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.