Peter Babin quits as Blue Cross CEO

2005-01-07T23:00:00Z Peter Babin quits as Blue Cross CEOCHARLES S. JOHNSON Gazette State Bureau The Billings Gazette
January 07, 2005 11:00 pm  • 

HELENA - Peter Babin, the embattled chief executive officer of Blue Cross and Blue Shield of Montana, has resigned, effective immediately, the company's board of directors announced Friday.

The terse, three-paragraph press release, contained no explanation and no comment from Babin. He was appointed president of the company in mid-2001 and took over as chief executive officer and board chairman in 2002.

Company lawyer has no comment

Asked if the board requested Babin's resignation, Terry Cosgrove, the company's chief lawyer who was named as one of the company's co-chief operations officers, said: "We do not comment on personnel matters for anybody. Mr. Babin tendered his resignation to the board. We have no further comment."

Babin, reached by the Gazette State Bureau, had no comment, nor did several board members.

Attorneys for Babin and the board on Friday were negotiating the terms of a settlement agreement for his departure. Before resigning, Babin had a pay and benefits package totaling $1.4 million a year, including more than $525,000 in salary and bonuses.

Babin, 60, resigned after a special board meeting Thursday in which the directors received a report from former Attorney General Joe Mazurek, now a private lawyer representing the company.

Mazurek's report, commissioned by the board's Audit Committee last fall, was based on confidential interviews with nearly a dozen of the company's senior executives, many of them longtime employees. In general, they were critical of Babin's leadership, his dealings with health-care providers and employers and in some cases, his ethics, sources said.

The board had refused to hear the Mazurek report at its December meeting, contending it had been authorized only by the board's Audit Committee, not the full board. Babin then asked for and received a vote of confidence in his leadership.

But the directors' interest perked up when they learned that representatives of state Auditor John Morrison, the state's insurance commissioner who regulates the company, had inquired about the report.

Acting chairman appointed

The board appointed director Jerry E. Lusk, a certified actuary, as acting chairman. Lusk, who has served on the board the past year and has been a consulting actuary for Blue Cross and Blue Shield of Montana for two decades, is former chief financial officer for Blue Cross and Blue Shield of Georgia.

In addition, the board appointed Cosgrove, senior vice president of regulatory and corporate affairs, and Sherry Cladouhos, senior vice present of operations and government programs, to serve as the company's co-chief operations officers responsible for day-to-day operations of the company until a successor is named.

Babin's departure came after a tumultuous year for Blue Cross, the state's largest health insurance company with 49 percent of the business. Blue Cross provides or administers health insurance for 240,000 Montanans, or about 26 percent of the state's residents.

Disclosure of his pay and benefit package by the Gazette State Bureau in October triggered criticism. The package included an extremely generous retirement package, first-class plane travel for him and his wife to attend Blue Cross functions and a house-sitting allowance to hire someone to tend their dogs when the Babins were out of state on Blue Cross business.

After learning how much Babin was paid in salary and benefits, some employees said in e-mails obtained by the State Bureau that they were embarrassed to show up around Helena wearing Blue Cross jackets and their identification badges. At an all-employee meeting in November, Babin drew applause when he told employees if they were ashamed of working for the company, they should do themselves, their co-workers and the company a favor by resigning immediately.

Babin defended his salary and bonuses at the meeting. He said a study by a San Francisco human resources consulting firm found his salary and bonus were slightly below average for similarly sized companies. However, he said the study found his retirement plan was significantly higher than that offered CEOs for similarly sized companies. He said he was in negotiations with the board to reduce it.

In September, Blue Cross and Blue Shield filed an antitrust lawsuit in federal court against 12 Missoula radiologists, accusing them of being "a predatory monopoly." The radiologists left the company's provider network in June 2002 after a long dispute over the rates they are paid.

Also in September, the Finance Committee on the Blue Cross board of directors expressed concern over the financial direction of the company and recommended employee layoffs, cutting administrative costs, freezing salaries and bonuses and locking the controversial benefit restoration plan, a retirement plan for several dozen current and retired top executives.

The committee expressed concern about the company's proposed $35 million in anticipated premium increases for 2005 on top of the $30 million premium increase in 2004. It warned that if Blue Cross kept raising its premiums, it might drive customers to other insurance companies or force employers to sign up for reduced insurance benefits.

Under the benefit restoration plan, an executive who meets the qualifications will receive 100 percent of the annual average of his or her top five years of salary for life. Counted toward the 100 percent are the Blue Cross pension, Social Security payments and a contribution of 5 percent of the person's annual salary for five years. After the individual dies, his or her spouse is entitled to 75 percent of the benefit for life. The plan was put in place in 1992, well before Babin joined the company.

Some Montana doctors were openly critical of Blue Cross Blue Shield's freeze of their reimbursement rate. After being frozen at $54.50 per unit of service provided, the rate was increased to $56.01 on Dec. 1.

Pressure applied by health-care advocates and the state health department led Blue Cross to agree to return $1.9 million of the surplus it accumulated over five years for administering the state's Children's Health Insurance Program.

In the face of criticism and bad publicity, Babin, working through Banik Communications in Great Falls, hired a Seattle advertising firm, Parker LePla, to put together an advertising campaign to improve his and the company's image. No advertising has surfaced yet.

In the fall of 2002, Blue Cross under Babin's leadership had a national law firm draft a bill for the 2003 Legislature to allow Blue Cross to convert from a not-for-profit company to a for-profit company as has occurred in some other states. That could have led to stock options being awarded to company executives and would have triggered a change in control agreement, similar to what Montana Power and Touch America executives received, that would have started all of the top executives' benefit restoration plans immediately.

State Auditor Morrison and Attorney General Mike McGrath and some key legislators were less than enthusiastic about the idea, and the bill was never introduced.

A number of bills aimed at restricting or limiting Blue Cross are expected to be introduced at the 2005 Legislature.

As the controversies wore on, company sources said Babin increasingly isolated himself from the top senior managers, except for a couple of people he brought with him from Louisiana when he was hired here. Sources said Babin refused to let the members of the board of directors talk with the senior management team.

Copyright 2015 The Billings Gazette. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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