As Coventry prepares to become part of Aetna, Coventry’s earnings report marks the last quarterly report we’ll see from Allen Wise and Co. As par usual, I’ll split my review into two parts; workers comp (of most interest to many readers) and the rest of their business in a future post. There’s no earnings call scheduled, so no Q&A with investors or presentation from management to mull over…
First, overall it was a strong quarter for Coventry with revenues up 10% driven by big growth in public-sector programs; commercial membership declined slightly. Quarterly profits also rose, altho annual profits were down about 4 percent.
Today, it’s work comp.
As far as revenues a tough quarter for the work comp division, actually a tough series of quarters. Revenues dropped each quarter, albeit slightly. However, the total decline was over $14 million over the four quarters, and the year saw a drop of $26 million or 3.3 percent from the prior year.
There were several business losses over the last year that undoubtedly contributed to the drop in revenues. ESIS switched PBMs from Coventry’s FirstScript to Progressive, and moved other services from Coventry as well. The PBM move probably had the largest impact on the WC Division’s financials, as the entire pharmacy spend counts as top line for CVTY thus losing tens of millions of pharmacy has a big impact on reported revenues. The loss may have been a wake-up call to management, as there have been some indications that FirstScript is working to elevate its game. However, it has a ways to go to catch up to the offerings of its competitors, almost all of which have a pretty significant head start.
While that was a significant loss, it was likely a good deal smaller than one that has yet to be felt; the US Postal Service moved their PBM business from FS to PMSI. The deal was done late last fall and it should hit the financials sometime early this year.
To the credit of the WC Division and boss David Young, they were able to add enough incremental revenue thru price increases and smaller account wins to mitigate a good chunk of the loss of the ESIS business and other losses.
So, where does that leave Coventry work comp?
A recent re-shuffle will put the division under former-CFO-now-head-of-National-Business Joe Zubretsky. Interestingly, former Coventry CFO Shawn Guertin is now working for Aetna in a top finance slot. Guertin’s experience with the WC business will likely be the subject of a discussion or two between these two gentlemen…
Zubretsky’s most recent public comments about work comp have been pretty positive. I fully expect Aetna to embrace the business; it has less regulatory risk than their core business, zero insurance risk, and may have some strategic benefit as Aetna looks to the future of disability management. And let’s not forget the strong positive cash flow generated by the division, cash that will be sorely needed by mother Aetna as they continue to prepare for 2014.
Net is we can expect Coventry’s comp division to flourish under Aetna; there may be some changes but I’d expect them to be positive, and we may even see investment in the unit.