Leonard D. Schaeffer
1945–

Chairman and chief executive officer, WellPoint Health Networks

Nationality: American.

Born: July 28, 1945, in Chicago, Illinois.

Education: Princeton University, BA, 1969.

Family: Son of David Schaeffer and Sarah Levin; married Pamela L. Sidford, 1968; children: two.

Career: Arthur Andersen, 1969–1973, management consultant; Illinois Department of Mental Health/Developmental Disabilities, 1973–1975, deputy director; Illinois Bureau of the Budget, 1975–1976, director; Citibank, 1976–1978, vice president; U.S. Department of Health, Education, and Welfare, 1978, assistant secretary for management and budget; 1978–1980, administrator of the Health Care Financing Administration; Student Loan Marketing Association, 1980–1982, executive vice president and chief operating officer; Group Health, 1983–1986, chief executive officer; Blue Cross of California, 1986–1996, president and chief executive officer; 1989–1996, chairman; WellPoint Health Networks, 1992–, chairman and chief executive officer.

Awards: Distinguished Public Service Award, U.S. Department of Health, Education, and Welfare, 1980; Executive Leadership Award, UCLA Anderson School of Management; CEO Information Technology Achievement Award, Modern Healthcare, 2004.

Address: WellPoint Health Networks, 1 WellPoint Way, Thousand Oaks, California 01362-3893.

■ As chairman and chief executive officer of WellPoint Health Networks, Leonard Schaeffer led the health-care industry's conversion from nonprofit, indemnity-based healthinsurance coverage to for-profit, managed care. Under Schaeffer's leadership WellPoint became the first Blue Cross company to convert to for-profit managed care, operating on streamlined operations and cost-containment strategies; WellPoint became one of the largest publicly owned healthmaintenance organizations. Throughout his career Schaeffer displayed bold, decisive leadership in health-care administration, in both the public and private sectors. He was active with many health-care public-policy organizations and foundations, including as the founding chairman of the Coalition for Affordable and Quality Healthcare.

BOLD INTELLIGENCE DEFINES CAREER

Schaeffer gained high-level management experience early in his career. After graduating from Princeton University in 1969 and working as a management consultant for Arthur Andersen, he entered the health-care field in 1973 as deputy director of the Illinois Mental Health Department. During his two years there, Schaeffer became known for cost management that sustained a triple-A bond rating while public-health finance floundered in other states. Success earned him a promotion to director of the State of Illinois Bureau of the Budget.

After two years as a vice president at Citibank, in 1978 Schaeffer was approached to work on health-care reform in the federal government, first as assistant secretary in Management and Budget at the Department of Health, Education, and Welfare, then, at the age of 33, as administrator of the newly formed Health Care Financing Administration (HCFA), later renamed the Centers for Medicare and Medicaid Services. HCFA integrated Medicaid and Medicare under one organization, separating Medicare from the Social Security Administration. Schaeffer instituted operational changes that enabled federal health care to become cost effective. He relocated Medicare from the Social Security office in Washington, D.C., to the Medicaid office in Baltimore in order to foster worker interaction for further problem solving. Long before global fees (one-time fees that cover a course of care) became a standard practice of managed-care organizations, he substituted costly fee-for-service payments with a global fee for dialysis.

In 1980, as the election-year hampered potentially controversial activity, Schaeffer returned to the private sector. Then, in 1983, he became chief executive officer of Group Health in Minneapolis. At that company Schaeffer learned the principles of a health-maintenance organization, which had evolved from Group Health's origins as a cooperative association.

LEADING HEALTH-CARE MANAGEMENT

When Schaeffer became president and chief executive officer of Blue Cross of California in 1986, the nonprofit organization was on the edge of bankruptcy, with $2 billion in revenues and more than $150 million in annual losses. As a first step toward providing cost-effective health-care delivery, Schaeffer immediately eliminated redundant bureaucratic positions, reducing staff from 6,000 to 3,100 employees. Long-term changes involved converting the company's orientation from indemnity-based health insurance to a managed-care service capable of earning a profit. Toward this end, Schaeffer created WellPoint Health Networks as a for-profit subsidiary. A health-maintenance organization, WellPoint instituted managed-care practices, such as global fees, and addressed lifestyle issues that improved personal health for the long term.

The next step toward becoming a for-profit company involved a public offering of 20 percent of WellPoint stock in 1993. The offering provided funds for expansion through acquisition, transforming Blue Cross into a profitable company. Schaeffer oversaw 17 acquisitions over the following decade, expanding WellPoint's reach to Texas, the Midwest, the Southeast, and the Mid-Atlantic states. During recapitalization in 1996, involving the transfer or exchange of cash, assets, and stock, Blue Cross of California became a subsidiary of WellPoint. Thus, WellPoint became the first Blue Cross company to convert to for-profit status. (Recapitalization provided $4 billion in funding for new and existing health-care foundations as well.) By the end of 2003 WellPoint revenues reached $21.2 billion and garnered a net profit of $935 million.

To the controversy over whether the market could provide affordable, good-quality health care and ethically earn a profit, Schaeffer noted, "In our current system, there isn't enough money in the world to deliver all of the care that can be delivered, to all of the people who could consume it. So the concept of improving healthcare's administrative underpinnings so that we can concentrate more resources on its actual delivery is a very powerful notion to me" (Managed Healthcare Executive, July 2001).

ACTION-ORIENTED MANAGEMENT STYLE

Throughout his career Schaeffer displayed a decisive, self-confident management-style, but many interested parties sometimes viewed him as extremely aggressive. For instance, in 1998 Schaeffer addressed a health-care cost issue in an unconventional manner in order to improve the availability of three antihistamines: He petitioned the U.S. Food and Drug Administration (FDA) to transfer Claritin, Allegra, and Zyrtec from a prescription formulary status to over-the-counter status. The FDA took two years to decide the matter, uncertain of the appropriateness of a health-care organization making such a request. WellPoint's lawyers examined FDA law thoroughly and came to the conclusion that WellPoint could, indeed, petition for change. Schaeffer's stand on the issue related to the cost and safety of the three products. The three antihistamines do not have sedative effects while some over-the counter drugs, such as Benadryl, do. The cost of a doctor's visit and the higher cost of a prescription drug compared with an over-the-counter drug, unnecessarily raised the price of health care. Schaeffer believed that consumers were capable of deciding for themselves whether to use one of the drugs. Much to the dismay of pharmaceutical companies, the FDA voted 19–4 in his favor.

Another example of Schaeffer's style involved WellPoint's acquisition of Atlanta-based Cerulean Companies in March 2001. In 1998 WellPoint offered $500 million to acquire the company, but by late 2000 several other bids had been offered and Cerulean's performance had improved. While Schaeffer noted that a counteroffer of $700 million reflected Cerulean's increased value as well as a desire to make the acquisition, some observers viewed the bid as aggressive.

See also entries on Group Health Cooperative, Student Loan Marketing Association, and WellPoint Health Networks Inc. in International Directory of Company Histories.

sources for further information

Berkowitz, Edward, "The Centers for Medicaid and Medicare Services Website," http://www.cms.gov/about/history/schaeffer.asp.

Lubman, Sarah, "Is Leonard Schaeffer Destined To Be Victim of His Own Success? CEO of California Blue Cross and WellPoint Is at Hub of HMO Takeover Moves," Wall Street Journal, March 28, 1995.

McCue, Michael T., "Changing the RULES," Managed Healthcare Executive, July 2001, p. 19.

—Mary Tradii