There was a lot of good news for Coventry Health last quarter, much due to what CEO Allen Wise called “unusually low medical trend”.
That said, 2011’s numbers are not likely to be as robust as this year, and Wise spent a good bit of his podium time discussing the whys and wherefores. While the change in MLR is key, he also noted the company laid off 900 people, has assigned various health-reform-preparation tasks to specific groups, and is hiring (or has hired) three execs to focus on specific functions. Coventry is also working hard to adapt by forming partnerships with provider groups and investing in care management.
As it must.
In his opening comments, Wise noted the company’s ‘cost structure’ will enable Coventry to compete effectively when medical loss ratio requirements are instituted in 2011. MLR will be critical going forward, and if this year’s numbers are any indication, Coventry may have a problem – they’re too profitable. The commercial group operation’s premiums and membership were up, while the MLR was kept at a strong 78.4%. Wise’ sense is that medical trend will remain in the eight percent range. Depending on what the final regulations count as ‘administrative expense’, Coventry may be faced with a need to lower prices as it may be ‘too profitable’.
(Ed note – this MLR requirement is going to be a major pain in the neck for all parties – insurers, consumers, regulators, bloggers. I’m still at a loss as to understand how this is going to help control cost; I can see it adding a lot of administrative cost, which will decrease profitability even more…)
In discussing what has now become a major change in direction and emphasis for the mid-tier healthplan operator. Wise spoke at some length about Coventry’s strategy to acquire small provider-owned health plans, thereby gaining share in secondary and tertiary markets while solidifying relations with delivery and health systems. Here’s an excerpt from his comments.
“Our two acquisitions in 2010 are more than revenue and membership. It’s about our future cost structure and more important, our ability to improve care for members and develop long term strategic relationships with high quality health systems. I think it’s worth a minute to stay with this topic. We feel the best way to care for members and provide the best value proposition is by having collaborative relationships with provider systems and physicians and working to develop affordable products.
These relationships are rooted in collaboration, including shared incentives, quality incentives, data sharing, and in some cases, more focused networks. We have and will continue to build these types of relationships whether as a part of an ACO model, medical home, or variation of both. We believe we’re able to offer our provider partners creativity, flexibility, and local market commitment, whether it’s part of an acquisition or a contractual collaborative relationship or both, in some cases.”
Coventry appears to be seeking to carve out a niche, or perhaps more accurately develop a business strategy based in part on acting as the plan administrator for local health systems.
This is an interesting strategy, and one that may position Coventry well for the future. However, the company may find there just aren’t that many smaller regional health plan acquisition targets, there will certainly be other plans following the same strategy, and margins may not be very attractive in what may be a commodity, transaction-processor business.
While there was solid growth overall, the company’s organic growth was less than one percent, only the second quarter of growth since the end of 2007. There were other mentions of growth, but they were a little puzzling; for example, Wise actually noted the company had added 47 people to their Nebraska Medicaid plan…
Coventry looks to be entering the care coordination business as well in at least one market, although details were scarce.
The company’s workers comp business was mentioned a grand total of once during the call, and then only in passing as the market leader.’
Nov
9
