My post yesterday regarding Coventry’s workers comp business generated a few emails – some asking what exactly was my point? For those unwilling to click back, my closing sentence was “The work comp business accounts for 6.2% of [Coventry’s} total revenues.”
My point was workers comp amounts to less than one-sixteenth of Coventry’s total revenue ergo it is not nearly as important/significant/vital as those in the work comp field might think. Yes, it may be inordinately profitable (helped by price increases over the last couple years, but hurt by bargain pricing on the pharmacy business), but it is still only 6.2% of total revenue.
Now lets think about that.
The new CEO, Allen Wise, has publicly stated his desire to focus more closely on the core business (small group HMO). To that end, Wise has slashed spending intended to expand Medicare networks, begun a close examination of SG&A spending in the work comp business, and asked a lot of tough questions about provider contracting, and more specifically, hospital contracting. As reported here earlier, He was quite vocal about his concern over rising hospital costs, and their impact on the HMO medical loss ratio (MLR).
In the work comp business, Coventry has committed to hire (or is already hiring) dozens more staff to help clean up their provider database – a task that is, according to some clients, long overdue. It is also working on several significant upgrades to its bill review application. They are also continuing to try to build a carve-out network comprised of expert physicians, and are reportedly marketing that to several large payers.
These efforts, while laudable and necessary, are also expensive, and will further increase SG&A expenditures.
So, the question you have to ask yourself is, if you were Allen Wise, and you were running a company that was really good at small group HMO, and had kinda lost its way, and you looked at this other business which was generating six percent of your revenue and eating up resources, and distracting your provider relations people and perhaps increasing your HMO hospital costs, what would you do?
What does this mean for you?
If you haven’t figured it out by now…
Mar
5
