Friday will be Dale Wolf’s last day at Coventry. After diversifying the company into workers comp, Medicare Part D, Medicare Advantage and private fee for service, and individual insurance, he leaves behind a much different Coventry than the one he took over in 2005. Don’t shed too many tears for Mr Wolf, he leaves after earning over $13 million last year alone.
The health world is also much different. Insurance itself is rapidly approaching the unaffordable level, participation rates are dropping (fewer employees signing up at companies that offer insurance), the Bush administration’s massive attempt to privatize Medicare and Medicaid will likely be reversed, hospital costs are exploding, and national health reform is around the corner.
And Coventry’s stock is a quarter what it was a year ago, while solutions to the company’s problems look ever further away.
Lots to consider, but I offer these thoughts.
The CEO is out, two weeks before the company releases its 2008 earnings report. The 65 year old former CEO is back. The company is not looking for a new CEO. Coventry’s commercial business is hamstrung by the factors noted above. It is not doing so well in Medicaid and Medicare growth will likely slow considerably. The company has not shown any expertise in managing care; it appears to rely solely on price increases to manage medical inflation. It has stumbled badly twice in the last year, both times failing to accurately forecast medical costs.
There is some thought that the company may be for sale. I’m one who leans in that direction. Recent news makes it more likely the company will not be sold in its entirety, but rather sell off pieces/markets/health plans. There are just too many moving parts in the 2009 version of Coventry; this complexity would make a comprehensive due diligence effort long and miserable – and given Coventry’s historical inability to predict health costs, potentially inaccurate.
But it is cheap.
Never one to forgo an opportunity to say something that will come back to haunt me in the future, I’m going to go out on a thin and ice-bound limb and opine that Coventry will sell off some health plans, and perhaps the work comp and other specialty businesses (e.g. mental health). A little less likely is a sale of the entire company.
What is unlikely is Coventry is essentially unchanged a year from now.
Jan
28
Joe, Considering the alliance between Coventry and Aetna last year (in regards to using each others contracts for work comp cases) what is the likelihood that Aetna might purchase all of Coventry? I see them as the only potential “deep pockets” suitor on the horizon. Your thoughts?
AETNA MAY BE THE ONLY POSSIBILITY. I CAN’T SEE ANYONE ELSE. AT LEAST, NOT AT THIS TIME. THE QUESTION IS WHETHER COVENTRY WILL BE SOLD TOTAL OR IN BITS AND PIECES.
Dorrence and Sparten – I don’t’ see Aetna buying Coventry. Perhaps individual health plans, but Aetna’s pattern has been to buy expertise in specific areas (see previous posts) and not to take over health plans in their entirety. Remember WC is a very tiny piece of Aetna, and while more significant for Coventry, it is still pretty small potatoes. Given Aetna’s recent de-emphasis of work comp and the split of the WC ops into separate units, I don’t see Aetna deciding to buy the WC unit.
I’d expect the smaller health plans and UHC to be in the hunt. UHC and Wise have a long history and I’d be surprised if they are not already talking.
Paduda
I could see Aetna buying out Coventry’s Medicaid business. Aetna wants to broaden its footprint in that space, and folks that work there have told me that they see a strong Medicaid position as essential to winning in a post-reform environment for a couple of reasons, the most important being, 1) most reform efforts will involve an expansion of Medicaid or Medicaid-like designs; and 2) reform efforts will aim to reduce the uninsured, and the plurality of uninsured persons are most like Medicaid members in their demographics and health status, so an understanding of dealing with that kind of patient is a plus.
The thing about Coventry is that, unless you are “inside” in some way, or have some way to monitor SEC filings instantaneously, you’ll never have any transparency into what the company is doing at any one time because they are the only major insurer that has a strict policy of no media interviews of any kind at any time. They are transparent to Wall Street analysts, regulators, and no one else. At all. Ever.
I’m curious as to why Coventry has brought back its former CEO, rather than promote someone from “the bench.” McDonald’s has been an example of having bench players ready to assume the CEO position, when something unexpected happens.
This means one of three things. First, the Board has no confidence in any of Wolf’s immediate subordinates to run the company.
Second, Alan Wise use to say that Coventry would focus on its core business, government and individuals. Perhaps the Board agrees with Wise and thought someone groomed by Wolf would not make hard decisions about selling pieces of the company.
Or third, the Board hadn’t thought about succession and has no idea who should be running the company, so it turned to Wise. But rather than name him interim CEO, it made him CEO, so that he would be taken seriously by employees and Wall Street. However, Wise may be in the job for only a short time, say 6 to 12 months, while the Board decideds whether to promote someone or search for a CEO outside of the company.
A friend of mine is a business professor. He feels that a new CEO will try to gradually change the culture of a company to fit his style. But when a former CEO unexpectedly returns, he will try to snap the culture back to the way it was during his previous tenure. That will cause problems.
What I think will be interesting is to see how man Executive VPs and Senior VPs that Wolf promoted or hired will stay and how many leave within the next few months.
Their shake out is long over due. Just my humble opinion for all it’s worth. Top level executives there need to open their eyes.
In one of the other articles here, it is mentioned in regards to Coventry being sold – “The company has been hamstrung by operating issues; if these appear to be under control it will likely be in play in 2009.”
HINT – those issues are far away from ‘being under control’. My contention, from where I sit, is that they are in fact much worse.