While Coventry’s work comp division revenues were pretty much flat quarter over quarter, the company views the results as better than expected. .
In comments during this morning’s Q1 2012 earnings call, CFO Randy Giles said Coventry had experienced “higher than expected revenue from the workers comp business”; he went on to note that the overall improvement in Coventry’s overall SG&A (sales, general, and administrative) expenses was driven by workers comp (I’m paraphrasing here).
(Coventry broke out work comp revenues separately from other lines this quarter)
While revenues may have been higher than expected, comparing Q1 2012 to the same quarter in 2011, workers comp revenues were flat. As there was considerable growth in the governmental businesses, comp as a percentage of overall revenues declined to 5.2% from 6.3% from Q1 2011. Sources indicate comp is still extraordinarily profitable, with margins at least double overall operating margins of 7.5%.
The impact of recent customer defections has yet to be felt; it remains to be seen if Coventry can make up for the losses by adding new customers and increasing pricing and selling more services to current ones. Given today’s more competitive work comp services environment this may be a ‘heavy lift.’
The macro factors affecting work comp are well-known, but perhaps misunderstood in terms of their impact on Coventry. For example, work comp claim frequency may have leveled off last quarter or perhaps even declined. This affects bill review, network, and UR volume.
Work comp medical costs are increasing due to pharmacy and facility drivers,while disability duration – and attendant medical costs – also looks to be increasing. The consolidation among health care systems and hospital has increased providers’ negotiating leverage, making it ever-harder for WC network staff to squeeze discounts out of providers. These drive bill review and network business.
Coventry PBM FirstScript generates a disproportionately large portion of the division’s revenue, and has been benefiting from industry-wide drug price increases. More detail on this next week.
The earnings call this morning was preceded by release of the Q1 earnings report
Apr
27
