First Health’s performance to date was addressed in a presentation by Coventry CFO Shawn Guertin earlier this week. First Health, a subsidiary of Coventry, produced revenues for Workers Comp of $53.7 mm in Q1 (corrected for acquisition timing), $53.65 in Q2, and $50.7 in Q3.
Workers Comp is disproportionably profitable for Coventry; previous statements from the company indicated WC drives 11% of profits and 3% of revenues. Thus, the decrease in top line has a multiplier effect on profitability.
During the investor call last week CFO Shawn Guertin noted that the company “feel(s) real good about (the workers compensation sector’s) prospects…” Coventry may also be looking at acquisitions in the workers comp space (as well as in network rental and the Medicaid/public sector).
According to Coventry, First Health’s performance to date has been “consistent with expectations”, and the division is poised for growth in 2006, especially in the workers comp sector. This may well be the case, but my sense is the performance to date is likely on the low end of those expectations.
Three other items may bear on the success of First Health’s workers comp sector in the near term.
First Health’s largest WC customer, Liberty Mutual, continues its’ evaluation of network providers. There has been no indication of where Liberty will end up, but given the size of the relationship it will be important for First Health to retain a significant portion of the business. Unfortunately for Coventry, there does not appear to be much upside; as FH is Liberty’s network in the vast majority of states, it does not stand to gain much if it lands new business (the states FH does not service are relatively small). However, the downside could be significant if Liberty chooses to move some states, particularly the larger ones such as California, Florida, Texas, Illinois, New Jersey and/or New York to other networks.
Second, to date there has been no announcement regarding the company’s search for an executive leader for the workers comp sector. The search by Spencer Stuart has been in process for some months now; the right leader could add significantly to FH’s future prospects.
Finally, Aetna’s Aetna Workers Compensation Access (AWCA) has gained some traction as of late with some of First Health’s present customers, and may well be poised to take additional market share. Sources indicate that 2006 may see several larger payers replacing First Health with AWCA, albeit only in a few states.
What does this mean for you?
Clearly, the WC managed care market is maturing. First Health, long the dominant network provider, is at a crucial point in its life cycle. The next few months should provide some clues as to the company’s future direction and strategy, both of which will bear heavily on the managed care programs at many workers comp payers.
Dec
2
