DATE: Sunday, April 13, 1997                TAG: 9704120541

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY DAVID RAPHAEL SMITH, SPECIAL TO THE VIRGINIAN-PILOT 

                                            LENGTH:  140 lines

TRIGON PLOTS PATH TO PROFITS A BLOODY, BATTLE BEHIND HIM, TRIGON CEO NORWOOD DAVIS HAS HIS SIGHTS SET ON THE NEXT REVOLUTION TRANSFORMING THE NEWLY PRIVATE COMPANY INTO A REGIONAL HEALTH INSURANCE POWER.

Norwood Davis Jr., the 57-year-old chairman and CEO of Trigon Healthcare, isn't yet feeling kindly toward the critics of the company's just-completed conversion to a for-profit firm.

A handful of citizens and good-government advocates spent much of 1996 petitioning the General Assembly to make the company turn over to the commonwealth more of the money it had accumulated during its 62 years as the state's tax-sheltered nonprofit Blue Cross/Blue Shield insurer.

The tax breaks Trigon received from the state and its Blue Cross name, known and trusted nationwide, had been worth millions to the company. How many millions, however, was disputed.

Jean Ann Fox, the former president of the Virginia Citizens Consumer Council - a group of a few hundred organizational and individual members - and the conversion plan's most persistent opponent, derided the $175 million that Trigon eventually handed over to Virginia as a sum comparable to ``Esau's sale of his birthright for a mess of potage.''

``Talk like that's absurd,'' roars Davis during his first at-length interview since taking the company private. ``When a local Rotary Club or other nonprofit group disbands, they don't give their treasury to the state. The members take the money. And Trigon isn't a charitable organization. We paid taxes. Our first responsibility was to our members.''

1 IN 4 VIRGINIANS

That membership is considerable. Trigon insures one out of every four Virginians, and enjoys a 31 percent market share in its service area, which excludes parts of Northern Virginia. Now that the conversion is complete, the company has 147,800 shareholders, including the commonwealth of Virginia and a number of other large employers.

This Wednesday, Trigon will hold its first shareholder meeting at its Richmond headquarters.

Vision, adaptability and a high degree of self-discipline, say most who know him well, were the characteristics that helped Davis make Trigon's conversion to a public company a success.

``He's very driven, he expects a lot,'' says Lewis C. Everett, longtime friend and vice chairman of Wheat First Butcher Singer. ``You might not agree with what he wants to do, but you know where he stands. You respect him for his leadership ability.''

Says Joseph Mallory, a New York health care consultant who's worked sporadically with Davis since 1970: ``(Vision) is something Norwood has always insisted on. . . . Norwood is one of the most adaptive leaders I've seen. He consistently updates Trigon's strategic plan.''

And Davis, who already has led the $1.8 billion organization through a number of evolutions, is about to lead the company through the most drastic and potentially rewarding evolution of all - from a single-state not-for-profit insurer to a regional health care insurance power.

``STREET FIGHTER''

A native Richmonder, Davis grew up with his mother and sister a working-class neighborhood. Basketball at John Marshall High led the 6-foot star guard out into the world by way of an athletic scholarship to Hampden-Sydney College where he was captain of the basketball team. His competitiveness and leadership abilities, says friend and former roommate Everett, were apparent ``early in the game. I think he was a street fighter. That's been in his blood.''

From there, it was law school in Charlottesville and a short stint at a Richmond firm. In 1968, he became house counsel of what was then Richmond Blue Cross and was elected president of Blue Cross/Blue Shield in 1981. The insurer became Trigon 1986.

Davis describes his politics as do many Americans of his generation: moderate or tolerant on social questions but conservative on economic issues. ``I saw Lyndon Johnson's Great Society, and although it did some great things on civil rights, at the same time I thought it was wrong in how it tried to do everything for everybody.''

That perspective also animates Davis' views on the U.S. health care system, which he calls ``the best in the world.''

President Clinton's spectacularly unsuccessful 1994 proposal, Davis says, ``would have created a bureaucracy about as big as the IRS.''

It's likely it also would have eliminated Davis' chance of successfully changing Trigon from a one-state nonprofit entity into a regional for-profit health care organization.

PROFITS OF DOOM?

With the conversion, a slew of Virginia companies, not-for-profits, local governments, the state and 184,000 individuals received either stock or the stock's cash value. This, in total, says Davis, has injected about $1 billion into the state's economy. ``That's a figure that critics of the conversion never seem to cite,'' he pointed out.

The outspoken critics of the conversion didn't strongly dispute Davis' principal argument for the change: that in order to stay competitive and to ensure that Virginia's largest health insurer remained a local company - woven into the local economy and run by Virginians - for-profit status was essential.

Instead, opponents hammered at three points:

That Trigon's actions as a not-for-profit had made it undeserving of the privilege of for-profit status;

That it had pulled a fast one in running a bill through the General Assembly that limited the State Corporation Commission's options in reviewing the conversion;

And that Trigon shareholders were walking away with money that should have gone to a foundation that would publicly finance health care in the commonwealth for perpetuity.

Trigon-the-nonprofit's greatest sin, its critics say, was the widespread overbilling of the co-payments it charged, a practice Virginia Attorney General James Gilmore had characterized as representing the company's ``callous disregard'' for its customers. Some time ago, physicians' groups and other health care providers had begun discounting their charges to big insurers. However, Trigon, Gilmore revealed, had not been passing those discounts on, charging its co-paying subscribers 20 percent of the providers' stated, retail price.

Davis readily admits ``we were wrong.'' But, he argues, Trigon wasn't alone.

``When we first began to negotiate discounts with providers they were on the order of 2 and 3 percent, and it wasn't an issue. When they got to be 20 or 25 percent, it was, but by that time it just had become the practice - as it was in much of the rest of the industry - not to pass them on and to bill co-payments at the retail price,'' Davis explains.

``Besides,'' he says, ``we all knew that it was exactly the same practice that Medicare employed with its subscribers. And even since we've stopped, no one has been able to explain to us why not passing discounts on to subscribers is acceptable for a government health insurer and not for a private one.''

STOCK OPTIONS

One yet unresolved matter with the conversion is how much stock management will receive - an issue that Trigon's critics also vociferously argued lay behind the conversion. One of the few actions the State Corporation Commission was able to take was to place a temporary ban on stock compensation. But sometime this summer, Davis and other executives will get their shares. ``The details haven't yet been worked out,'' Davis says, ``but look for the distribution to he more widespread and for management shares to be fewer than what is our industry's norm.''

What does seem to have been worked out, probably before the conversion, are Trigon's immediate future plans. ``With the influx of capital from the stock sale, we anticipate being the engine that will consolidate all the Blue Cross organizations between Maryland and Georgia,'' Davis says flatly. ``And,'' he adds, ``that kind of regional market power should enable us, at a minimum, to maintain the 31 percent market share we now have within our Virginia licensing area.

``We like to think that Trigon now is in the same competitive place in our industry as were the North Carolina banks a decade ago in theirs,'' Davis says. ILLUSTRATION: Color photo

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