The marketplace requires choice. As limited networks provide additional choice, it’s important to have those. In terms of global payments, I don’t think one size fits all. There are those institutions that are ideally suited for it. There are those that over time can move from volume-based fee for service to more of a global capitated arrangement. And then there are other situations where you might want to stay with fee for service.

You have a strong market position in Central Massachusetts. Do you plan to expand more aggressively statewide?

That process has begun. Our growth primarily is coming from the western part of the state, from Springfield and the Berkshires. We like that geography. We have seen good growth in the Merrimack Valley, Middlesex County, and we are pushing our network into the southeastern part of Massachusetts.

As the pace of consolidation picks up in the health care industry, will Fallon have to find a partner?

Well, we were thinking of acquiring Blue Cross. (Laughs.)

Fallon was the only commercial insurer that didn’t agree to hold its premium increases under 10 percent last year in the small group market after the state’s rate cap was overturned on appeal. Do you feel you did the right thing?

We attempted to negotiate a settlement that would make sense for both the state and for the health plan. We got to a point in that process where we needed to make a decision, and so the decision was made to go into the market with those rates that we needed ultimately to fix our base rate. In 2009, we lost $29 million. It hurt us. So we needed to fix that. After fixing it, I would say that our submissions have been very competitive.

You played as a linebacker for the New York Giants and New Orleans Saints. How does that compare with running a health insurance company?

That’s a hell of a lot easier. There’s a guy who’s got a ball under his arm, and he’s the object of your affections. In the marketplace, you’re competing against other quality-based health plans and you’re answering to regulators. So there’s a lot of moving parts, there’s a lot of folks coming at you at any given time, and you can’t hit ’em.