Coventry CEO Dale Wolf presented at the JPMorgan Healthcare Investment Conference earlier this week; I was particularly interested in his comments re the business opportunity in Medicare and Medicaid.
Medicare Advantage (MA) programs are likely to suffer a significant cut in funding this year as the Democrats, led by Rep. Pete Stark (D CA) take a chain saw to the subsidies paid to MA plans.
Coventry will be close to a $9 billion business in 2007.
The loss of a good chunk of the subsidy will make the MA business less attractive for many health plans; Wolf believes there is a significant opportunity for Coventry as it has successfully become the low cost producer in their markets, an achievement of which Wolf is quite proud.
When asked for his views on the risks inherent in today’s political climante, Wolf noted that the political risks concerning a possible change in funding levels are significant. However, he also stated that there are better growth opportunities in Medicare than in Coventry’s commercial business due to demographics and Coventry’s demonstrated ability to grow in this space.
That said, Wolf knows they need to operate as a low cost producer as funding for governmental programs will be squeezed over time.
Here’s a detailed discussion of the reasons MA subsidies are vulnerable.
