Sept. 16--New CEO Michael Hamerlik is starting his tenure at Madison-based WPS Health Insurance with some holes to fill.

In July, one month after he was hired, WPS lost a big federal contract handling managed care claims for military personnel in 21 Western states for a Defense Department program known as TRICARE.

Its other federal government contract -- processing Medicare claims for nine Midwestern states -- is in flux, while regulators work to meet a congressional mandate to redraw coverage boundaries for the program. The net result could add to or subtract from the amount of Medicare business WPS handles.

Together, the two contracts currently make up about 40 percent of WPS annual revenue, budgeted at nearly $1 billion for 2012, Hamerlik confirmed. The company's TRICARE contract ends March 31, while the timeline for the changes to the Medicare regions is unknown.

Meanwhile, the 60 percent of annual revenue that WPS gets from its commercial insurance business -- providing health plans for groups and individuals statewide -- also took a blow last year, when the Madison School District dropped WPS.

It all adds up to big challenges for Hamerlik, a 51-year-old North Dakota native who replaced Jim Riordan, a 39-year veteran of WPS who is retiring after spending the past 20 years as CEO.

But Hamerlik says he finds the imperative of ginning up new business for WPS and running operations more efficiently exciting. No stranger to the business, Hamerlik, also trained as an attorney, has 27 years' experience in the health insurance industry, including the last 10 as CEO of Noridian Administrative Services of Fargo, N.D., a Blue Cross and Blue Shield subsidiary.

"I find change exciting because it's about improvement," he said. "In the health care space, we all know that we have a very serious problem in our country around the high cost of delivering health care, and we need to change and get better at it."

WPS is the state's only nonprofit insurer, offering a variety of health plans statewide for groups and individuals in the public and private sectors. It's one of Wisconsin's largest health insurance companies and one of the country's largest processors of Medicare claims, which it has handled in some fashion for the federal government since 1966.

It also owns a life insurance company and a community bank that in July was ranked one of the 359 "safest banks in America" by MSN.com.

WPS now employs 3,666 people, with offices in Madison, Wausau, Milwaukee, Appleton, Eau Claire and Green Bay.

Company employment is down about 400 from 2009, and the pending loss of the TRICARE contract threatens the jobs of another 500, likely in the Wausau WPS office that handles most of those claims.

Q: Will the Wausau office be closed in April?

A: There will undoubtedly be significant downsizing in that office. However, we do expect that some functions will remain there. It's not just the (TRICARE) contract that we lost that's done up there. There are other functions.

There's a critical mass you have to have (to keep an office open), and we're in the process of trying to figure out what functions will be there. At this time, it is our expectation that the office will remain, in a reduced footprint.

TRICARE is a significant loss for our company, and we are in the process of adjusting to that. But those contracts are big, and you don't just find another one like that overnight. That is a significant challenge.

Q: Was the loss of the Madison School District also a major blow?

A: Like any business, we are always concerned and disappointed when we lose a customer. The tight finances of governments at all levels is putting pressure on every aspect of their budgets, and in this case, they decided to go elsewhere for health coverage.

Q: Meanwhile, WPS continues to process many Medicare claims under a federal contract that could change, for good or bad. It's been 3 1/2 years since the redistricting process started, with no end in sight. How difficult is it to work under uncertain conditions as a contractor?

A: We're as frustrated as anybody, because there's no transparency to that. It was the same with the TRICARE contract. You get an inkling of why you were or were not awarded the contract. But in terms of really getting a dialogue about it, you don't get that.

So it's hard, and it creates stress and uncertainty for our staff that does the work. But that's the nature of the world right now. It's the nature of the competitive environment we work in and the economy. We live in the new reality.

Q: Your former employer Noridian has been WPS' chief competitor for the Medicare claims processing business in this part of the country. Is it a little weird that you became WPS' new CEO?

A: There's an awkwardness to it, of course, because I went to a direct competitor. But WPS is a direct competitor (to Noridian) in only that one line of business.

A fairly limited number of companies do this (federal Medicare claims processing) business, probably eight companies in the entire country. Also, while all companies are competitors, they are also collaborators on best practices.

Q: What are some of your ideas to generate new business for WPS?

A: I'm analyzing that now. WPS Community Bank is a good example of the diversification opportunities we will pursue.

Q: What do you see driving the high cost of health care, and what are the possible solutions?

A: The access to high-quality health care at an affordable price is important to everybody, and we are not there yet in our country. We have to find better ways of delivering and receiving health care.

There are estimates from a lot of sources that somewhere between 10 and 30 percent of the health care that is delivered isn't needed. If we could just remove that, think of how much capacity we could have for all the people who really need it. The question is how to introduce transparency about the cost of things into the process, so that each of us, as we're buying health services, can make good decisions.

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(c)2012 The Wisconsin State Journal (Madison, Wis.)

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