The big question is this: is Coventry’s screwup a symptom of a larger issue, or is it specific to Coventry?
As of now it looks like the problems are not industry-wide. This leaves one inescapable conclusion – mistakes by management. Everyone, and every company, makes mistakes at times; what makes this so noticeable is it comes from a company with a history of strong results and from management that is (or perhaps was) extremely self-confident.
Bob Laszewski went back and read Coventry’s Q1 earnings report; here’s his take:
* Their private fee-for-service (PFFS) problem should have been obvious to to their actuaries since Coventry had apparently not issued ID cards to new PFFS customers and claims weren’t coming in as they should have been. The PFFS data had to be too good to be true and that should have been obvious.
* Their explanation for seeing their commercial trend jump by 200 bps is inadequate. They said they are seeing an increase in large claims and hospital claims generally. That is true of other health plans but not to anywhere near the same degree as Coventry. It is not clear to me that Coventry has really gotten to the bottom of all of this.
Bob also quoted extensively from Coventry’s last earnings call. Looking back, the overweening self-confidence is breath-taking – here are a couple excerpts.
“We’ve said for the last three years that the core operating growth rate in a purely commercial business was not as high as some were suggesting. We took some flak for that…Variations in medical cost trends generally do not happen quickly [emphasis added] and given the progress in analytics within the industry, will be pretty closely anticipated in pricing. That doesn’t suggest we will never make a mistake and miss it a little, but that’s far from an underwriting cycle…don’t look for the operating margins of our commercial operations to fall off the table. They won’t. [emphasis added]
Perhaps most telling is this comment from CFOP Shawn Guertin:”those that are close to the details and fundamentals of the business, will succeed over the long haul.”
Kudos to Coventry for getting this news out quickly. While they can, and should, be pilloried for not knowing all the factors that led to the problem, better to get the news out quickly then wait weeks more in an effort to be able to answer all the questions.
My sense is that Coventry’s management has been spending way too much time managing the numbers and nowhere near enough time managing medical. Those are not the same thing. Reflecting back on the calls I’ve listened to and management reports I’ve read, I can’t recall any detailed discussion of disease management, hospital expense management, outpatient utilization, or centers of excellence. These guys (and they are mostly guys) know the numbers better than anyone, but I don’t get the sense that they spend any time looking under the numbers, at medical cost drivers.
Contrast that with Aetna, a company that has invested both dollars and management skill in analyzing, understanding, and addressing their medical cost drivers. Their website and press releases reflect a focus on medical – reform, drivers, new initiatives, getting information out to members, physician ratings. There’s a lot there. And this isn’t just fluff, the work they are doing is deep and targeted at the right issues.
Aetna gets it. So far, Coventry hasn’t. We’ll see if this stumble triggers a rethinking of their approach. If they get defensive, fire a bunch of middle managers (which it appears they are already doing) to get costs under control, and keep doing what they’ve been doing, they will not remain among the industry leaders .
Jun
23
Joe – you make an excellent point here, which is that ‘Coventry’s management has been spending way too much time managing the numbers and nowhere near enough time managing medical’. This is precisely what has driven the health care coverage crisis we are currently experiencing – many insurers have simply been managing the numbers quarter-to-quarter without any real focus on partnering with other stakeholders (patients, physicians and so forth) to actually help control costs and create better outcomes. Those companies (like Aetna) that are engaged in employing strategies that may help produce winning outcomes for most are not seeing the sorts of huge profit margins that companies who manage mostly to financial metrics (like UnitedHealthcare and Humana) have, and that’s a good thing. Modest profitability while tackling the deeper, broader issues of medical care is certainly a much better approach for society at-large (and for sustained earnings without the quarterly roller-coaster) than simply pulling as much profit out of the system as possible.
It is time for the major insurers to re-think their approaches to actually managing medical issues, rather than just the numbers, and re-investing some of those profits back in to health care programs that produce better results for society as a whole.
I would add to Ms Madden’s post that it seems to me that Coventry has spent more time doing deals with TPA’s & other intermediaries, strong arming payers, and forcing providers to accept larger discounts rather than thinking about the implications of their actions (increased utilization, provider resentment, provider drop out, all sorts of passive-aggressive pushback.) Outcomes haven’t been a big priority for Coventry and its partners from where I sit. It’s been all about increasing the cash flow regardless of the ultimate claims cost to the customer. In fact, if you think about it, increased utilization actually benefits Coventry & its partners through increased percentage of “savings” received through keeping a case open longer and increased utilization. It’s important to be profitable, of course. However, it’s the payer who is bearing the cost of Coventry’s aggressiveness. They are already noticing the increased costs and poor service delivery. I think the fallout here could get ugly for Coventry and its intermediaries.
On the other hand, maybe I’m completely wrong.
Just saying.
Coventry inherited a boatload of problems when they took on FHN and Focus. They should have checked into the operations of these two networks before adding their problems which are huge in administering contractual allowances and terms of contracts. Many of our payors did not like fighting with the providers over issues that were started at the network levels. We didn’t have a correctly implemented contract for 6 years and the buck just got passed onto the next guy in the chain. I must admit we have a great paying contract now, but only because of the many messes along the way. It is not surprising there is trouble now for Coventry, I believe many predicted that when they bought FHN and Focus.
Thanks for passing along the info. I’ll take a look at Aetna’s website.
Onehealthpro
Yes, Aetna is smart. They sit back and watch the others mess up and then slash the providers reimbursement in forced participation with them. Or they back door contracts that are already established. They actually are partnering with FHN in some states for Work Comp.
Reality Check, Aetna is not any better then the rest of them.
Amen Provider Side!
To all – thanks for the comments. I’d note that over 98% of Aetna’s business is NOT workers comp,
The main thrust of this post, and the preceding two as well, is Coventry’s group and Medicare businesses. I’d suggest that these are two areas where Aetna is excelling.
On a relative scale, that is.
Paduda
This might not be over it. Watch some of the other companies. Problems, problems. It may not be industry-wide yet, but watch out. All very good comments.
Hmmmm….let me go out on a limb here. Any chance Aetna night be a Paduda client while Coventry has thus far managed to resist the temptation?
Hmmmm – thanks for revealing your true nature, if not your name. It is obvious why you choose to post anonymously; your attempt at character assassination reflects your complete ignorance of who I am and what I do.
Please stick to writing nasty graffiti on the walls of rest rooms.
Paduda