Timing is everything; Coventry’s fourth quarter financials release came on the heels of the Concentra acquisition announcement, allowing the observer to compare results to prognostications.
There are a couple of key comments I’d note. First, in a comment at the end of his opening remarks, Chairman Dale Wolf noted the deal represented a “fee based acquisition in workers comp managed care”; he also reiterated his belief in the opportunity for growth in work comp managed care.
Lets’ start with the fee-based comment. As Wolf has noted before, and reiterated in the latest presentation, Coventry has been quite open about its desire to increase the percentage of revenue accruing from fee-based business (as opposed to its core HMO and other risk, or insurance-based business). This is a smart move strategically.
With all the noise and heat emanating from unelected and elected politicians, it is highly likely that over the next several years there will be major changes in the way health insurance is sold, purchased, underwritten, priced, distributed, packaged, regulated, and, very importantly, the basis for success in the industry. By diversifying into another, related market, Coventry is mitigating its political risk (Workers Comp is not part of any of the current health reform initiatives).
Coventry has also been able to keep its prices ramping up faster than the medical loss ratio (MLR), a feat that may not last too much longer. The Concentra deal will help provide a cushion for the inevitable days when the MLR accelerates faster than premium increases.
Again, I like the deal from a strategic perspective.
Tactically it may not be as likeable. The best opportunity for increased profits lies in consolidation of the network and bill review businesses. Expect Coventry to consolidate the network operations quickly; First Health has (generally) better provider contracts and the staffs are essentially redundant. Concentra uses UHC’s Ingenix PowerTrak bill review system, and pays a buck a bill or so for the privilege. First Health owns their bill review system; over time they may well consolidate. (although this will be a long and very windy road, the First Health system and management thereof is giving some major customers fits).
As I’ve noted before, the case management business is a tough, low margin, mature, highly price-competitive one with steeply declining revenues. Considering the CM business represents about half of the total Concentra managed care business, and First Health’s WC business has not grown at all over the last seven quarters, this will make it tough for Jim McGarry, the exec tasked with consolidating the operations and growing the business.
Wolf again stated his belief in WC managed care as a strong growth opportunity. But, he’s said that before. I respect Wolf and his executive team; they are one of the better HMO management groups in existence. That said, they have yet to demonstrate any real ability to grow the WC business organically. In fact, the opposite has been the case.
There are a couple of other key issues I’ll get to in future posts.
fyi ok
Coventry is using Work Comp fee based business to provide financial balance?? Coventry must be kidding!!! Work Comp represents 3% of US medical spend and Coventry has only 3 million covered group health lives. If Coventry is looking in the Work Comp sector for help, it really is a small player after all when viewed in the overall health care marketplace.
First Health essentially did away with its case managment business focusing instead on UR, especially in California. First Health will need Concentra’s resources to provide the services that they left behind, as one Regional director stated “there is no money in it”.
What many customers/employers are now finding in California, is that Utilization Review is not solving thier problems. This is in part due to claims personell not having a medical understanding. Having Medical Case Management provides that medical expertise. Concentra understood that.