For Coventry, 2007 was an excellent year. Total revenue (including group and medicare) came in just short of the $10 billion mark, the commercial group medical loss ratio (MLR) was a stellar 77.3%, and there was modest membership growth in group, Part D and the individual health lines.
The workers comp business, which is under the “specialty business” division at Coventry, also produced solid numbers. Revenues for the quarter were up 4% over the previous quarter, from $156.8 million to $163.1. But this doesn’t begin to tell the whole story.
The Concentra acquisition and AWCA deal have yet to really impact the numbers. Here’s why:
- Starting early in 2008, Coventry will be providing essentially all managed care services to CNA — bill review, PPO network, CM, and pharmacy (PBM) (with some exceptions on the CM business). The PBM business alone should drive around $40 million of top line (although margins will be razor-thin), and the entire deal will increase annual WC revenue for Coventry by about 6%
- Several large clients are/will be renewing their deals with Coventry this year. So far, Coventry has been able to get price increases of two to four points on the highly-profitable PPO business
- As I’ve noted before, Coventry’s heavy-handed sales tactics are causing increasing agita among customers; so far this has not impacted revenues…so far
- That said, several well-placed sources indicate one of Coventry’s larger clients is about to move bill review, case management and utilization management to another vendor.
- The rollout of AWCA is proceeding slowly, and many states and clients have yet to be fully implemented. When they are, the entire access fee will flow thru Coventry and generate increased top line
The net is this – Coventry has been able to push through solid price increases and significantly increase PBM sales; both will add significantly to revenues over the near term. However, their heavy-handed approach is continuing to anger customers.
And yes, the alternative to Coventry is making solid progress…
I’ve heard rumors of another acquisition by Coventry, trying to bring an MBHO in house. I don’t know when they’ll go public with the news.
I am wondering about the Coventry heavy handed approach that you mention. Given that as you indicated margins are razor thin, Coventry can’t be making tons of profit on this part of the business. That said does it not stand to reason that eventually price increases will have to happen for the large national players? I am certainly no expert in the comp space but it seems large customers want a lot and do not want to pay for it. Given the cost to do business eventually companies have to pass along increases. Your thoughts?
JW – there are several posts addressing your question re Coventry’s tactics. Re margins, the post referred to margins for PBM specifically; margins on the rest of the WC business is substantially better, led by PPO.
Spike – the deal to acquire MHNet was discussed in the quarterly call yesterday; it is supposed to close this month. Here’s the transcript url http://seekingalpha.com/article/63812-coventry-health-care-inc-q4-2007-earnings-call-transcript
Joe