Coventry Healthcare, Inc. CEO Discusses Q3 2010 - Earnings Call Transcript

Coventry Healthcare (CVH)

Q3 2010 Earnings Call

November 5, 2010 08:30 a.m. ET

Executives

Allen Wise – Chief Executive Officer

Drew Asher – Vice President Business Development

John Stelben – Interim CFO and Treasurer

Analysts

Josh Raskin – Barclays

Justin Lake – UBS

Kevin Fischbeck - Bank of America

John Rex - JPMorgan

Doug Simpson – Morgan Stanley

Charles Boorady – Citi

Coventry Health Care, Inc. (

CVH

) Q3 2010 Earnings Call Transcript November 5, 2010 8:30 am ET

Presentation

Operator

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Previous Statements by CVH
» Coventry Health Care, Inc. Q2 2010 Earnings Call Transcript
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» Coventry Health Care, Inc. Q4 2009 Earnings Call Transcript

Good morning and welcome to the Coventry Health Care’s third quarter 2010 earnings conference call. Today’s conference is being recorded and all participants are in a listen-only mode. Today’s call will begin with opening remarks by the Chief Executive Officer of Coventry Health Care, Mr. Allen Wise, and after a brief forward-looking statement read by Mr. Drew Asher. Please go ahead, Drew.

Drew Asher

Ladies and gentlemen, during this call, we will make forward-looking statements. Certain risks and uncertainties including those described in the Company’s filings with the SEC on Form 10-K for the year-ended December 31, 2009 and Form 10-Q for the quarter-ended June 30, 2010, as may be further updated from time-to-time in our quarterly reports on Form 10-Q may materially impact those statements and could cause actual future results to differ materially from those anticipated and discussed. Allen?

Allen Wise

Good morning and thank you for your interest in Coventry Healthcare. We’re pleased to report another very strong quarter across our seven core businesses. The fundamentals of our business continue to be strong and consistent with the last several quarters. We’re certainly operating in a unique and very favorable trend environment, but the core results over the last few quarters are also due to the focus and execution of this company, and its employees.

We’re operating our businesses better, but more importantly I know there is room for continued improvement. Overall, as you can see in our press release, in Q3 we earned $1.29 which includes $0.05 of private fee for service run out. A significant driver of this very positive result is that both our commercial and our Medicare businesses continue to benefit from unusually low medical trend.

However, as a practical matter, we continue to expect this low level of trend to be transitory. Given the company’s strong performance in the quarter, we’ve updated 2010 full year guidance and provided details in our press release. Let me first touch on a few operational highlights in the quarter, and then more importantly, provide some perspective on the longer term, or as much as I can, given the continuing lack of clarity relating to certain aspects of health care reform in other areas.

Our commercial risk business comprised of both group and individual grew again in the quarter, about 11,000 members, or just under 1% sequentially. Remember that Q2 2010 was the first quarter our commercial group business grew organically since Q4 2007, and we were able to continue that positive growth. This is a result of execution in our local markets and across our company, but just as important, the cost structure and positioning of our products and our health plan markets, all attributes which we believe will be critical for success when implementing health reform exchanges.

As mentioned earlier, the commercial results were nothing short of outstanding. Although we recognize that minimum loss ratio provisions will commence in 2011, with specific rules yet to be finalized, we’re pleased to have a cost structure that enables us to produce this result and a product portfolio that enables to provide an attractive value proposition to our customers.

Also in the area of commercial business, we continue to be pleased with results of our Preferred acquisition in Wichita, which as you recall, closed in February this year, and added approximately 120,000 members and $400 million in an annualized revenue to the company.

Turning to our Medicare Advantage business, it grew slightly in the quarter and had very good results. We look forward to continuing to serve the senior population in 2011 and beyond, and are pleased with the positioning of our Medicare Advantage products and our local plan markets for 2011. Our footprint in 2011 is similar to 2010, as we are offering products in about the same number of counties for 2011. We continue to develop innovative programs in conjunction with provider system partners, and as an example, we’re offering a product in Wichita including a new model of care for Medicare patients whereby there’s a tighter integration of care management, medical homes, coordination of care, data sharing and disease management with our partner Via Christie.

We expect an acceleration of collaboration between providers and payers more broadly, and in our case especially in the Medicare and the Medicaid ABD populations. In Medicare part D, we had another quarter of on track performance. In 2010, Part D has been a consistent performer for the company for the fifth straight year. It will be interesting to see how the landscape evolves in 2011, given the push by CMS to reduce the number of products offered by carriers.

As you have likely seen, we are offering one basic and one enhanced product. We have qualified for 15 auto-assigned regions in 2011 versus 21 in 2010. Once we have more visibility on the open enrollment season ending in December, we will and can provide some more color on membership levels for 2011. For reasons I don’t fully understand, CMS, at the last minute, did not approve our lowest cost Part D product, and as a result our Part D enrollment may suffer in 2011.

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