UCare created a culture that allowed turnaround after big loss

UCare wasn't the only health plan that made money last year after a rough 2016, but not many companies have the sort of recent history it does. Maybe the remarkable thing is that the nonprofit health insurer was even alive in 2017 as an independent company.

As a quick refresher, the loss of business from the state of Minnesota meant its revenue for 2016 was cut in half from the year before. With that kind of plunge, UCare executives had to cut costs to survive, of course. But there are lessons to be learned here about how they went about it.

"Leveraging the culture of commitment" to plan members, health care providers and employees is how CEO Mark Traynor explained how UCare approached its financial crisis. Another way to put it is that Traynor and his colleagues managed to keep UCare recognizably UCare, even after letting go of a couple hundred employees.

Among other things, that meant the experience of members in its health plans had to be the same if not better and front-line employees had to continue to think of UCare as an organization with a purpose beyond a place to pick up a paycheck.

A mission orientation characterizes a lot of health care in Minnesota, even though we're talking about multibillion-dollar nonprofits with complex operations. UCare is far from the biggest, too. Its revenue last year of $2.7 billion was only about 10 percent of the combined revenue of the state's seven nonprofit health insurers.

Minneapolis-based UCare was launched in the 1980s by University of Minnesota physicians who were looking for a stable health plan to serve some of their poorest patients. UCare became known for serving people in government-sponsored programs, though it also covers others and has sold on the MNsure exchange.

Health plans count members as a basic measure of size. UCare's membership had surged in recent years, ending 2015 at nearly 500,000. By then, its leaders were already dealing with a crisis after losing a bidding process to keep members in two state-run programs with more than 360,000 people.

UCare ended 2016 with just 152,000 members. It turned out to have had an extreme case of customer concentration risk — a business term for having too many eggs in one basket.

One big customer can be a highly profitable problem to have, but there are no good options when the customer decides to move on. Tightening the belt doesn't make much of a difference. What's needed is slashing.

Cutting an organization in half is brutally painful even if it survives. In the nonprofit world, a merger that keeps part of an organization together still might end its traditional mission.

Traynor has worked at UCare since 1999 and had served as UCare's chief lawyer. He was named interim CEO last spring and got the job permanently in the fall. The team he gathered in a conference room recently to discuss the financial turnaround had all worked with him in management roles at UCare in summer and fall 2015.

Cushioning the losses

As Traynor described it, they decided they couldn't risk what had made UCare competitive in the first place. It was known for taking good care of refugee families and others traditionally thought of as hard to serve. That simply couldn't change.

It had years of close relationships with hospital systems and other health care providers as well as government agencies, and UCare couldn't take steps that would harm those relationships. And finally, Traynor said, UCare needed to keep its employees so fully informed on the situation that they remained what Traynor called "engaged," even as a bunch of them were about to be laid off.

UCare also concluded that it shouldn't try to get to break even right away, as described by Chief Financial Officer Beth Monsrud. The company had more than a half-billion dollars of capital at the end of 2015, plenty of cushion to absorb operating losses as the organization adapted to a much smaller membership base.

UCare ended 2015 with about 730 employees. Recruiting for open jobs obviously went on ice, and 245 employees were eventually identified as candidates to be laid off, although with resignations and other changes only about 170 were. Altogether the payroll shrunk by about a third.

Monsrud also described keeping teams in areas like medical cost analysis and information technology, capabilities the organization had to have if it wanted to keep finding ways to operate more efficiently.

"We knew we couldn't balance this is on the back of [administration] alone," Monsrud said. "We knew we had lost scale. We had to look at the entire financial infrastructure."

UCare also had fans among government officials who were unhappy about the state's 2015 decision to shift business out of UCare. In what turned out to be a key development, Olmsted County successfully appealed. It was only 12,000 or so people, but UCare decided to keep the infrastructure in place to keep serving Olmsted County members.

The competing health plan company Medica had won much of the state's business that had once been UCare's, but mounting financial losses caused it to soon announce that it wanted out. Because UCare had kept a state contract for Olmsted that could be amended along with the capability to serve this population, last May it got about 180,000 members back.

When UCare had to hire more staff quickly, Traynor said he saw confirmation that UCare really had treated employees well in the layoffs. Nearly 50 people who had once worked there came back, and 95 additional hires came via employee referrals over the last couple of years.

UCare may look lucky in that it got much of its lost business back so soon after the crisis, Monsrud said, but that would be reaching the wrong conclusion. A lot of business from a big customer came back, all right, but only because UCare had the sense to keep a toehold in those two state plans through Olmsted County. And it kept the people on staff who knew how to work with those programs.

Besides, Monsrud said, "We really were well on our way on our three-year turnaround plan at the time the state came back."

lee.schafer@startribune.com 612-673-4302