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

With the appointment of Danielle Lisenby as CEO, Broadspire’s board affirmed the TPA’s focus on medical management, and served notice that the company will compete based on that focus.
Lisenby’s replacement as Broadspire SVP medical management is Erica Fichter, who has been with the company in various roles in and around medical management for years. Fichter’s reputation is one of a steady, seasoned professional with long experience in the industry.
With the re-emergence of medical cost as a primary driver of workers comp losses, the focus makes eminent sense. However, some “traditionalists” may view that focus as misplaced.
They’d be mistaken.
Managing medical is a whole lot more complicated than it was even a decade ago. Selecting and employing evidence-based clinical guidelines, meshing those guidelines with state rules and regulations, coordinating utilization review with bill review, knowing when and where to employ physician advisers, understanding the role of networks, and how and why they can be cost drivers (not cost reducers), employing speciality vendors who know dealing with PT requires a much different approach than managing facility expenses, these all require a level of sophistication and deep knowledge of medical trends that few pure claims execs or underwriters have.
When one adds to this the understanding that “medical drives indemnity”, it becomes obvious why medical management expertise is critically important.
For far too long, medical management has been an afterthought, a revenue generator, necessary evil, vendor-delivered function designed on the fly, poorly coordinated and haphazardly managed.
What does this mean for you?
Time to re-evaluate with an objective eye.

You’ve probably heard about this – an individual – traveling on employer business – was injured while having intercourse, filed a work comp claim, and will receive benefits.
I kid you not.
Now gifts like these show up in a blogger’s inbox rarely – if ever. Like all precious gifts, one has to be very, very careful handling them, lest the gift is squandered, crushed by heavy handling or allowed to slip thru one’s fingers. So, I’ll try to preserve this gift, giving it the care it so richly deserves…
So, you’re in the throes of passion, when the light fixture over the hotel bed comes crashing down, smacking you in the face hard enough to cause some significant injuries. Rather than allow this to kill the mood, you rejoice, knowing you’ll be able to stick your employer with the bill for this unfortunate event.
This actually happened, and no, it wasn’t in California…it was in Australia.
(and no, no Secret Service agents were involved…)
According to press reports, the unidentified woman (a human relations (!) worker) was traveling on business, called a gentleman friend, went out to dinner, came back, and one thing led to another. Well, rather than me trying to explain, let’s go right to the source (which in this case is a man referred to by the victim as an “acquaintance” she’d met a few weeks previously:
“the man said they were “going hard” and he did not know if they bumped the light or if it “just fell off”.
“I think she was on her back when it happened, but I was not paying attention because we were rolling around.”
Wait, did he just say he wasn’t paying attention? Was the telly on too?
This description came to light (pun intended) in testimony before one of several judges who’ve been involved in the case. After the initial judge ruled that the “victim’s” injuries were not compensable, the appellate judge demurred, determining
“If the applicant had been injured while playing a game of cards in her motel room she would have been entitled to compensation, even though it could not be said that her employer induced or encouraged her to engaged in such an activity,” he said.
“In the absence of any misconduct or an intentionally self-inflicted injury, the fact that the applicant was engaged in sexual activity rather than some other lawful recreational activity does not lead to any different result.”
With all due respect, one could argue that yanking a fixture off a wall while in the throes of passion is indeed a “self-inflicted injury”, especially if it results in injuries to the nose, mouth, and teeth, as well as a psychiatric injury, specifically an “adjustment disorder”. (Uh, what adjustment was disordered?)
We may well find out; the work comp folks have 28 days to appeal the ruling.
We’ll keep you posted.

Anthem workers comp bill review, UR, and case management businesses will be/has been sold to ISG, owner of Stratacare and Bunch. The deal has been in the works for some time, with customer discussions occurring over the last couple weeks. Don’t know the details; Anthem did provide the following comment in response to my inquiry:
“”I want to let you know that Anthem Workers’ Compensation is currently working on a number of projects that will best meet the needs of our clients. As soon as we are in a position to provide a detailed response to your question, we will reach out to you first to let you know.”
The fallout from this will affect Xerox/CompIQ; they provide the platform for Anthem’s bill review and I’d expect StrataWare to supplant CompIQ’s technology when contractual and transition issues are worked out. This is a good move for ISG, as it adds bill volume to their bill review platform, cements a relationship with a very solid network partner, and takes share from a competitor. As ISG owns StrataWare, they will see an immediate (or rather as-soon-as-they-move-to-StrataWare) bump up in operating margin as they don’t have to ‘pay’ for access to a bill review system.
It’s also notable that Anthem decided to exit businesses that have operating margins considerably more modest than those enjoyed by networks. Case management and bill review operations generate 15% – 30% margins; well-run networks should more than double those levels as variable costs are so low. The big healthplan company has been looking to expand its workers comp business into additional jurisdictions; this will generate capital that could be used to help pay for that expansion in addition to reducing the number of issues management has to pay attention to.
I did contact Xerox/CompIQ and ISG earlier but did not hear back.
Details to come as they’re made available.