Rowe, John W. 1944–
John W. Rowe
Chairman and chief executive officer, Aetna
Born: June 20, 1944.
Education: Canisius College, BS, 1966; University of Rochester School of Medicine, MD, 1970.
Family: Married Valerie A. DelTufo; children: three.
Career: National Institute for Children's Health and Human Development, 1972–1974, clinical associate; Harvard Medical School at Massachusetts General Hospital, 1974–1975, researcher and clinical fellow; Harvard Medical School, 1976–1988, professor of medicine, founding director of the Division on Aging; Beth Israel Hospital, 1980–1988, chief of gerontology; Mount Sinai School of Medicine and Mount Sinai Hospital, 1988–1999, professor of geriatrics and medicine, president; Mount Sinai NYU Health, 1998–2000, chief executive officer; Aetna, 2000–2001, chief executive officer; 2001–, chairman and chief executive officer.
Address: Aetna, 151 Farmington Avenue, Hartford, Connecticut 06156; http://www.aetna.com.
■ In 2000 Dr. John W. Rowe became the CEO of Aetna, making him the first trained physician to lead a health-maintenance organization (HMO). Aetna was ailing, and Rowe engineered a turnaround strategy that included jettisoning unprofitable customers, downsizing a mammoth organization, and focusing on earnings-boosting business, such as administering self-insured health-care plans for companies. As Rowe put it, his company was out of the ICU, but a complete recovery would take more time.
With 2003 sales of almost $17.9 billion, Aetna was a managed-care company on the rebound. After radically restructuring its operations by selling the financial-services division and its international businesses to the Dutch insurer ING Group, Aetna stuck to the health and benefits business. Aetna's shift in focus was largely due to government reimbursement cutbacks and a growing managed-care backlash. The company covers more than 13 million individuals under its health plans, plus more than 11 million dental-plan members and some 11 million group-insurance members.
AN ADVOCATE OF THE AGING
After medical school Dr. Rowe became a well-regarded gerontologist with a passion for education. He said "You can't just walk into a classroom and say, 'We're going to teach you to be geriatricians.' If we do that, geriatrics will just be a passing fad. I feel that we have to develop a standing among academicians, first, in order for the field to get a grounding and, second, because we really don't know that much about old people" (New York Times, December 12, 1985). A former professor of medicine and the founding director of the Division on Aging at Harvard Medical School, he also served as chief of gerontology at Boston's Beth Israel Hospital. He was a director of the MacArthur Foundation Research Network on Successful Aging, served on the board of governors of the American Board of Internal Medicine, and was president of the Gerontological Society of America. Rowe authored over two hundred scientific publications, primarily on the physiology of the aging process. The coauthor of Successful Aging, Rowe's research placed particular emphasis on examining why some elderly people remain healthy and effective.
TRANSITIONING FROM ACADEMICS TO ADMINISTRATION
Following his tenure at Harvard, Rowe became president of the School of Medicine at Mount Sinai in New York. Rowe claimed that under his leadership Mount Sinai Medical Center, including the medical school and the hospital, sustained superior financial performance through a period of significant fiscal pressures on academic medical centers. He is credited with establishing the Mount Sinai Health System, which grew to be the largest integrated health-care system in the region, and with improving Mount Sinai's clinical services and effectiveness, with significant increases in patient volume and in the complexity of services rendered. During his tenure as president of the School of Medicine, Mount Sinai's basic- and clinicalresearch efforts grew dramatically, as reflected in the construction of major new research facilities, a near tripling of federal research grant support, increases in the national ranking of the medical school, and a substantial increase in the academic credentials of the student body.
HOSPITALS NOT IMMUNE TO BUSINESS TRENDS
The forces of consolidation—rising health-care costs, changing government reimbursement rates, and increased pressure from insurance companies—all created a tenuous health-care climate during the 1990s. Many medical centers merged or ceased to operate. Rowe conceived of and executed the 1998 merger of the Mount Sinai and NYU medical centers, one of the largest hospital-system mergers in history.
In 2001 Mount Sinai NYU Health had $1.8 billion in revenue and 31,000 employees. Rowe was responsible for the integration of the two organizations. By 2002, however, both medical centers publicly acknowledged that their merger was a failure and that they planned on reallocating all shared administrative services. In September 2002 Moody's downgraded Mount Sinai NYU Health's bonds, primarily due to Mount Sinai's considerable operating losses. Despite the dubious outcome of the merger, Rowe's contributions to the hospitals were significant.
A COMPANY IN NEED OF A DOCTOR
Leading two of the nation's top medical centers prepared Rowe for the next phase in his career, serving as a top health-care CEO. In 2000 flagging earnings at Aetna prompted transitions and replacements of senior executive. Rowe was named CEO in September 2000 and assumed the chairmanship of Aetna in April 2001.
Rowe had acquired a company that seemed headed for disaster. Doctors disdained Aetna, mostly for the tight controls on medical services imposed by its managed-care plans. Lawyers were targeting it with an onslaught of litigation, employee morale was very low, and the company had yet to fully recover from several acquisitions, including that of U.S. Healthcare. Yet the company was reporting a small operating profit and seemed to be holding its beleaguered business together. Said Rowe: "Most people expect that I came here and there was blood in the hall and things were in disarray. In fact, that wasn't the case. There was an appearance of stability" (Hartford Courant, November 27, 2003).
But the cracks in the company's seemingly secure foundation quickly revealed themselves. In January 2001 Aetna's chief financial officer indicated that profits were disappearing; even with price hikes, income was not keeping pace with spiraling claim costs. Management took false solace in the hope that financials would improve. By the end of 2001 the company lost a total of $266 million. Said Rowe: "I don't think anyone in management saw it coming. It's not like they sold me a bill of goods or something like that. I think everybody was flabbergasted at the severity of the problem" (Hartford Courant, November 27, 2003).
SEEKING TO CHANGE HEALTH CARE
Although Rowe was energized by the challenge of turning around an embattled company, he was also attracted to a grander cause: changing the very nature of the health-care system. He hoped to create a system in which insurance companies partnered with physicians and hospitals to deliver superior care. It was an idealistic notion, but Rowe claimed he was up to the challenge: "This can be done. It may not happen immediately. Not only can it be done, but this is important. If we get this right, this is going to make a difference," he said (Modern Physician, October 1, 2000). Still, the pressure was enormous. Thanks to regulatory pressures and an adversarial relationship with the medical community, in 2002 one in seven insurance-industry CEOs left office; many of them were fired, according to a study by the consulting firm Booz Allen Hamilton.
Much of Rowe's early responsibilities entailed boosting Aetna's public image. In 2002 a lawsuit was filed in U.S. District Court in Brooklyn against Aetna, the FleetBoston Financial Corporation, and the CSX Corporation claiming that they profited from the slave trade. In 2000 Aetna had apologized for its involvement in slavery.
In May 2003 Aetna agreed to a $470 million settlement with about 700,000 physicians who claimed the insurer systematically reduced their payments and interfered with their treatment of patients. Aetna was the first major HMO to settle a longstanding class-action suit filed by the nation's physicians, who contended that the business practices of major managed-care companies were robbing them of reimbursements, jeopardizing patient care, and tying their hands with needless bureaucracy. In its landmark settlement, Aetna agreed to revamp its payment system, reduce administrative hassles for doctors, create a foundation to focus on patient safety, and establish a National Advisory Committee of Practicing Physicians to provide guidance to Aetna on key issues involving doctors. The fact that these pioneering changes were instituted under Rowe's watch was both ironic and critical to his notion of building a more democratized system of health-care.
LEADING A TURNAROUND
A primary component of Rowe's turnaround strategy was shifting the company's focus from size to profits. After years of spending billions on acquisitions to increase enrollment, Aetna began scaling back, dropping customers who were not profitable and terminating health plans in many states. In just a few years the company downsized from 21 million to 13 million members. Additional cost savings came from the elimination of about 15,000 jobs. Said Rowe: "The easiest way to start making money is to stop losing it. We're being much more disciplined as a company about how we and where we compete" (Rochester Business Journal, April 5, 2002).
Meanwhile, the company made an aggressive move into the self-insured market. In such arrangements, employers assume the financial responsibility for the health-care costs of their employees and use a third party, such as Aetna, to administer the plans. Since the employer assumes the risk of claims, Aetna avoids unpredictable medical costs. One of the most important breakthroughs in that market came with Aetna's 2002 deal with the University of Rochester, Rowe's alma mater.
The University of Rochester's move to hire Aetna gave the company a strong entry into a market that for nearly half a century was almost exclusively served by nonprofits. Rowe said: "Self-insurance is part of a nationwide trend among employers seeking protection from double-digit health cost inflation. To provide health coverage for employees while remaining competitive, employers want health programs that reduce costs while enhancing employee productivity and satisfaction" (Rochester Democrat and Chronicle, April 5, 2002).
VITAL SIGNS IMPROVING
The first signs of an Aetna turnaround came in early 2002, when financial results indicated that Aetna was retaining valuable customers, despite steep price increases. In April 2002 the company reported its first quarterly operating profit in more than a year. Unlike the 3¢ analysts expected, Aetna posted a respectable 44¢ a share. Rowe commented: "That was the day we got off the runway. It was then that it became clear to everyone inside the company and outside the company that in fact we were going to save the company. It wasn't going to get taken over. It wasn't going to get broken up further and the patient was going to make it. The patient was out of the ICU" (Hartford Courant, November 27, 2003). In addition to making money again, the company was cultivating once-alienated employers and benefits brokers, as well as doctors, who began viewing the company with newfound trust. In 2003 the stock price rose 56 percent.
FAR FROM A CURE
Yet the company still faced a host of challenges. Aetna lagged behind its peers in profits yet trumped them in overhead expenses. Further, the spate of jobs cuts and benefit reductions left remaining employees with dwindling levels of job satisfaction. A 2003 company survey indicated improvement, but Rowe conceded that employee satisfaction still trailed industry averages. In interviews with the Hartford Courant, some employees described morale as "awful" and "kind of in the crapper." Said Rowe: "We're making great progress, but the fat lady has not yet sung here. And we have a long way to go" (Hartford Courant, November 27, 2003).
See also entry on Aetna, Inc. in International Directory of Company Histories.
sources for further information
"Aetna Inc. Sees UR as Toehold for Efforts Here," Rochester Business Journal, April 5, 2002, p. 1.
Hallowell, Christopher, "New Focus on the Old," New York Times, December 12, 1985.
Lentz, Rebecca, "Tough Rowe to Hoe; New Physician CEO Aims to Repair Aetna's Troubles," Modern Physician, October 1, 2000, p. 18.
Levick, Diane, "Prognosis Good for Aetna's Continued Recovery," Hartford Courant, November 27, 2003.
Rowe, John W., "Insurance Competition is Healthy for Community," Rochester Democrat and Chronicle, April 5, 2002.
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