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Coventry’s work comp financial results – stellar

Coventry released its financial results for Q1 2009, and the work comp financials are, to say the least, strong.
Revenues were up almost 10% quarter over quarter to $188 million, while gross margin actually declined by a couple points to $130 million. The 10-K states that the growth in revenue was driven primarily by an increase in the company’s work comp PBM revenues.
I’m more than a little surprised by the gross margin number. Coventry’s PBM, FirstScript, has been aggressively expanding, slashing prices to do so. Margins in the WC PBM business have been declining of late, under pressure by the dynamics and market forces of a rapidly maturing market. Yet Coventry’s gross margins are holding up quite well.
It is likely that the company’s well-documented efforts to raise prices on network rental services have helped keep the gross margin number where it is. Kudos to Coventry for this success; it’s taken a lot of work and come despite strong resistance from many clients.
The slight drop in gross margin dollars (understanding it is a larger decline in percentage terms) will likely turn around in Q2, as Coventry has recently laid off a number of managers and directors in the work comp business.
Work comp is – by far – the most profitable business for Coventry. Although comp only accounted for 5.3% of Coventry’s revenues for the quarter, it delivered about 19% of gross margin.
Those are pretty strong numbers, and shows exactly why the new management team is enamored with the business. Any business that produces $520 million in gross margin on $850 in annual revenue is going to have lots of Board support.

Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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