Depends on who you listen to. I finally got around to listening to the August quarterly conference call re earnings, and the picture is rosier-than-rosy. The TPA acquisitions are paying off handsomely, earnings are up, new technology is driving up margins, and the new CEO is doing a great job.
The numbers for the last quarter look good – ervenues are up 6.6% while EPS has jumped 18%. Part of the earnings bump looks to be the decision to dump low-priced case management business and/or the loss of CM business to competitors(likely due in part to pricing; the CM business is ferociously price-competitive these days).
Either way, don’t expect CorVel or any of the other WC CM companies to be generating a lot of revenue growth from CM – with the volume of claims dropping nationally, there is a good bit of excess CM capacity in the business. (I’d note that the company’s annual revenue has dropped some $19 million from the year ended March 2004 to March 2007)
CorVel’s network business is essentially flat (the 10-Q cites a ‘nominal increase’ of 3.8%).
The growth came from the company’s acquisition of two TPAs, and not from it’s traditional managed care services. Clearly, CorVel is relying on the new Enterprise Comp business (integrated managed care and TPA services) to drive growth.
There’s two problems with the strategy. First, the company’s existing TPA customers are not likely to look too favorably on CorVel competing with them for their core business – claims administration. As an example, sources indicate Gallagher Bassett is one large TPA that is dropping CorVel services as fast as they can.
A closely related issue is the current soft market, and the havoc it is playing with the TPA business. Companies that were self-insured are finding the cost for an insured program is very competitive with TPA deals; as a result many self-insureds are becoming insured. TPA margins are dropping as they fight to hold on to business, making for a very price-competitive market.
Meanwhile, the stock is still priced at $24+, giving it a below-average P/E of 18+, down about 50% from the high of $48+ in December.
I am no stock guy, but the recent valuations make a lot more sense to me than the PE of 41 CRVL hit a few months back.
I don’t know about whether Corvel has an actual strategy to dump low-priced CM business, but I assure you, as a competitor, that absolutely every single piece of business Corvel has lost in Florida had nothing to do with price. Poor management, poor service delivery, extraordinary overbilling as reported publicly in a number of audits, a lack of attention to customer needs, and one undelivered promise after another have been the factors in every customer Corvel has lost in Florida.
Re low hourly reimbursement, I again refer you to the publicly available audits of Corvel service. (You’ve linked to these in prior postings.) The hourly fee never makes a difference in case management. As Corvel demonstrated, one just bills more hours to make the margin you want. Even if it means case managers billing 20 hours per day.
No one ever seems to get it in purchasing case management service. Hourly fees are irrelevant. It’s total case management cost per case plus total claim expenditure overall per case that needs to be analyzed. Every ill-informed purchaser who buys the lowest cost per hour provider gets what it deserves.
All of that having been said, Corvel’s TPA business better grow quickly so they can keep their CM business. Memo to Corvel: Gallagher is not the only TPA turned off by giving work to a current or potential competitor.
Finally, I thank God every day that there is almost no one in Corvel management who has actually done case management or understands it. Great marketing + poor service delivery = my growing market share.
PS . . . was there any correlation between the high PE from a few months back and the cash outs done around the same time by Corvel executives? There are a lot of Corvel employees quite angry about being burned by holding Corvel stock instead of watching what their “betters” were doing.
Looks to me like Corvel doesn’t know what it wants to be. If CM rev is down and TPA is up I guess they are a TPA. When they are trying to sell me CM I guess they are managed care. Where is the talent to manage either? I know these are not going to be managed as two totally distinct and separate operational towers. I can easily foresee this developing into an environment where TPA best practices include a healthy dose of CM protocol. No Thanks, I know that sounds great to Corvel but I’ll decide how and when CM is used.
It’s awfully hard to get excited about two low margin business like TPA and CM coming together under one roof. I am further turned off when I see a company loose it’s focus on it’s core business. Corvel’s already eroding CM market share will be further reduced by the other TPAs pulling their referrals from their new competitor. On the flip side we see them trying to stack up as TPA without having the breadth of experience and geographic reach of the established markets. That doesn’t sound so good to me.
Lastly, the world still has plenty of self-insured and loss sensitive insurance programs. The greater shift is in the level of sophistication of the greater insurance buying public. Risk Managers and CFOs now know that they need to pay greater attention to items such as CM per case costs, per-line versus percentage of savings bill review costs and other forensic services. They are also aware of the revenue sharing arrangements that are inherent in TPA/vendor relationships. My advice to Corvel comes compliments of Bette Davis, “you better buckle up, it’s going to be a bumpy ride”.
The melding of TPA services and managedcare techniques is nothing knew-so why all the hype? Just because they are housed under one banner doesn’t make the “secret sauce ” any tastier or even more sellable.
In fact as earlier noted by Riskmgr it almost becomes an easier way to play the old shell game ..move the cost focus away from the typical low per claim fee and bury it in the expense dollars by billing the file(s) that get case management ..slight of hand that again has the customers best interest last and profit gain by Corvel first.
The TPA’s that Corvel purchased have no real credibility behind them as stand alone entities..so when you marry several TPA’s with one former “managed care company” seems the net result is more unknowns and a history of over changing ( Corvel ) customers at play.
One company that seems to be gaining ground with a distinct focus on aligning services with customers needs is Coventry’s WC division.They are shedding unprofitable business, creating an integrated care management business segment that has early intervention, integrated disability capabilities with TCM and FCM case management all housed under one business lead.
The problem with most TPA’s is they all look alike..they all charge alike and they all are struggling to find a niche means of shedding thier commodity like skins..
Aligning customer goals with service commitments that produce better outcomes is where the industry needs to be.
Just look at the web sites of the 3 leading MC companies in the WC space..Coventry, Corvel and Intracorp-which one is even talking about ROI , durations or cost as key value points?
I say Corvel should decide what it wants to be when it grows up..or perhaps they have decided the shell game and being chameleon like is a better enviroment to pad its pockets..until thier customers get smart to them?
I worked for HRMS until the Cor Vel purchase. I quit once the Cor Vel mentality started implementing their requirement of using their CM services.
Having recently viewed the CorVel presentation I have to say the formula is working. If you have been following last week they issued a release stating they were buying back 1.5 million shares. The acquiring of Schaffer a well respected TPA with longevity and a solid reputation was a good move for them. It’s what got them in the door for me. It was noted that CorVel doesn’t have the experience – but with their acquisitions – “they” do. I know many brokers that house TPA’s and utilized CRVL services who were very happy with their service. I don’t know what happened in Florida but CRVL has not dissapointed my company so far and I pray they don’t as I brought them. I think what they want to be is innovative and if you really sit and look at their history – we realize that their innovation has been the key to their succcess – it should continue to be in the future.