Coventry announced their third quarter earnings this week, and much of the news was good. Health plans have been experiencing declining medical loss ratios and strong pricing, resulting in solid profiits and increasing revenues, and Coventry’s results mirror the industry.
Before diving into the FH WC business, a caveat. Coventry is a very well-managed company. They run a very solid business, understand the group health, HMO, and Medicare businesses better than most, and have consistently delivered excellent results.
But, while all is good in group health, Medicare and Medicaid land, the same can’t be said for the First Health workers comp business.
When Coventry bought FH, expectations were pretty high for revenue and profit growth from the WC segment of the deal. In January of this year, CEO Dale Wolf noted that he expected FH WC revenues to grow to $240 million in 2006; unless the fourth quarter is an absolute grand slam, that does not look likely. So far, revenues are generally flat quarter over quarter, and are tracking to hit $209 million…
FH WC revenues
2005 Q2 $54
2005 Q3 $51
2005 Q4 $53
2006 Q1 $51
2006 Q2 $55
2006 Q3 $51
A couple exchanges during the investor call are illuminating. First, WC was not mentioned at all during the management presentation.
Second, when asked by an analyst if there was anything new or different in the competitive landscape in WC, Wolf said “no, nothing, only competitive skirmishes.” (that’s not how I see it)
Third, responding to an analyst question about FH’s quarterly WC revenue trends, Wolf noted that “claims volume leads to fluctuations in quarterly results” ( I may not have that exactly right). I point this out as there was no mention of the afore-mentioned high expectations for FH’s WC business, and the statement seems to imply that those early hopes for solid revenue growth have been, well, modified.
Here’s a summary of the some of the issues plaguing FH’s WC unit.
The business still has no leader.
A very large customer will be moving more than a dozen states from FH’s WC PPO to rival Aetna Workers’ Comp Access.
FH’s rather large investment in the EDS bill review system is yet to pay off, with indications that customers are increasingly frustrated by FH’s inability to meet deadlines for system enhancements. In at least one case, the promised enhancements are more than two years behind schedule.
FH’s Priority Services unit is moribund, with staff departures, uncertain leadership, and little in the way of attention from Coventry folk.
Customers report declining savings (below fee schedule/U&C) over the last nine months, especially in facility costs. This is an interesting contrast to Coventry’s overall strong results in managing facility costs, which have been lower than expectations.
Coventry is a very good company, FH is an under-performing business unit.
Don’t you think the parent company has some responsibility for the business unit? From where I sit it seems that after 2 years Coventry still doesn’t understand PPOs let alone WC. The fact that Coventry hasn’t been able to fill the top spot for their “specialty” business group is also telling. No argument FH is under-performing, but it isn’t going to turn around without some real leadership.
Such a shame. CVTY leadership has pulled FH leadership in to many directions. FH leadership is stressed beyond their abilities. FH leadership, therefore, has not provided steady and strong direction to directors and managers. CVTY leadership does not understand the FH business thereby sending FH staff in directions that are not in the best interest of FH clients. FH employees feel the brunt of the lack of leadership which has caused significant resignations and loss of knowledgeable, experienced staff.
FH WC will likely continue downward. Many historic CVTY VP and Director level staff now are responsible for FH WC products, account management, provider network, and contracting. That historic CVTY staff seem to be “throwing WC under the bus”. Understandable since CVTY staff are familiar with GH and Medicare business and have no WC experience. CVTY rewards performance quite well. Until CVTY holds those CVTY historic VPs and Directors responsible for FH WC performance, no improvement will occur. Has anyone heard rumblings about a CVTY / Concentra meeting regarding possible sale of the FH WC business?