Feb

Coventry’s 2010 earnings – the numbers

Posted by Joe Paduda on Tuesday, February 8th, 2011 | Comments

Coventry’s 2010 earnings report is out, and the news was generally pretty good. Revenues are down considerably, but that’s due to the company’s decision to exit Medicare private Fee for Service; operating earnings are up for the year (from 3.6% of revenues to 5.9% for the year, and 5.4% to 7.8% for the last quarter) and EPS is up nicely as well.
The numbers are a bit misleading, as there were two significant ‘one-time’ events that greatly affected results. According to the press release;
“These results include a favorable impact from the MA-PFFS product of $0.45 EPS and an unfavorable impact from the previously announced Louisiana provider class action litigation of $1.18 EPS [this is from their workers comp network business]. Excluding the impact of MA-PFFS results(1) and the provider class action charge(2), core earnings for the year were $546.4 million, or $3.70 EPS.”
Medical loss ratios (MLR) were down almost across the board, in every product line, with Medicare Part D dropping to 64.7% last quarter. If Coventry’s experiencing the same situation as its much larger competitors, the overall MLR improvement appears to be due in large part to lower utilization.
From a strategy standpoint, I’m going to be listening carefully later today when company execs discuss the future. Two deals in smaller, midwestern markets have been consummated, and I’d expect there will be more as CVTY seeks to gain scale in markets where it can compete – read, avoid markets where the Blues, UHG, Aetna, and Wellpoint dominate. Coventry’s cash position is quite good, with about $850 million in the bank and other liquid assets. I’d expect some of this will be allocated to deals similar to the Wichita transaction.
More on strategy in a post later this week…
Workers comp
Comp revenues appear to be relatively flat. While not split out separately, they can be tracked in the “Other Management Services” line which also includes rental network revenues.
The total line was up less than one percent year over year, reflecting Coventry’s enviable – but limiting – position as the dominant provider of work comp network and related services. According to an informed source, total WC revenues are likely in the $750 million range.

Dec

Benefits in the New Year

Posted by Joe Paduda on Tuesday, December 21st, 2010 | Comments

The second edition of the ‘Benefits Package’ is up at Evan Falchuk’s SeeFirst blog.
It’s a quick synopsis of some pretty good thinking on what’s up and why.

Dec

Health plans’ two-faced approach

Posted by Joe Paduda on Tuesday, December 14th, 2010 | Comments

According to AHIP, over the last ten years, private insurers’ hospital costs in California are up 159%.
One hundred and fifty nine percent.
Instead of an intelligent and helpful discussion of the causes and impact, there’s an all-too-familiary orgy of finger-pointing and ‘oh yeah, sez you’ as hospitals blame insurers and insurers wail about the unfairness of it all and everyone complains about Medicare.
Time to call Whine-one-one…

Here’s what we should be focusing on.
1. Clearly (some) private insurers and health plans cannot – or more likely will not – do anything to control hospital costs. For all their bitching and complaining, this is yet more evidence that health plans have not fulfilled their primary mission – control costs and deliver quality care.
Here’s how a healthplan exec put it: “The report’s focus on California hospital costs just reinforces what we have been saying the past couple of years. Steep increases in medical costs must be addressed. Our country and state cannot sustain this kind of growth,” said Patrick Johnston, president of California Association of Health Plans.
No kidding. I don’t get the AHIP strategy – bitch about government intervention then complain that outrageous health care cost inflation isn’t your fault.
2. Private insurers are clearly asking for help from government – the same government they pillory in their multi-gazillion dollar PR and lobbying campaign as too incompetent to run a health plan.
3. Controlling costs will require health plans to build small, tight, highly-managed networks of excellent providers, an approach most seem quite unwilling to pursue, citing the ‘managed care backlash’ from the late nineties. (there are a few notable exceptions)
Execs, that was then, and this is now.
4. If health plan execs think their life is tough, they should sit behind the desk of a work comp claims exec. Work comp is getting murdered by facility costs; many payers would kill for a 159% increase over a decade.
Last week Kaiser Health News reported several large health plans appear to be frustrated with AHIP and are looking to set up their own DC lobbying entity – albeit one that is a ‘subcommittee’ within AHIP. Evidently they feel the smaller health plans and not-for-profits have hijacked AHIP and aren’t representing their interests.
Bob Laszewski sees a historical parallel: “This reminds me of the early 1990s. In the wake of the insurance industry being made to be the bad guys during the Clinton Health Plan debate, many of the largest members exited the historically dominant Health Insurance Association of America (HIAA) for the competing HMO dominated trade association.
At the time, many observers saw a cynical irony in the move; it was those dominant members that drove much of the policy that got the industry in trouble.”
What does this mean for you?
At this rate we’ll all be covered by the VA health plan in a decade – which is just fine with me. They are the only ones that consistently control costs and deliver quality care.

Nov

The Humana – Concentra deal: this isn’t that hard to figure out, people

Posted by Joe Paduda on Monday, November 29th, 2010 | Comments

We’ve all had a few days to digest the recently announced Humana – Concentra deal, and perhaps think thru what this means for Humana, why they did the deal, and if this gives any insight into what other health plans may do.
Perhaps the best one-sentence synopsis of the deal was provided by a Humana spokesperson: “This acquisition is consistent with the goals of health reform”.
Here’s the slightly longer version.
1. Three million Humana members are located in close proximity to Concentra facilities.
2. Concentra knows how to deliver primary care efficiently. They are also working hard at wellness and health promotion.
3. Health plans are going to be desperate for primary care providers come 1/1/2014, when their membership will explode.
4. Health plans that can keep patients away from specialists, expensive diagnostics, and facilities are going to do very, very well. That can only be accomplished with good primary care.
5. Concentra has very strong relationships with local employers, and solid experience selling to those employers.
I was a little surprised to read some of the financial community’s statements about the deal.
For example, AM Best said “This transaction is expected to be a source of business diversification for Humana as well as unregulated cash flows.”
This was the lead sentence in their comment on the deal, and while it mentions a couple benefits, I doubt they were the primary reasons Humana decided to shell out almost $800 million. Sure, the cash flow is unregulated, and business is different, but workers comp also faces a structural issue with declining claims frequency and is highly vulnerable to regulatory risk, two factors that would militate against a ‘diversification and cash flow’ rationale.
Then there was this gem from Marketwatch: “Plus, the company said it was buying privately held insurer [emphasis added] Concentra Inc. in Addison, Texas, for $790 million in cash.”
There has also been some speculation that the deal was – at least partially – due to a desire on the part of Humana to buy a provider and thus get around, avoid, or mitigate Florida MLR rules. While this may have been a contributing factor, it is highly unlikely it was one of the top reasons Humana did the deal. Humana already has primary care centers in Florida as a result of the CarePlus deal in 2005 and Concentra doesn’t have a lot of facilities in the Sunshine State.

Perhaps Humana is going to add occ med services to the ten or so CarePlus facilities; this would help it’s soon-to-be subsidiary and give analysts evidence of that oft-cited ‘synergy’ thing.
The net is this. Reform is coming, healthplans must drastically change their operating models, and winners will be the ones that figure out how to market to and manage previously-uninsured, and solve primary care.
Humana’s got a good start.

Nov

Humana to acquire Concentra for $790 million

Posted by Joe Paduda on Monday, November 22nd, 2010 | Comments

In an announcement a few minutes ago, healthplan company Humana announced it intends to buy occ clinic firm Concentra for $790 million.
Currently Concentra has about 300 facilities and 240 on-site clinics and revenues of $800 million.
The deal does two things for Humana.
First, it diversifies the health plan’s revenue sources; Concentra handles over 10 percent of all work comp primary care, a very different business form Humana’s group/medicare business.
More importantly, Concentra’s three hundred plus clinics are located near many of Humana’s current – and hopefully future – members. This solves a very big problem for Humana – and every other health plan – the dearth of primary care.
Concentra also has very strong relationships with local employers, relationships that Humana is certain to leverage as it rolls out its new offerings in the near future.
Concentra’s facilities will be able to provide Humana with a significant advantage in many markets – tight control over primary care costs, integrated electronic medical records, access to wellness and health promotion activities and resources (currently a top priority for Concentra).
This is a smart move for both organizations, and will likely get other big health plans thinking harder about creative ways to address primary care access.

Nov

Coventry’s earnings – doing quite well

Posted by Joe Paduda on Tuesday, November 9th, 2010 | Comments

There was a lot of good news for Coventry Health last quarter, much due to what CEO Allen Wise called “unusually low medical trend”.
That said, 2011’s numbers are not likely to be as robust as this year, and Wise spent a good bit of his podium time discussing the whys and wherefores. While the change in MLR is key, he also noted the company laid off 900 people, has assigned various health-reform-preparation tasks to specific groups, and is hiring (or has hired) three execs to focus on specific functions. Coventry is also working hard to adapt by forming partnerships with provider groups and investing in care management.
As it must.
In his opening comments, Wise noted the company’s ‘cost structure’ will enable Coventry to compete effectively when medical loss ratio requirements are instituted in 2011. MLR will be critical going forward, and if this year’s numbers are any indication, Coventry may have a problem – they’re too profitable. The commercial group operation’s premiums and membership were up, while the MLR was kept at a strong 78.4%. Wise’ sense is that medical trend will remain in the eight percent range. Depending on what the final regulations count as ‘administrative expense’, Coventry may be faced with a need to lower prices as it may be ‘too profitable’.
(Ed note – this MLR requirement is going to be a major pain in the neck for all parties – insurers, consumers, regulators, bloggers. I’m still at a loss as to understand how this is going to help control cost; I can see it adding a lot of administrative cost, which will decrease profitability even more…)
In discussing what has now become a major change in direction and emphasis for the mid-tier healthplan operator. Wise spoke at some length about Coventry’s strategy to acquire small provider-owned health plans, thereby gaining share in secondary and tertiary markets while solidifying relations with delivery and health systems. Here’s an excerpt from his comments.
“Our two acquisitions in 2010 are more than revenue and membership. It’s about our future cost structure and more important, our ability to improve care for members and develop long term strategic relationships with high quality health systems. I think it’s worth a minute to stay with this topic. We feel the best way to care for members and provide the best value proposition is by having collaborative relationships with provider systems and physicians and working to develop affordable products.
These relationships are rooted in collaboration, including shared incentives, quality incentives, data sharing, and in some cases, more focused networks. We have and will continue to build these types of relationships whether as a part of an ACO model, medical home, or variation of both. We believe we’re able to offer our provider partners creativity, flexibility, and local market commitment, whether it’s part of an acquisition or a contractual collaborative relationship or both, in some cases.”
Coventry appears to be seeking to carve out a niche, or perhaps more accurately develop a business strategy based in part on acting as the plan administrator for local health systems.
This is an interesting strategy, and one that may position Coventry well for the future. However, the company may find there just aren’t that many smaller regional health plan acquisition targets, there will certainly be other plans following the same strategy, and margins may not be very attractive in what may be a commodity, transaction-processor business.
While there was solid growth overall, the company’s organic growth was less than one percent, only the second quarter of growth since the end of 2007. There were other mentions of growth, but they were a little puzzling; for example, Wise actually noted the company had added 47 people to their Nebraska Medicaid plan…
Coventry looks to be entering the care coordination business as well in at least one market, although details were scarce.
The company’s workers comp business was mentioned a grand total of once during the call, and then only in passing as the market leader.’

Oct

The Blue Cross of Michigan suit – yes, it affects you

Posted by Joe Paduda on Tuesday, October 19th, 2010 | Comments

Yesterday the NYTimes reported the Justice Department is suing Blue Cross Blue Shield of Michigan for allegedly violating antitrust laws. BCBSMI is accused of requiring hospitals to give BCBSMI ‘most favored nation’ pricing, thereby increasing the prices paid by other health plans and stifling competition.
According to the Times, the Blues contracts had “clauses stipulating that no insurance companies could obtain better rates from the providers than Blue Cross. Some of these contract provisions, known as “most favored nation” clauses, require hospitals to charge other insurers a specified percentage more than they charge Blue Cross — in some cases, 30 to 40 percent more, the lawsuit said.”
Christine Varney, the head of the antitrust division in the Justice Department, said “Our lawsuit alleges that the intent and effect of Blue Cross Blue Shield of Michigan’s contracts is to raise hospital costs for competing health plans…”
The lawsuit also claims that Blue Cross agreed to pay higher prices to certain hospitals to get them to agree to the “most favored nation” clauses.
There are three issues here that deserve your attention.
First, there is no ‘free market’ in health insurance. Most markets are dominated by a single, or at most two, health plans. This is clearly an effort by the Feds to make a statement, to force big health plans and their co-operating health systems and hospital groups to back off and ‘let’ smaller insurers into the market. No one, least of all big insurance companies, likes to be sued by the Federal government, and this very public case has undoubtedly started many health plan legal departments scrambling to prepare briefs for their CEOs detailing their potential liability for the same ‘offenses’.
As a corollary, smaller health plans cannot compete with the big boys because they don’t have the medical dollars required for bargaining purposes. Why would St Tony’s Hospital give a big discount to Mom and Pop’s Health Plan? The answer is simple – they wouldn’t, because they don’t have to – Mom and Pop don’t have any patient dollars that they would (potentially) move to another hospital, so there’s no reason for St Tony to do a deal.
(This basic fact is lost on those politicians and pundits who think that selling health insurance across state lines is a panacea. Health plans’ costs are primarily, and overwhelmingly, determined by the medical costs in the areas they operate – and legalizing cross-border sales of insurance will do nothing to reduce premiums or improve access)
The suit is apparently an effort by the Feds to address this reality, and may well be part of a larger strategy to improve competition ahead of implementing health reform.
Second, many health plans and insurers have most favored nation clauses in their contracts – workers comp payers too. This suit may – and most certainly should – encourage those payers to reconsider the purpose of and risk in those clauses.
I hasten to add that the accusations against BCBSMI go beyond simple MFN clauses; according to the Times, “the Justice Department said that Blue Cross required two hospitals in Saginaw, Mich., to charge most other insurers at least 39 percent more than the hospitals charged Blue Cross. Likewise, it said, in the Detroit area, the contract required three hospitals to “charge Blue Cross’s significant competitors at least 25 percent more than they charge Blue Cross.”
Finally, this highlights the symbiotic payer – provider relationship that is the fabric of our current health system – dominant health plans and dominant health systems working very closely together. If we as a society decide this isn’t the health system we want, than we’re going to have to get very litigious for a very long time. It has taken a century for the system to evolve to this point, and will take decades for any material change. In some instances this works very, very well – think Geisinger, Mayo, Marshfield.
In others, it may well ‘stifle competition’ But lets get serious – how effectively could a newcomer, or even a second tier health plan, really compete without the huge dollars necessary for investments in IT; care management; provider contracting, analysis, and relations; marketing and brand development; and distribution?
It couldn’t, and it can’t.
Like it or not, competing in health insurance, as in many industries, puts a premium on size and scale.
What does this mean for you?
We can already see this, as smaller health plans are being snapped up by bigger competitors, their management all-too-clearly reading the writing on the wall that survival in the post-reform world will require size, and scale, and money far beyond the grasp of most smaller health plans.
Note – A subsidiary of BCBSMI is a consulting client of HSA. While I have no knowledge that in any way pertains to this action, I do know that as an organization BCBSMI is quite sensitive to and cautious about any actions that might be construed to harm competition or interfere in provider practice.

Oct

Are you paying for defective surgical implants?

Posted by Joe Paduda on Wednesday, October 13th, 2010 | Comments

The answer is probably YES.
When surgical implants are defective or implanted incorrectly, the patient has to go back in for more surgery. And the Work Comp insurer or healthplan or self-insured employer or reinsurer has to pay. The only way to mitigate risk is to track the model and manufacturer for each implant – yes, it’s work, and yes, it’s work worth doing internally or at the very least outsource it to a specialist firm.
How many dollars are we talking here?
Well, joint replacement devices are a $12 billion industry.

(image from www.algor.com/news_pub/cust_app/SMPES/default.asp)
One survey reported that the total world market for spinal implant devices was $4.2 billion; note this study used 2006 data. Another indicated the market was $5 billion in 2005, and predicted growth to $20 billion by 2015. Stryker, one of the major manufacturers, expects growth of 16% per year in the spinal implant market. Yet another report (note opens .pdf) indicated the 2007 worldwide market was $7 billion, with the US accounting for $5.4 billion of that total.
(I’m working on getting more current data and will include it in a follow up piece later this week)
Today’s WSJ reports [link expires 10/15/10] on a new effort by the impant industry to set up a registry for joint replacements:
“manufacturers are backing the “American Joint Replacement Registry” and have chipped in start-up funding.
By joining voluntarily and influencing development, manufacturers may dodge having to face mandated rules down the road. They’ll gain product-durability insight that could help as new, higher-priced devices need to be justified by comparative-effectiveness testing… The nonprofit registry is incorporated in Illinois, which has strong data- protection laws…It also will produce detailed annual reports,”
Couple of notes.
First, this does NOT include spinal and other implants; it is limited to joint replacement implants.
Second, who gets access to the data, and how it is used, is still very much up in the air. Will insurers get to check on a member’s/claimant’s implant if the member requires additional treatment?
So, what to do?
Track those device serial numbers and manufacturers in a secure database. Follow the news to identify recalls and product liability issues and reference your database to identify possible matches.
It’s not easy, and it isn’t foolproof, but its likely to be very cost effective.
For a detailed albeit it somewhat dated discussion of the industry and it’s impact on workers comp, click here.

Aug

Health plan enrollment is up, but that’s just part of the story

Posted by Joe Paduda on Thursday, August 12th, 2010 | Comments

Mark Farrah and Associates’ latest report indicates health plans enjoyed a nice bump in enrollment in Q1 2010 from the previous quarter, with the entire increase coming from ASO (large, administrative-services only plans that are sold to larger employers) business.
In fact, risk-based insurance plans (more commonly purchased by smaller employers) saw a significant decline in enrollment in Q1 of 0.6%, or 890,000 members. According to MFA’s report, ” WellPoint added 565,000 new ASO members in 1Q10, but lost 400,000 fully insured members. UnitedHealth saw gains in both segments.”
What’s happening here?
It’s no surprise that the economy has hammered employers small and large, but smaller employers are more ‘flexible’ when it comes to benefit plans. They can choose to drop or add coverage much more quickly and with fewer repercussions than big firms. In fact, large employers almost never drop their coverage, while the percentage of smaller employers offering health insurance has been shrinking steadily for years.
The actual decrease in employer coverage (at least as it appears in MFA’s highlights) is masked somewhat by increases in Medicare Advantage PFFS plans, which grew significantly for CIGNA; there’s much of the Medicare PFFS story still to be written as Coventry completes its exit and other health plans work thru their respective strategies.
Year over year, Medicare Advantage plans have seen significant growth, with membership up by 600,000 members, despite a drop in the number of insurers offering MA options.
Meanwhile, medical trend numbers are looking better, contributing significantly to the jump in profits enjoyed by most of the major health plans. Contributing to the increase in 2009 was a drop in pharmacy expense, which was somewhat offset by a 1.2 point increase in the percentage of medical expense paid to hospitals.
Ok, so net it out.
Health plans are continuing to restructure their books of business, winnowing out the unprofitable or potentially-unprofitable members, states, and coverage types. The nice bump in profits isn’t surprising, but the hard work is yet to begin.
That hard work is changing from a risk selection to care and cost management business.

Aug

Group health medical costs moderated; how’d you do?

Posted by Joe Paduda on Monday, August 2nd, 2010 | Comments

Data from several sources, including Farrah and Associates (got to love a company that is located in Maine) indicates group insurers were able to reduce medical trend to 4.9% last year. That’s the best result, in, well, further back than I can remember.
Coventry’s recent Q2 2010 earnings call indicated their results were comparable, and med loss trends were pretty close.
Aetna’s numbers are comparable, as are the reasons for the improvement. According to a WSJ piece, “Aetna and its peers are reporting lower utilization of medical services this year. [President Mark] Bertolini attributed the trend to the weak economy, a less severe flu season, harsh weather in the first quarter and some wearing off of Cobra coverage for people who were laid off their jobs.”
How’d they do it? Can you do what they did?
First, let’s deconstruct the reasons for the happy news.
The flu season wasn’t a) as bad as predicted and b) insurers, burned by the previous flu season, probably over-reserved.
Members covered by Cobra are notoriously expensive; people don’t sign up for Cobra unless they think they’ll need it, and in most cases they are right. Loss ratios for Cobra tend to be well above 125%; thus the expiration of Cobra helps dump unprofitable business. Expect this to continue to aid MLRs for several quarters to come.
Many health plans now have higher deductibles and copays, cost-sharing arrangements that may well be causing members to avoid seeking care. (research suggests the care avoided may be necessary or unnecessary). Coventry Allen Wise mentioned this in his earnings call as a possible contributor.
From a purely speculative perspective, it is possible that employers who were faced with high premiums due to poor experience rating, older populations, or other factors, have dropped their coverage at a higher rate than in the past. This might contribute to lower utilization. I’d also note that rate increases may have the opposite effect; employers that really need coverage will hold their noses and pay up, while employers who don’t think it’s worth it (read – don’t expect to need insurance) drop out.
We’re left with results driven by benefit design, demographic changes, and one-time events.
Don’t get me wrong, the numbers are good, but the drivers aren’t what we need to really gain control over costs over the long term.
Fortunately, some health plans are already taking steps to do just that with smaller, tighter networks and limited access out of network.
If you are a workers comp payer in California, chances are your results were a whole lot worse, as medical costs are once again back up to pre-reform levels. According to this piece in Risk and Insurance;
“…looking at first-year payments on lost time claims, researchers found that since hitting their post-reform lows, average amounts paid per claim for treatment have increased 41 percent; average amounts paid for pharmaceuticals and durable medical equipment are up 69 percent; [emphasis added] average amounts paid for med-legal reports are up 79 percent; and average amounts paid for medical cost containment are up 86 percent.”
Of course, this simply means reform cut costs dramatically over the last few years, and only now, several years after reform’s implementation, have costs returned to the levels seen in 2004.
That said, comp payers can’t fiddle with benefit design, out of network contribution differentials, cost sharing, and the like.
What does this mean for you?
a) a temporary hiatus from structural trends, or a pause to show us what the future may hold if we get serious about containing cost.
b) for comp payers, the recent moves to smaller networks should be a big wakeup call.

Category: Manage Care – Group Health