Coventry Q1 2006 earnings report

Coventry continues to deliver strong financial results across the board, with medical trend rates appearing to stabilize at about 8% and premium increases for Q1 somewhat above that rate. Overall membership growth is projected to be in the 1% – 3% range, with new employer customers are buying less-rich benefit plans and members at existing employer customers are shifting to less-rich plans (if multiple plan options are offered).
Part D sales efforts have been succesful, with 529,000 members enrolled to date, $180 million in revenue and margins somewhat better than expected. The growth was in part due to Coventry’s partnership with Medicare Supplement insurers, using the insurers as a distribution channel. Part of the $180 million was $50 million from CMS risk share payments.
The First Health business is producing the desired results although there has been strong pressure on the commercial plan part of FH. Revenues on the workers comp side were $51,425 million for the quarter, down slightly from the previous quarter’s $52,953 million. This is not unusual in the WC network and bill review business, as it tends to be somewhat cyclical.
Of note, Coventry Chairman Dale Wolf had previously suggested FH’s workers comp business would produce a $240 million top line in 2006. Given results to date, increasing price pressure on workers comp networks and bill review entities, and the growing likelihood that First Health will lose workers comp network business, I’d be surprised if FH produces anywhere close to $240 million in revenue.
Their failure to name a leader for the WC sector is not helping.
There were several questions about medical costs, trend rates, and drivers thereof. Uinlike other health plans, Coventry seems to be convinced that trend rates will not decrease, and will remain in the 8% range. When pressed to describe the positives and negatives, Coventry execs said that pharmacy is easier to address than in 2005 due to shift to generics, and biotech injectables continue to be problematic. On the big drivers, they see no big challenges with hospitals and physicians.