What's New with Corvel
Thursday, December 27, 2012 | 0
It’s been a while since we last looked in to see what’s going on at the managed care company/third-party administrator. Back in May, Chief Executive Officer Dan Starck left to go back to his previous employer, leaving a hole at the top.
Senior staff welcomed former CEO Gordon Clemons, Sr. back, but Gordon junior was rumored to be in the running for the top slot. Word is senior management wasn’t all that excited. More to come…
Financials for the most recent quarter are not great: revenues are essentially flat and earnings down 10 cents per share from 68 cents the prior quarter.
CorVel has been operating as a TPA and managed care firm for several years now. While I don’t have access to any data on their TPA performance, there is data available on their managed care results.
Fortunately, the good folk at Texas Division of Workers’ Comp provide an evaluation of the networks operating in the Lone Star State; CorVel’s is included. The news is not so good. CorVel’s network performance in Texas is, well, poor relative to the competition. With average medical cost per claim almost 10% higher than the next most costly HCN, CorVel’s customers have the highest medical cost per claim of any HCN in the study. Other data points of note:
- 37% of injured employees reported problems accessing care, the second lowest among all HCNs in the study.
- 12% of injured employees reported they had not returned to work, the second worst in the study.
It is possible CorVel’s client base has greater risks and more severe injuries. The 2011 report indicated CorVel had the highest rate of lost time claims of all networks – a whopping 42% of all claims were lost time.
I was talking to an insurance company claims exec about CorVel; this was her/his take: “We have always been concerned about them from an ALAE [allocated loss-adjustment expense] standpoint. They only started the TPA business because the other TPAs were taking all their other bill-review and case-management business away.
Unfortunately, they are not alone when it comes to TPAs who put greater emphasis on allocated loss adjustment expense billing than claims handling. It’s a plague of the industry right now.
As I’ve noted in the past, this is partially the responsibility of employers. They’ve been able to beat up TPAs for ever-lower administrative fees to the point that some TPAs were losing money on claims handling. As TPAs seem to remain solvent, many have looked to increase charges for managed care services, and perhaps CorVel is one that has followed this route.
Financially, CorVel has had a very mediocre year. Their most recent quarter saw revenues stay pretty much flat, while earnings dropped 10 cents a share from 68 cents the previous quarter; the last six months saw a decline of the same magnitude. Revenues increased less than a million dollars for the latest quarter, while “cost of revenues was up about $4 million. The company attributed that increase to the higher cost of running their TPA operations, which are more labor-intensive than managed care ops, and higher costs for drugs.
The company’s stock price has remained surprisingly high, perhaps due in part to their ongoing stock buyback program.
With a price-earnings ratio currently above 20, that strategy seems to be working well.
Their latest push appears to be in pharmacy, where they’ve been touting MedCheck’s ability to control costs more effectively than PBMs (disclosure – I work with a number of PBMs thru CompPharma).
Here’s how their most recent press release put it:
CorVel is uniquely positioned in the marketplace to more effectively manage pharmacy costs due to the Company’s integration with its bill review solution. MedCheck?, the Company’s medical bill review software, captures all prescription out of network transactions, such as the rising occurrence of physician dispensing. These transactions are generally not managed via pharmacy benefit management programs, which traditionally only track point of sale prescription purchases.
Sounds good, except it’s wrong.
In fact, most PBMs do capture prescriptions from third-party billers, mail order, paper bills; a majority see bills from physicians as well (over half, according to the latest data on the subject).
Notably, CorVel’s “PBM” uses one of the huge group health/Medicare PBMs’ pharmacy contracts. While this can drive great discounts, network penetration (the percentage of scripts that actually go thru the network) is often an issue (basing this on data I’ve seen from several payers that have used different PBMs). Thus, they can deliver great rates but for a relatively smaller number of scripts.
Finally, management.
Founder Gordon Clemons Sr. is listed as CEO, a position he has held since Dan Starck’s departure earlier this year. Clemons’ son, Victor Gordon Jr., was rumored to be tagged to take over for Senior, however that apparently didn’t work out; Jr. resigned a couple months ago to “pursue personal interests.”
So, what does the future hold for CorVel?
I’ll stay away from stock prices; my portfolio (which doesn’t include CorVel) is ample evidence of my complete inability to pick stocks.
The company is decentralized, with regional execs essentially running regional businesses. There’s a good deal of autonomy, and some offices are quite good while others are not. The challenge comes in working with national payers who want consistency; that’s tough for any decentralized operation. Their sweet spot is mid-tier and smaller regional payers, although they do work with at least one national insurer.
The foray into the TPA world has reportedly had mixed results; CorVel’s been able to add business, while losing managed care business from TPAs that now consider – rightly so – CorVel to be a competitor.
As the work comp insurance market hardens, there will be more opportunities for TPAs as employers seek lower costs from self-insurance. However, buyers are getting more savvy as well, and CorVel’s going to have to be aware of this dynamic; employers are increasingly aware that TPAs make up for low claims fees by increasing revenues from managed care services.
Joe Paduda is co-owner of CompPharma, a consortium of pharmacy benefit managers, and owner of Health Strategy Associates, an employer consulting firm in Connecticut. This column was merged and reprinted, with his permission, from two posts on his Managed Care Matters blog.
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