Coventry’s Q1 2006 earnings call did not provide any insights into the progress, results, or future of the workers comp sector. While WC accounts for over $200 million in revenue for the managed care company, it drives a disporportionate amount of profit (network business is really profitable, and a big chunk of their business is PPO for WC)
Here’s the historical perspective. 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. And, Q1 numbers don’t do anything to convince me otherwise.
Here’s the detail. Revenue for First Health’s workers comp in 2005 was $53.7 mm in Q1 (corrected for acquisition timing), $53.65 in Q2, $50.7 in Q3, $52.94 in Q4 and $51.43 in Q1 2006. Comparing this last quarter with the same quarter in the previous year, WC revenue dropped 4.3%. To hit $240 million for the year, FH will have to average $62.9 million per quarter for the remainder of the year. That’s a 21% increase per quarter over the prior year.
There are a couple other factors that aren’t helping. First, the ongoing search for a leader for the WC sector is well into its second year.
Second, there is considerable capital flowing into the WC managed care space from private equity firms and product development from mainstream health plan companies. The combination of innovative approaches to managing WC medical expense and the purchasing power of the Aetnas and UnitedHealthGroups will make this sector even tougher in coming quarters.
Meanwhile, specialty managed care companies are hollowing out network revenue from underneath as First Health customers increasingly turn to experts to manage PT, drugs, and radiology, as well as networks in individual states.
Apr
28
