Coventry Health will be taking a $278 million charge against earnings to cover the company’s fine plus interest and legal costs resulting from last week’s Louisiana appellate courte ruling in a workers comp PPO network case.
On a per-share basis, the bill is $1.18 pre-tax.
the charge will be partially offset by improved earnings from other sectors, including Medicare Advantage Private-Fee-for-Service. According to Zacks, the “2010 EPS outlook was also revised to $1.57−$1.72 in view of the impact of the charge, down from the prior range of $2.35−$2.50 per share. Excluding the charge, Coventry anticipates the EPS outlook to increase by 40 cents per share to range between $2.75 and $2.90.”
Since moving back into the executive suite over a year ago, CEO and Chairman Allen Wise has done an excellent job turning the company around – refocusing the company on its core businesses, shedding underperforming and inefficient operations and profit centers, even revamping the way the company negotiates provider contracts to focus on Medicaid, Medicare, group, and individual health businesses.
The quarter-billion dollar charge is undoubtedly the subject of much discussion at the company’s, executive committee meetings as it will suck cash out of the coffers that would have been used to acquire more regional health plans and help Coventry prepare for the post-reform health insurance world. It is also notable as it comes from a division, workers comp, which heretofore had been a cash machine, generating significantly more profits than its rather modest top line would predict.
For now, Coventry appears to be weathering the storm, recently announcing the acquisition of a couple of regional health plans and predicting continued improvements in operating earnings.
Whether this continues may depend in some part on the outcome of the company’s appeal of the LA case.

Yesterday’s Louisiana appellate court ruling against Coventry’s First Health work comp network is a major blow to comp insurers, employers, and networks in Louisiana, with potential impact in other states as well.
The ruling is here.
The court’s finding supported a lower court’s ruling affirming a state statute requiring PPOs to provide injured workers with PPO identity cards or give notice to providers 30 days before taking discounts. While Coventry will appeal to the state Supreme Court, the appellate court ruled against almost all of Coventry’s arguments, making this an uphill battle for the nation’s biggest work comp managed care firm. I’d also note that the decision itself takes Coventry’s legal team to task for failings to accurately cite evidence in its written appeal, stating the “failure to provide record citations suggests that many of these assignments were interposed only for purposes of delay and confusion.”
Ouch. (no pun intended)
While the finding may be bad enough, the size of the penalty is stunning – Coventry will have to pay $262 million – $2000 for each of the “131,024 instances in the past 10 years when it discounted providers’ charges below the state workers’ compensation fee schedule.” (WorkCompCentral)
Some workers comp networks decided early on to avoid doing business at all in LA; MedRisk (HSA client) left the state after the initial ruling against Coventry along with several other PPO and specialty networks.
Implications
For Coventry, it doesn’t look good. While I’ve taken the company to task in the past for what I perceive to be missteps, and some would argue that they should have pulled out long ago, it’s hard to fault Coventry for believing they could conduct business in LA as they do in most other states, by contracting with providers to deliver discounted care to workers comp claimants. The additional notice requirements in Louisiana are unique to that state; in retrospect all networks should have picked up on this nuance, but in retrospect we all would have sold our stocks two months ago…
It doesn’t look good for employers in Louisiana either. As MedRisk’s General Counsel, Darrell Demoss noted in the WorkCompCentral piece, WCRI data suggests comp medical costs are significantly higher in Louisiana than in other states. Now that the ruling has been upheld, expect insurers and managed care organizations to avoid the state completely in fear that they too could be nailed by class-action suit.
On a national basis, this ruling will likely cause many network vendors and insurers to stop and very carefully review each state’s laws and regulations pertaining to networks, with compliance staffs tasked with doubly ensuring their contracts comply with the letter and spirit of each jurisdiction’s rules and regs. That’s not a bad thing, as it’s a heck of a lot cheaper to pay attorneys and compliance staff than a $262 million penalty.
What does this mean for you?
Sorry, but bad news on a Friday – and a holiday Friday at that.
Except if you’re a comp provider in LA.
Thanks to WorkCompCentral for the heads up.

Newsday broke a story yesterday about a former Islip, NY parks workers who was busted for insurance fraud.
But this isn’t your typical “out on TTD, moonlighting as a handyman” gig.
Nope, John Livingston, out of work due to a comp injury and according to his statements to his employer and adjuster, unable to find employment, was allegedly working as a bouncer at a bar.
A nude bar.
It seems that the $17 grand Livingston collected so far wasn’t enough to sustain his lifestyle and other obligations, so a man’s got to do, what a man’s got to do. In this case, what Mr Livingston had to do was ensure patrons didn’t get unruly or obstreperous. Let’s think about this. Livingston, who was employed as an automotive equipment operator, told the Town he couldn’t work in that job, yet he was able to find work tossing potentially beefy, probably inebriated guys out of a ‘gentleman’s’ club.
Livingston’s previous job must’ve been much more strenuous than your typical truck driving gig, or perhaps he couldn’t sit for long hours, yet could, without too much pain or chance for injury exacerbation, latch onto struggling guys and launch them thru the back door.
Or maybe this was part of his therapy and work conditioning program.
Livingston pled not guilty.
The Empire State has gotten rather forceful about comp fraud, so I’d expect Mr Livingston will come to regret his alleged decision to mess with the system.
Hats off (no pun intended) to the adjuster or employer who ordered the investigation (if in fact this was the result of surveillance) and busted Mr Livingston.