“it’s all a fee-based business, so actually the workers’ comp business, the more bills there are, the more claims there are, the better that we do.” [emphasis added]
Allen Wise, CEO, Coventry Healthcare, Q1 2009 earnings call
That was the chairman’s response to an analyst question about workers’ comp claim frequency declines – and he’s right. Coventry’s networks, bill review, case management, and other services deliver more revenue and profit when there are more injuries generating more bills.
As plain as the nose on your face, a crystal clear explanation of how Coventry profits when workers comp medical costs go up. By the company’s chair, no less.
(To quote my wonderful bride, Coventry’s incentives are “diabolically opposite” those of its clients.)
In his opening comments, Wise noted “I do feel confident that we’ll be able to improve our operating margins in the short term [emphasis added] and when the employment market returns that we will be able to demonstrate revenue growth. In summary, it’s a good business and we’re absolutely committed to it. The chairman went on to talk about the business bouncing back with the economy. Wise expects a 300 basis point ‘margin opportunity’ in comp over the next 24 months.
He didn’t say where that increased margin was coming from, but the company’s recent layoffs and price increases give a pretty good indication of what we can expect.
Wise also expressed confidence in the new management team, led by David Young. It is quite clear that the work comp unit will operate almost autonomously, with great flexibility and control over their own destiny.
No one from corporate is going to be watching over their shoulders.
According to Wise, “we have given the management group the resources of a large company in terms of IT and some of our favorable network locations but made them more autonomous, and their earnings and their bonus depends on EBITDA targets, and so, I think now that they have better control of their expenses or rather more accountable for their expenses, they’re making better business judgments…”
Can it be sold?
At RIMS I had several conversations with individuals opining that Coventry would sell off the work comp division. I think not. While it would be easy to just quote Wise’s statement of commitment, we all know how corporate-speak works – it could very well be a smokescreen to cover a transaction in the works.
But I doubt it, for a simple reason – what’s to sell?
Bill review – well, Coventry’s application is OK (see upcoming results of bill review survey for more details) but the market is limited, competitors including Medata and Mitchell are doing quite well, Coventry’s BR has always been a low margin business, they recently laid off key support staff and EDS will not support the application after this September.
Case management – seriously? who would buy a CM business these days? Perhaps for 3x ebitda, but perhaps not. This business, on the downslope for years, is cratering.
Medicare Set-Asides – what’s left to sell? What was a $30 million business is now projected to do $5 million in 2009. That, and the overhanging liability of First Health’s ill-conceived ‘guarantee’ program is causing major problems with several customers, as the customers have started to ask for payment on the basis of those ‘guarantees’. Much as they’d like to stick that in a box at the bottom of a very long mine shaft, it’s not going away.
Networks – ah, the crown jewel. Except hospital discounts are fading, the Aetna (which provides the actual network in sixteen or so states) is seeking to renegotiate their contract, and Wise himself has alluded to his concern about using goup health to get workers comp discounts (which has been causing problems since 2003). Even if they could leverage the group business’ buying power, how could they then turn around and sell the ‘workers comp network’ to another entity? Answer – they couldn’t.
FirstScript PBM – the network is accessed thru a group PBM (Caremark), pricing is low, and there isn’t much in the way of value-add. Still, the sales force under Matt Padden is pretty good, and Padden is well respected throughout the industry. On balance, one of the stronger offerings Coventry work comp has.
This is not to say Wise is not actually enthusiastic about comp – even if it is only 6% of Coventry’s total revenues. But he has way bigger fish to fry, and he’s leaving this to run on its own.
Let’s recap.
We have the dominant player in the work comp managed care business being told to increase profitability. We have an express acknowledgment by the CEO that the more bills their workers comp clients have, the better for Coventry. We have several months’ experience with the ‘kinder, gentler’ Coventry.
What does this mean for you?
Price increases, service decreases, higher medical costs.
post script – Once again I reached out to Coventry to seek their views. And once again – no response.

As the biennial Texas legislative session nears its end, it looks like the legislature may pass a bill that would have a dramatic effect on workers comp PPO networks.
According to WorkCompCentral (subscription required):
“HB 223 would regulate “discount brokers” that are engaged in (for money or other consideration) “disclosing or transferring a contracted discounted fee of physician or health care provider.”
A broker could not transfer a physician’s or health care provider’s contracted discounted fee or any other contractual
obligation unless the transfer is authorized by a contractual agreement that complies with the provisions of the bill.
Those provisions include notifying each physician and provider of “the identity of the payers and discount brokers authorized to access a contracted discounted fee of the physician or provider.”
The notice must be provided at least every 45 days through “electronic mail, after provision by the affected physician or health care provider of a current electronic mail address” and posting of a list on a secure Internet website.”
Now that’s a huge change, one that would effectively stop much of the rental network business cold. The dirty secret of the work comp PPO business (well, one of the dirty secrets) is that networks don’t have direct contracts with providers in all states – every ‘national’ PPO uses another network’s contracts in at least a few jurisdictions.
Docs sign contracts in return for direction – they are trading a discount for the promise of more volume. Yet few networks actually drive any significant volume to the vast majority of their contracted physicians.
We’ve been seeing a rapid rise in the volume of litigation from providers contesting reduced reimbursement due to PPO contracts, with three payer clients reporting a significant upsurge in the last twelve months.
What does this mean for yuo?
Find a better, and more sustainable, way to reduce medical expense. The days of cutting costs by slashing provider reimbursement on the basis of some flimsy network contract are rapidly ending.

In my post earlier this week that mentioned developments with Coventry’s bill review services, I incorrectly stated:
Reports are that Coventry will ‘own’ the bill review application source code and related assets as of October 1 2009; what they will do then appears to be up in the air.
Well, that’s not exactly incorrect, as Coventry will own the application after that date, but sources indicate they already own it.
The significance of the 10/1/2009 date is that It marks the day that EDS will no longer support the application. EDS has provided IT support for BR 4.0 and the previous iterations of the program for years; as of October 1 they no longer will.
Which leads rather quickly to the next question – who will?
My assumption is Coventry. However, as I’m all too familiar with what happens when you make assumptions, I’ve reached out to Coventry and asked them what their plans are.
I’m not sanguine about the chances of a response.

RIMS is in Orlando this year, a rather ironic location. The P&C insurance industry is in a bit of a fantasy world these days, with increasing reports of reserve inadequacy (anecdotal to be sure) while the soft market continues with few signs of firming pricing.
Monday was a bit of a blur; back to back meetings in the exhibit hall, interspersed with the inevitable encounters with old friends and colleagues passing on the latest news about who’s moved where and what deals are in the works.
The private equity folks are here as well, scouting for promising companies they can buy and use as a ‘platform’ to build a bigger company. There’s talk of several potential deals in the works – more on those as they develop.
The conference itself looks to be rather sparsely attended. Exhibit hall traffic is noticeably light, and few sessions are filled. This is likely due to a combination of the ‘AIG hangover’; big insurance companies are reluctant to send lots of folks to nice destinations (yes, some do think of Orlando as a ‘nice’ destination); the continuing soft market and financial impact thereof (more than a few insurers and vendors have recently laid off staff); and the lack of solid, new information delivered at the conference itself.
I’m using twitter to post brief comments/observations throughout the day – for updates sign up for my feed (Paduda). Here are a few quick takes from Monday.
The PBM world is consolidating at the top, and growing at the lower end. Some of the newer entrants are seeking to carve out niches based on clinical expertise in pain management (MyMatrixx), innovative pricing (PMOA), a focus on smaller payers (don’t use our name) or a push into the mid-tier (don’t use our name either).
There’s a lot of turmoil around Coventry Work Comp, with recent layoffs in their MSA division and in the IT support area (bill review specifically). Reports are that Coventry will ‘own’ the bill review application source code and related assets as of October 1 2009; what they will do then appears to be up in the air. While they would undoubtedly like to move all their payer clients over to BR 4.0 (their platform) from Ingenix’ PowerTrak (the system used by former Concentra clients) there is significant resistance to that move from PowerTrak users. That resistance, coupled with the expense of maintaining BR 4.0 and the recent layoff of BR support staff are clouding the crystal ball.
I’ll try once again to get a read from Coventry staff as to their strategy and direction; I don’t expect much as my repeated requests for information and dialogue have been met with silence. That’s too bad, as they have been and continue to be the dominant player in the comp managed care business, and their directional changes will dramatically impact their current – and potential – customers…

I’m about half-way through the first annual Survey of Workers Compensation Bill Review, and already there are a few somewhat surprising findings. These are very preliminary, but nonetheless intriguing.
1. The range of pricing for payers using external bill review vendors is broader than I expected, even after accounting for differences in services provided and volume. The range is over four dollars per bill.
2. Payers’ views of bill review vendors are diverse, with some payers enthusiastic about a particular vendor and others disdainful.
3. A majority of respondents voiced concern about their vendor’s inability to keep up with fee schedule and regulatory changes, and the negative impact this has had on the payer.
4. Regarding the use of UCR databases, some respondents are quite concerned, while others (primarily ones who are not using the Ingenix MDR/PHCS databases) are much less concerned. All respondents are well aware of the issue.
5. Most respondents view bill review as unnecessarily complex, difficult, time-consuming and expensive. The perception is much more of the bill intake, triage, review, repricing, and transmittal processes should be automated, with far fewer bills requiring human intervention.
The survey final report will be completed in mid-May; non-respondents can request a public version of the report by sending an email to infoAThealthstrategyassocDOTcom (substitute symbols for CAPS).

Word in the industry is a majority interest in bill review company Stratacare has been sold to a California private equity firm. Stratacare had been in and out of the financing market for over a year, and reports are that the investment firm purchased a majority stake. Several sources report industry veteran Paul Glover is also involved in the deal.
Glover has a long history in the workers comp business, most recently concluding a stint as CEO of Interplan (which merged with the Parker Group in October of 2007). Glover then served on the board of the successor company, HealthSmart.
That’s all for now; details when they become available…