I’ll admit it, I’ve been slacking…It’s now five days since Coventry released their last-ever earnings report, and I’m only now posting on it. Mea culpa; too darn much work. Here are a few quick takeaways followed by my perspective on the company and their results this quarter.
(and so much for my title for the Q4 earnings report as the “last ever…”)
- Very solid earnings – up 61% from the prior year quarter. Pretty impressive.
- Revenues were flat after some Medicare Advantage bookkeeping stuff
- Commercial membership – and revenues – are down again.
- Medical loss ratios (MLR) for Commercial risk and Medicaid are looking very good, improving substantially over the previous quarter; Part D is not.
- Workers’ comp revenue is down substantially.
Let’s start with work comp (sorry David Young). 2012 was a tough year – revenue decreased $26 million or 3.3 percent from the prior year. And Q1 was no improvement; revenues declined almost $8 million from the previous quarter; $16 million from the same quarter in 2012.
The main driver was likely pharmacy; the full impact of the loss of ESIS’ PBM business to Progressive was felt; the numbers may also reflect the USPS’ decision to change from Coventry’s FirstScript PBM to PMSI. Because ALL pharmacy revenue counts as “top line”, losing a PBM customer has a disproportionate impact on financials – just as winning one does (First Script won the Selective Insurance business recently).
I’ve said before – and will repeat again – Aetna is NOT going to dump the WC business. If anything, they’ll likely invest in the sector. There’s a bunch of reasons private equity is all over workers’ comp services these days: there’s lots of upside from automation; margins are very healthy; regulatory risk is minimal; and it is a good counterbalance to the group/public sector health plan business.
Overall, decent growth in Medicare Advantage and Part D revenues. Medicaid growth was negative, driven by exiting one market and increasing membership in two others. Overall, Coventry’s public-sector business continues to be the largest of the company’s three business segments – while commercial membership and revenues continue to sag.
This is why Aetna is buying Coventry – public sector expertise, market share, and membership. Mother Aetna has the commercial sector pretty much figured out (as much as anyone does in these pre-ACA-implementation days); they need help in the public-sector health plan markets.
Unless the world ends, this will REALLY be their last earnings report.
What does this mean for you?
Size matters in the post-ACA days – a lot. Expect more mergers and acquisitions, and some big ones too.
Do you expect The other large payers to continue to use Coventry for network and other work comp solutions ?
Scott – yes.
Joe, Please elaborate on your comment that “regulatory risk is minimal?” What do you mean?
there are 51 jurisdictions regulating WC plus the various federal programs. there is one regulating medicare and medicaid. thus if one state changes WC, it only affects that one state.