Coventry’s 2011 financial results

Coventry Health announced their full-year 2011 results this morning; I’d have to sum it up as quite positive, driven primarily by big Medicaid and Medicare revenue increases. There’s no question where management is focused – with CMS programs accounting for half of the company’s revenue and essentially all of their growth, management’s focus on the call was almost exclusively on governmental programs with some discussion of the impact of health reform.
Most interesting was the continuation of lower medical utilization and lower medical costs into Q4, especially in the inpatient admissions and days across both Medicare and commercial populations. Chairman Alan Wise did note there’s been a slight uptick in physician utilization, but this was outweighed by the decline in facility services.
Geographically, it is increasingly clear Coventry is focusing on their core Midwest states, with expansions in governmental programs, deals with provider systems, and specifically successful efforts to increase their Medicaid business in Kansas, Missouri, Nebraska, and (not strictly speaking a midwest state) Kentucky.
The commercial business is not faring as well, with essentially flat membership for the year; premium increases resulted in an 8% uptick in revenue. The work comp sector is not growing much – more on that below.
Coventry’s utilization trend was consistent with other payers, yet their overall cost trend is a couple points higher than other health plans at high single digits. This appears to be unit cost driven (no surprise), although CFO Randy Giles did state health reform increased trend by up to 200 basis points specifically from eliminating deductibles and copays for preventive services. Seems like an awful lot to me; I can’t see how preventive care deductibles and copays could possibly amount to 200 basis points in losses.
Coventry re-negotiated their Medco pharmacy contract (for their non-workers comp business) and got better terms and an extension, with Medicare through 2015 and commercial a year longer.
On the workers comp front, the loss of a large customer dropped revenue 3%; word is that was the ESIS contract. Management did note that the $1.1 billion in management services/fee revenue is higher margin and provides cash for investment and acquisition activities.
Charles Boorady did ask the only question about workers comp, asking what drove the loss of the large customer – Mike Barr [sp?]is the new manager of the overall services business so Wise deferred to him. WC is an area they’re looking to grow, as it is unregulated revenue it is a ‘great place to be’. Barr said they lost their second largest group due to a competitive environment, noting there was “nothing specific with WC that created the issue, as a line it runs well.” [paraphrase] He went on to note Coventry is centralizing some operations to consolidate especially in areas where there’s no network.
Management said that while Coventry lost the overall contract, some employers (likely administered by ESIS) are looking to come back and work directly with Coventry, and Coventry is working on those opportunities. In commenting on the work comp sector, Wise said it is a stable and slightly growing business, it is an accident based business and in tough environment it has continued to add revenue slightly and ebitda a bit. In response to a question, Barr said they lost the business on price.
What are the key takeaways?
Governmental business is increasingly important – and that’s where the focus will be for the foreseeable future.
Coventry’s trend seems to be just a tad higher than their larger competitors.
MLR rules and the effect thereof are still working their way thru the system; it will be interesting to see how small employers react when they get their rebate checks later this year.
Expect Coventry’s work comp sector to push hard to increase revenue from existing and add new customers.

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