Yesterday’s announcement that Coventry had replaced CEO Dale Wolf with former CEO Allen Wise came after an internal review of the company’s performance, a review that didn’t come out too well.
According to Dow Jones, “The move comes after a series of missteps the health insurer took late last year. The company lost nearly half its market value in October after it slashed its 2008 forecast, citing higher medical costs at its commercial and Medicare health plans, unexpectedly low business volume and higher overhead spending.”
As I noted last week, Coventry’s talk at the JPMorgan investor day meeting was given for the most part by CFO Shawn Guertin; other investor meetings and calls were usually split between Wolf and Guertin, or conducted primarily by Wolf. In retrospect, the change is apparent.
The company’s stock value increased somewhat today, rallying after a positive review by Wachovia. It is still quite a bit (about $43) below its 52-week high of $57.22.el
Wolf is one of the smarter and more experienced people in the small group HMO business. He has extensive experience in this space, including a stint running the old Travelers’ small group block back in the late eighties and early nineties (where he was an internal customer; I was responsible for the UR/CM customer relations at the Travelers). He knows this business very well. Wolf also learned a lot about the HMO business from Allen Wise; the former- and current-CEO of Coventry. Wise is well-named.
From listening to Wolf and watching his moves over the last few years, my sense is he got a bit over-confident. He and his colleagues relished investor calls, bragging about their abilities and sense of the business, delighting in describing their business knowledge and disciplined management. As long as the results backed up the talk, it was all good. But self-confidence can look an awful lot like blind arrogance when problems arise – as they did not once but twice last year.
Missing the medical loss ratio last spring stunned analysts, and a somewhat similar mistake in the fall killed whatever credibility remained.
The final blow may have been the announcement last week that earnings would come in below expectations; during the JP Morgan call Guertin and Wolf all but begged analysts to be patient and wait till 2010, when the turnaround plan would show results. Twelve months is way too long for Wall Street, especially when the request is coming from someone who has lost all credibility.
Wolf’s expansion in secondary and tertiary HMO markets, while not universally successful, was smart. The company’s early move into Medicare Advantage and related businesses was also the right play at the time. And his takeover of the work comp managed care market brought solid cash flow, great profits, and the comfort of a non-risk business into the portfolio. In the end, the failure to execute on the basics of the business coupled with an overweening self-confidence made all the good moves irrelevant.
What does this mean to you?
Don’t read your own press clippings.
Jan
27
