What’s new with CorVel, part 2

Yesterday’s post on CorVel was cut short by the demands of real work; here’s the rest.

Financially, CorVel has had a very mediocre year.  Their most recent quarter saw revenues stay pretty much flat, while earnings dropped 10 cents a share from 68 cents the previous quarter; the last six months saw a decline of the same magnitude. Revenues increased less than a million dollars for the latest quarter, while “cost of revenues: was up about $4 million.  The company attributed that increase to the higher cost of running their TPA operations, which are more labor-intensive than managed care ops, and higher costs for drugs.

The company’s stock price has remained surprisingly high, perhaps due in part to their ongoing stock buyback program.

With a P/E ratio currently above 20, that strategy seems to be working well.

Their latest push appears to be in pharmacy, where they’ve been touting MedCheck’s ability to control costs more effectively than PBMs (disclosure – I work with a number of PBMs thru CompPharma).

Here’s how their most recent press release put it:

CorVel is uniquely positioned in the marketplace to more effectively manage pharmacy costs due to the Company’s integration with its bill review solution. MedCheck?, the Company’s medical bill review software, captures all prescription out of network transactions such as the rising occurrence of physician dispensing. These transactions are generally not managed via pharmacy benefit management (PBM) programs, which traditionally only track point of sale (POS) prescription purchases.

Sounds good, except it’s wrong.

In fact, most PBMs do capture prescriptions from third party billers, mail order, paper bills; a majority see bills from physicians as well (over half, according to the latest data on the subject).

Notably, CorVel’s “PBM” uses one of the huge group health/Medicare PBMs’ pharmacy contracts.  While this can drive great discounts, network penetration (the percentage of scripts that actually go thru the network) is often an issue. (basing this on data I’ve seen from several payers that have used different PBMs).  Thus, they can deliver great rates but for a relatively smaller number of scripts.

Finally, management.

Founder Gordon Clemons Sr is listed as CEO, a position he has held since Dan Starck’s departure earlier this year. Clemons’ son, Victor Gordon Jr., was rumored to be tagged to take over for Senior, however that apparently didn’t work out; Jr. resigned a couple months ago to “pursue personal interests.”

So, what does the future hold for CorVel?

I’ll stay away from stock prices; my portfolio (which doesn’t include CorVel) is ample evidence of my complete inability to pick stocks.

The company is decentralized, with regional execs essentially running regional businesses.  There’s a good deal of autonomy, and some offices are quite good while others are not. The challenge comes in working with national payers who want consistency; that’s tough for any decentralized operation.  Their sweet spot is mid-tier and smaller regional payers, although they do work with at least one national insurer.

The foray into the TPA world has reportedly had mixed results; CorVel’s been able to add business, while losing managed care business from TPAs that now consider – rightly so – CorVel to be a competitor.

As the work comp insurance market hardens, there will be more opportunities for TPAs as employers seek lower costs from self-insurance.  However, buyers are getting more savvy as well, and CorVel’s going to have to be aware of this dynamic; employers are increasingly aware that TPAs make up for low claims fees by increasing revenues from managed care services.   

 

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