Cotton Bloom

How Detroit-based Meridian Health Plan grew from a small player in the health care sector to a $3-billion powerhouse that operates in 34 states.


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Unlocking the Code >> Dr. David Cotton formed Detroit-based Meridian Health Plan in 1997 to improve upon managed care. Today, the company serves more than 850,000 members.

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Imagine the scene: It’s a blustery winter evening in the late 1990s. Snow is pelting down, at least a half-foot is already on the ground, and Dr. David Cotton and his son, Jon, are gamely trudging through the mess, heading for a distant dumpster. Each has a tightly stuffed, oversized plastic bag slung over his shoulder.  Just as the pair gets to the dumpster, one of the bags bursts open, its contents scattering everywhere. Father and son are down on the ground quickly, scrambling in the freezing slop, frantically gathering every scrap before it blows away.

“At that point,” Cotton says, chuckling, “Jon’s laughing and he turns to me and says, ‘Dad, you’re a world-famous doctor. How low have you sunk?’ ”

Cotton grins back at his son but doesn’t respond. He continues to gather up the mess before the two head back toward the office. “And just as we got to the door,” Cotton says, “I turned to him and said, ‘Jon, he who takes out the trash, gets the cash.’ ”

It turns out Dad was clearly onto something.

Cotton is the renowned former specialist-in-chief of obstetrics and gynecology at the Detroit Medical Center, but he gave up that profession to get into the health care business. 

In 1997, Cotton launched the family-owned Health Plan of Michigan. As usual, he was multitasking on that on that winter evening, and one of his many jobs wa picking up the trash from all the receptacles in the cramped, 1,500-square-foot office in Southfield he shared with two other businesses. 

Fast-forward to the present. The dumpster and that tiny office space are a distant memory. The headquarters of the Cotton family’s business — employees include David’s wife, Shery, along with Jon and his two brothers, Sean and Michael — is now in downtown Detroit at One Campus Martius (formerly the Compuware Building). Occupying four floors and more than 250,000 square feet of space, what began as Health Plan of Michigan became Meridian Health Plan in 2008. Two years ago, the Cotton family joined Dan Gilbert’s Bedrock Real Estate Services in an acquisition of the 15-story, 1.1-million-square-foot office building.

Today, Meridian Health Plan is the largest Medicaid HMO in Michigan and Illinois, serving Medicare and Medicaid patients along with health insurance exchanges that, combined, number more than 850,000 members among 45,000 providers in six states: Michigan, Iowa, Illinois, Indiana, Kentucky, and Ohio.
Meanwhile, MeridianRx, the company’s pharmacy benefit manager, provides another 1 million health plan members with a prescription network across 34 states, making it the 15th largest such entity in the country. 

All told, Meridian Health Plan generates more than $3 billion in annual revenue and has more than 1,800 employees; nearly 85 percent of them are based in Detroit. 

It’s been a long while since David Cotton went dumpster-diving, but both he and Shery clearly delight in recalling those early days, fraught with equal measures of panic and exhilaration, as the pair took the risky plunge and a dream was launched, initially around the kitchen table at the family’s home in Grosse Pointe Park.

“I had no doubts he would be successful,” Shery says. “I had never seen my husband not attain a goal he had set for himself. Everything he’s put his mind to do, he’s done.”

Cotton’s vision for delivering a superior health coverage program was largely inspired by what he was observing every day in his practice at an inner-city hospital: The vast majority of his patients were showing up for deliveries with virtually no prenatal care. 

“It gave me an idea of what we really needed to tackle in terms of our approach to what is a very big population management problem,” he says, “and I described it in two phases.”

The first phase of his pitch was focused on his fellow physicians, as Cotton literally went door-to-door with his idea. “It was, ‘Trust me, I’m a doctor,’ ” Cotton says. “ ‘I understand what physicians’ needs are, I understand what you need from your managed care company, and I’m going to deliver that.’ ”

The second phase concentrated on the patients.

“We had to figure out how to differentiate ourselves,” Cotton says. “At the end of the day, I said it was quality. Why would anyone choose a family-owned managed care company that’s thinly capitalized unless it’s for our quality? That is what differentiates. If you deliver the quality, the providers will want to send members to you and the members will want to stay with you.”

Cotton set the bar high.

“We were going to be the highest-quality health plan in the U.S. if we could,” he says, “and we were going to provide the kind of care for our members that the Ritz Carlton does for its guests.”

His goal was to find those people who needed the most care, then “Give them that care, and keep them healthy and out of the hospital, so people are going to be shocked this is an HMO,” he says. “Everyone associates an HMO with denial of care.

“At the time we got started, there was a terrific problem with payment,” he adds. “Everybody was delaying, not paying hospitals for 60, 90, 120 days. I said, ‘Maybe we can differentiate ourselves by paying our claims faster than everybody else,’ and that’s what we did — (we got it) to under 10 business days, which was a phenomenal number at that time, probably the fastest in the state of Michigan, if not the United States.”

The margins for the fledgling Health Plan of Michigan were tight, so the Cottons mortgaged their home, maxed out all their credit cards, and put their sons to work. “I was in high school at the time,” Michael says, “and I went in and cleaned the bathrooms and the kitchen on the weekends because we weren’t going to waste expenses on cleaning crews. Those were really the humble beginnings. My mom was writing checks at the kitchen table.”

Shery paid the claims, “and if there had been one catastrophic claim, that would have been it,” she says. “We were working seven days a week, 10, 12 hours a day. We didn’t go on vacation for two years. It was just hard work and determination, and being too stubborn to realize that heads of banks were telling us to get out.”

The bankers weren’t alone. David recalls a particular dinner with his then board of directors, which included a member who was notoriously cheap. “(He was) the kind of guy who usually would ask me to reimburse him for parking,” he says. On this evening, however, the board member announced he was picking up the tab for the entire meal. “I looked at him in shock,” David says, “and asked, ‘Why?’ And he said, ‘I looked at your books and you’re going to be bankrupt in two months.’ And he actually resigned a little while after that dinner.” 

Somehow the Cottons survived, and in late 1996 they bought the health plan of a small clinic in Jackson County, along with what turned out to be hundreds of thousands of dollars in unpaid pharmacy and medical claims.

“At that point, we had literally shrunk down to about 866 members,” David says. “But I said, ‘OK, I guess I’ll be moonlighting in ERs for a long time. We’ll pay down the debt.’ And we did. And that rallied the entire community to make us their health plan, and that’s what paved the way early on. I always said if we can get into a county with one member, we could get to be the biggest in the county. Just give us enough time.” 

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