HMO chief resigns

In a major shake-up at one of the state's largest health insurers, Tufts Health Plan chief executive Nancy L. Leaming and another top executive resigned yesterday amid significant declines in membership and escalating operating losses.

Tufts board chairman Davey Scoon said no particular recent event led to the resignations. ''The board felt it was time to make a change," said Scoon, chief administrative and financial officer for Tom's of Maine, the health and personal care products company. ''Membership decline was an issue.

''I've worked with Nancy for a long time, and I have tremendous respect for her," said Scoon, a Tufts board member for 20 years. ''She's a very capable person. You get to a point where it makes sense to make a change."

The board appointed James Roosevelt Jr., Tufts' general counsel and a former Clinton appointee in the Social Security Administration, as chief executive and president. Roosevelt said Scoon met with him outside the office 10 days ago to ask whether he'd be willing to take the top job if Leaming resigned.

''We're excited about Jim's vision and managerial style," Scoon said. ''The board, along with management, has been concerned and trying to think what are the right steps we have to take to turn this situation around."

Roosevelt said Leaming and the board reached an agreement Wednesday, almost two years after Leaming was promoted from chief operating officer to chief executive. Chief operating officer Richard Hallworth also stepped down yesterday. Hallworth and Leaming declined to comment through a Tufts spokeswoman.

The resignations are the latest in a series of top management changes at Tufts. Jon Kingsdale, a senior vice president and creator of some of Tufts most innovative products, said his job was eliminated last month, and Kevin Counihan, senior vice president of sales and marketing, resigned in May, executives said.

With $356 million in net worth and no debt, Tufts Health Plan is not in immediate danger of financial insolvency. But the plan has lost 23 percent of its membership over the past five years, dropping to just below 700,000. And last year's $3.8 million operating loss escalated to a $13 million operating loss in just the first quarter of this year.

In an internal memo to employees yesterday, Roosevelt attributed the plan's woes to ''medical costs that are out of line with the marketplace and product costs that need to be more competitive." In an interview, Roosevelt said Tufts has been particularly hurt by competitor Harvard Pilgrim Health Care, which was forced into state receivership in January 2000 after a disastrous 1999, during which the nonprofit organization lost $227 million. Harvard Pilgrim has since turned around its finances.

''We believe Harvard Pilgrim got very low [fee] increases from providers when it was in trouble," Roosevelt said. ''This has been a significant disadvantage to us. Harvard and Tufts go head to head in the marketplace."

As a result, Roosevelt said, he believes Tufts is paying hospitals and doctors higher fees, which forces it to charge employers more for premiums. Some of those employers have left Tufts to join Harvard Pilgrim and Blue Cross and Blue Shield of Massachusetts. He said his first steps for improving Tufts' financial health will involve developing a business plan and meeting with hospital executives.

''We will be working very closely with providers, and we're going to try to talk to them about realistic and fair rates, and the importance of having three major health plans," Roosevelt said. ''I'm counting on them wanting a competitive insurance marketplace."

Charles D. Baker Jr., chief executive of Harvard Pilgrim, said he does not know how much other plans pay providers, but ''if you look at our membership over the past three years we've had modest growth. Blue Cross has had phenomenal growth. They've been the big winners, year after year."

Blue Cross has 2.75 million members, dwarfing all other Massachusetts insurers. Harvard Pilgrim has 900,000 members.

Last summer, Leaming and Baker met twice to informally discuss the possibility of the two plans merging to better compete with Blue Cross, according to a Harvard Pilgrim official, but the conversations were preliminary and never reached a serious stage. Roosevelt and Baker said yesterday there are no current discussions underway, and both believe it's better for the plans to operate separately because it creates more price competition.

Dr. Morton Madoff founded Tufts Health Plan's health maintenance organization in 1979 with a $3,000 development grant. By 1981 the company became operational, and it ended the first year with 3,000 members and revenues of $635,630.

By 2003, it had grown into the state's second-largest health plan, with 909,000 members. In recent years, the plan developed a reputation as being experimental, often adopting new and sometimes disputed products and programs before its rivals.

Tufts was one of the first plans in the country to introduce a health club membership benefit, and it was the first insurer in Massachusetts to charge members a higher copayment for expensive brand name drugs through a so-called three-tier pharmacy plan -- now standard practice.

But some healthcare observers say Tufts innovative tendencies also created problems for the organization. More recently, some of its unusual new products have been slow to catch on with members.

Liz Kowalczyk can be reached at kowalczyk@globe.com.