Expert Insight

Part II: BCBSA CEO Kim Keck on the future of MA and strategic consolidation

In part II of this edition of "Lessons from the C-suite," Advisory Board President Emeritus Eric Larsen and Blue Cross and Blue Shield Association President and CEO Kim Keck discuss how Kim's thinking about BCBSA's opportunity in Medicare Advantage, pursuing vertical integration through enablement rather than ownership, and consolidation in the wake of Blues' major antitrust settlement.

Lessons from the C-Suite: Kim Keck interview Part 1

Has the ‘Overton Window’ shut on MA? Maybe not for the Blues.

Eric: Kim, let’s talk about Medicare Advantage (MA). Obviously, there’s been enormous growth in this segment, with half of all Medicare enrollees now in an MA plan. And that number is expected to reach 62% by 2033.

But growth aside, the tonal change in discourse around MA in just the past year could give someone whiplash. In January 2022, there was a bipartisan, bicameral statement signed by 80% of the House and two-thirds of the Senate that basically said, "We love MA in perpetuity." There was an 8.4% final rate adjustment. And then, a mere year later, the tone has decisively shifted. Rick Gilfillan and Don Berwick first catalyzed and gave a vocabulary to a wave of antagonism when they wrote their “Money Machine” article in Health Affairs in September 2021, with a series of follow-ups across 2022. We had an almost punitive negative rate increase this year, we had the MA Risk Adjustment Data Validation (RADV), we had the compression in the codes, etc.

So, Kim, I want your take. Because obviously the Blues have not been very energetic in the MA space. We’ve got 51% of Medicare enrollees in an MA plan nationally, and yet the Blues collectively, including Elevance, have just 14% in MA plans. UnitedHealthcare* has 28%. Humana has 18%. How do you assess the Blues’ performance in MA? What’s your take on the state of affairs with the Blues and MA?

Kim: Many of our Blues plan are newer to the MA market. That said, MA is now a significant focus for us, and, given the macro trends, we’re well positioned to pick up momentum. For plan year 2024, 95% of Medicare eligibles live in a market with a Blue MA plan.

I came from BCBS RI where we had a five-star plan and over 50% MA market share. I was surprised when I realized that the Blues system as a whole hadn’t been as focused on MA, but it’s now a very clear focus for us.

Eric: What was your diagnosis on why not all plans shared Rhode Island’s MA focus?

Kim: There were a few reasons. First and foremost, for many years, the Blues have been a significant player in the employer-based commercial market. And being strong in commercial, as we know, is not an automatic entry to being strong in MA. We needed to create different operating platforms to serve different populations, but that wasn’t where the focus was.

Second, our competitors have pursued maximizing risk adjustment as an MA strategy – and have in many ways reaped the benefits of doing so. This is actually a silver lining for us, because it’s meant that this year wasn’t as big an issue for most of the Blues as it was for some of our large national competitors, in terms of feeling the impact of regulatory changes on our MA business.

I also think having such a strong commercial business, to a certain extent, hamstrung our drive to develop discrete MA capabilities. It’s the classic paradox where sometimes your strength is your weakness. Being strong in commercial, as we know, is not an entry to being strong in MA. But there was probably some overreliance on exporting capabilities from MA to commercial rather than truly viewing them as different operating platforms serving different populations and needing different approaches.

Eric: I appreciate your diagnosis here. Obviously, the Blues are dominant on the fully funded commercial side. You have a 90-year history here, and you’re embedded in the societal fabric. I agree with your verdict that the competencies developed over those 90 years aren't instantly translatable from fully funded commercial to MA. And you, personally, acutely understand what's required to manage that complex polychronic, polypharmacy MA population, because of your involvement with Evolent and, particularly, Oak Street.

I know Michigan is an exception here (with 600,000 MA enrollees), as are GuideWell and a couple others, but my read is that there hasn’t been a lot of “democratization of insight” in MA across the Blues. So, when you went to the BCBS Association, was it a priority of yours to evangelize the need to develop a playbook to grow in MA?

Kim: Yes, absolutely. My whole ethos coming in to lead the association was figuring out what we can do at scale because we’re the Blues.

The Blues were set up for 90 years of managing acute care. And we’ve been good at it! But to manage population health and be great in this segment, we need to enhance our existing capabilities and ask what we can be doing at scale that position the Blues for success in MA.

Eric: I love it. And if you’ll permit me a short tangent, this makes me think of one of my favorite political constructs, which is this notion of the Overton Window — what is politically viable or winnable at a given moment. I think the Overton window in MA has shifted. From a year ago to today, the atmosphere is decidedly more negative, more adversarial. Star rating headwinds, stingy rate increases, RADV. The real question I’m asking myself is, has the Overton window on MA closed? In which case, here you are championing more adoption of MA at precisely the moment where tailwinds have turned to headwinds.

Kim: I believe there's still opportunity for the Blues.

The premise of addressing comorbidities and social needs, supporting a holistic approach to care delivery that could be team-based, enhanced by data and technology that is still the right model.

Our definition of success in MA might be different than that of some of the big national players. Our focus right now is on leveraging our data foundation to fuel the clinical decision-making and local investments that allow our Medicare members to get the right care, at the right time, and in the right setting.

The question for vertical integration: Enablement versus ownership

Eric: You stimulated another line of thinking, Kim, which is another big, tectonic shift in the MCO community over the last decade: the vertical integration of the well-capitalized, publicly traded MCOs.

Several of them have prosecuted a strategy of building out a risk-bearing primary care capability and home-based enablement strategy. Sometimes that's in partnership with health systems. Optum* has been the most energetic here and now has 80,000 physicians, Humana has over 250 CenterWell clinics, CVS Aetna just purchased Oak Street at quite a premium of almost $17 million per doctor.

You and I have talked about this before: like MA, the Blues have not pursued this same vertical integration strategy. There have been a couple notable exceptions, including Blue Shield of California acquiring multi-specialty group Brown & Toland; Pat Geraghty and Florida Blue building out clinics with Sanitas; Highmark in Pittsburgh acquiring Allegheny Health Network. But outside of these isolated examples, the Blues have not been voracious acquirers of physicians or hospitals.

Fair characterization?

Kim: Well, there’s never just one answer when it comes to the Blues. The Blues do own more clinics and clinicians than we talk about. If you total it all up, the Blues collectively have some ownership of physicians and/or clinics in 24 states.

But you’re right, the Blues place a heavier focus on working to enable providers — and often keeping providers independent — rather than pursuing ownership. The question that we're asking ourselves is: How much value can you get from pursuing enablement versus ownership? Where is the incremental value created from one model or the other?

Our hypothesis is that by doubling down on enablement, we can help lift the entire market rather than picking a single clinic for our members to visit. If we focus on improving key capabilities — enabling team-based care with wraparound services, data analytic reporting, etc. — broadly within a market, I think we can have a significant impact. It’s the broad-versus-deep equation that we are constantly challenging ourselves to contemplate.

Eric: I admit I always thought of enablement almost like a consolation prize, a forced retrenched position. I thought the Blues missed out on acquiring physicians when medical groups were priced at single-digit multiples and there were still doctors to acquire. Now we're at 76% “corporatization” — there are no more independent physicians to acquire. And we can’t take directional guidance from the public markets — one moment they’re in love with clinic-based physician aggregators, the next moment the sector can do nothing right. Now the tide has turned and they’re all about enablement companies like agilon and Privia.

We do know that center-based, fully employed, risk-bearing primary care is incredibly consequential in terms of reducing inappropriate utilization, facilitating longitudinal care management, closing gaps in care, etc. Obviously, those are data you’re intimately familiar with, being on the board of Oak Street. At least to me, the clinical impact isn’t as clear on the enablement front — the jury is still out. How has your experience with Oak Street influenced your thinking?

Kim: Don’t get me wrong, Eric, I love a clinic-based model. When I was leading BCBS-RI, we partnered closely with a risk-bearing primary care clinic to help them transform, and ownership was definitely a conversation. For patients that use clinics like Oak Street, there is no doubt in those patients' minds that they are in a place where their primary care is going to be delivered, their social needs will be met, they’ll get far more time with their physicians who they see nine times a year versus the average of twice a year.

When I think about impacting lives at scale, though, the picture is less clear. Based on size alone, does the clinic-based model have an outsized impact on the U.S. healthcare system? Right now, it doesn’t. I think enablement might take longer, but its reach might be further.

Eric: To me, this notion of direct employment and alignment of risk-bearing primary care is inseparable from the MA strategy. And as discussed, the Blues didn't really participate in either of those strategies.

Kim: One question to consider, though, Eric, is whether enablement is the key that allows the Blues to extend from the commercial population to MA? Can we use our enablement strategy to create the commercial risk model that works and isn’t heavily reliant on risk-adjusted revenue? Because again, we never really focused on that value driver as much as others did, for MA. It's not as though the commercial population doesn't have chronic needs or fragmentation in care delivery. Some of the same issues exist. They might not exist for everyone in the commercial population, of course. But chronic care doesn't just sit within the seniors.

So again, it’s this idea of how can we develop a capability set that spans the Blues and doesn’t require each plan to solve problems on its own?

Blues consolidation is strategic, not reactive

Eric: To that end, Kim, I want to ask you about the antitrust settlement. It's been a long, protracted, 11-year case, finally coming to resolution with the $2.7 billion settlement. My own prediction is that the Elevance-BCBS Louisiana tie-up is a harbinger of what’s to come — if it ultimately gets approved, which is obviously on ice right now — that this settlement is going to catalyze more horizontal consolidation among the 34, now 33, independent Blues. We’ve already seen the synthetic consolidation with Vermont and Michigan.

Am I thinking about this the right way? Or am I hallucinating something that's not there in terms of an imminent consolidation wave among the Blues?

Kim: To me, the driver of the horizontal consolidation — which I would call “affiliation” — goes back to the same question I asked when I took over the BCBS Association two years ago. How do the Blues build on our superpower – our deep local focus – and achieve scale?

Any company should look into the future, look at the macro trends, their own capabilities, their strengths and ask what it takes to compete, not in 2023, but in '24, '25, '26, and beyond. The moderate consolidation we’ve seen is partly a result of looking at all these factors and choosing one of several pathways to access the capabilities they need that exist elsewhere within the Blues system.

But there isn’t just one pathway to scale, and affiliations among the Blues aren’t the only way to find the capabilities each Plan is looking for.

Eric: Well said, Kim. And by the way, I'm not presupposing this is a good or a bad thing. Really just a question: Why have 33 independent Blues with 33 (and I'm exaggerating) different selling, general, and administrative (SG&A) systems, variable network adequacy strategies, etc.? In this market, why wouldn't you want to rationalize and standardize the back office? And when you remove the motivation for having that independence, which is that you couldn’t compete in each other's backyards but now you can — why not?

Kim: For the Blues, it is so deeply culturally ingrained to have unprecedented local reach. So, any Blues plan is going to approach strategic decision-making with a spirit of maintaining their local presence.

I believe we can have both, and some of these models have proven that. The question we’re grappling with is: Does it have to be full-scale horizontal consolidation, or are there enough of a set of capabilities that we can build and share to drive scale? It’s the same undercurrent to how we think about vertical integration, MA, high-cost drugs, generative AI – all the things we’ve covered today.

Final reflections

Eric: Your reflections on all the topics we’ve covered today — and the countless topics we didn’t have time to get to — are informed by the broad and ambidextrous perspective you’ve developed on the industry, in large part because of the journey you’ve taken to get where you are. Close us out with some personal reflections on your career so far.

Kim: I wish I could show you some 20-year-old blueprint and how I followed it completely. You listed out the different roles that I’ve had — the throughline that connects them is really looking for new ways to learn, leaning into curiosity to find ways to solve problems that are bigger than my own goals and professional objectives. I’ve been really, really lucky.

And I learned very early on how to lean into growth and adapt. I started off in finance, and very few people know this, but early in my career I was working for a company that was losing a million dollars a day, literally.

Eric: One million dollars a day?

Kim: That’s right. And my role was in capital markets, managing the relationships with the rating agencies, trying to get them to believe our strategic and financial story. We were downgraded six or so times over a very short period, perhaps rightly. We were at our covenant limits. But ultimately, we were able to negotiate a covenant waiver with our banks, borrow some money, and buy the company a future. It was just an incredible experience.

It also gave me a taste of conquering a challenge that, from the outset, seemed insurmountable. A big part of my ability to not only do that, but grow from it, was my boss at the time, Ron Williams. Ron saw that I had potential as a strategic leader, and he became an incredible sponsor to me, giving me opportunity after opportunity. Including in roles that, at the time, I thought I had no business having.

The first P&L role he gave me was a $14 billion P&L. He stretched me beyond my comfort zone in ways that I try to do for people who work around and with me now. He opened the doors for me to be guided by curiosity and look for new ways to solve big problems.

Eric: Last questions: First, how did you end up with the Blues? And second, what was the impetus to move over to the BCBS Association?

Kim: I was working at Aetna when I was approached about taking over Blue Cross Blue Shield Rhode Island. I admit, my first reaction was, “Why would I want to do that?” Well, even before I was officially in the role, I loved it. At BCBS-RI I got to learn the true impact you can have on a local market and how having deep, local scale within an ecosystem — and candidly, an economy — can make such a difference.

While I was running BCBS-RI, I was asked to throw my hat in the ring to run the BCBS Association. Again, it was, “Why would I want to do that?” I liked running a small Blue plan and I was in my home state. Ultimately, I said, “Okay, please consider my candidacy. But I’ll only do it if I find that we can truly take advantage of what I had at Aetna (broad, national scale) and in Rhode Island (deep, local scale).”

Frankly, part of this was the direct result of my experience in Rhode Island. Not to get too technical, but I had to price a product using a per member per month based on 450,000 people, despite my huge market share. Well, my competitor was using a population of 40 million — their load of PMPM cost they could put into the product was a fraction of mine. It was frustrating.

So, I was passionate about finding ways to create scale across the Blues from the get-go. I wanted to take advantage of the fact that there is a Blue Cross Blue Shield plan in every zip code in the United States. I believed it was possible when I took over the BCBS Association, and I believe it’s possible now.

This interview was edited by Abby Burns.

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  • You’ll gain insight into the Blues’ posture toward MA.

  • You’ll understand the Blues perspective on enablement vs ownership.

  • You’ll gain perspective on Blues consolidation.



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